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Good morning investors!

During the ever important earnings season, we publish our “Earnings Recap” — an in-depth summary of the earnings reports for stocks that we cover on a regular basis.

It was a quieter week on the earnings front, but we did some important clarity on the consumer and tariff effects from some major retailers.

Here’s a look at the 4 names we are covering in this report:

• Monday 5/19: --

• Tuesday 5/20: Home Depot and Palo Alto

• Wednesday 5/21: Lowe’s and Target

• Thursday 5/22: --

• Friday 5/23: --

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Home Depot (HD)

Home Depot $HD ( ▼ 0.63% ) posted strong Q1 revenue of $39.86 billion, up 9.4% year-over-year and ahead of estimates by over $500 million. The performance was driven by solid spring seasonal demand, improved customer traffic, and modest growth in U.S. comparable sales. But the beat on the top line was overshadowed by margin compression and higher operating costs. EPS fell to $3.56, missing estimates by 1.1% and down 3% from last year.

🔑 Key Points

• Revenue Hits $39.86B: Surpassed expectations by $560M (+9.4% YoY), powered by resilient spring sales and Pro customer strength.

• EPS Misses Slightly: Adjusted EPS of $3.56 fell short of the $3.60 estimate and dropped –3% YoY despite higher revenue.

• Margins Under Pressure: Operating income grew just 1% YoY, while operating expenses jumped 13%, pushing operating margin down to 12.9%.

• Digital + In-Store Blend: U.S. comparable sales rose +0.2% YoY while global comps slipped –0.3%; customer transactions rose 2% to 394.8M.

• Cash Flow Declines: Operating cash flow fell 21% YoY to $4.3B, and free cash flow dropped 24% to $3.5B — a red flag amid rising inventory investments.

👀 What You Need to Know

Despite beating on revenue, Home Depot’s bottom line took a hit as rising labor and supply chain costs drove operating expenses up 13%, outpacing sales growth. EPS missed by a narrow margin, and margins compressed across the board. The company did not repurchase any shares this quarter, and cash flow was notably weaker. Still, management reaffirmed full-year guidance for 2.8% sales growth, 1.0% comp sales growth, and a gross margin of 33.4%, signaling confidence in the business heading into peak home improvement season.

HD shares are -3.3% so far this week.

Lowe’s Companies (LOW)

Lowe’s $LOW ( ▼ 0.92% ) delivered in-line Q1 revenue of $20.93 billion, matching expectations but down 2% from a year ago as weaker demand and tough seasonal weather weighed on results. EPS of $2.92 beat by a modest 1.4%, but net income still declined 7% YoY. Comparable transactions fell sharply, but Pro and online sales were notable bright spots, helping Lowe’s maintain stability amid housing headwinds.

🔑 Key Points

• Revenue In-Line at $20.93B: Down 2% YoY as seasonal and discretionary categories softened.

• EPS Beats at $2.92: Topped estimates by 1.4% but still fell 5% YoY.

• Margins Compress Slightly: Operating income dipped 6% to $2.5B, with expenses rising 1%. Gross margin held steady at 33.4%.

• Traffic Down, Digital Up: Comparable transactions dropped 3.8%, U.S. comps fell 1.7%, but online comps surged 6%.

• Cash Flow Weakness: Operating cash flow fell 21% to $3.4B, and free cash flow declined 26% to $2.9B.

👀 What You Need to Know

While top-line results were steady, Lowe’s profitability came under pressure as expense growth outpaced cost controls and consumer traffic weakened. The 3.8% drop in transactions points to softer foot traffic, although the company offset some of this with strong online performance and Pro customer momentum. Management reaffirmed its full-year outlook, including flat-to-up 1% comps and EPS of $12.15 to $12.40, showing confidence in a second-half rebound. Average ticket rose 2.1% to $105.20, and Lowe’s continued to return capital to shareholders with $112 million in buybacks. Still, the sharp drop in free cash flow highlights tightening levers as macro pressures persist.

LOW shares are -2.9% so far this week.

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Palo Alto Networks (PANW)

Palo Alto Networks $PANW ( ▲ 0.61% ) delivered another strong quarter in Q3 FY25, with revenue rising 16% year-over-year to $2.29 billion, narrowly topping estimates. Adjusted EPS jumped 21% to $0.80, exceeding forecasts by nearly 4%. Subscription strength, platform consolidation, and continued momentum in Next-Gen Security ARR helped offset a decline in GAAP net income. The company reiterated full-year guidance and raised the midpoint of EPS expectations, signaling confidence in execution.

🔑 Key Points

• Revenue Rises to $2.29B: Beat estimates by $10M; up +16% YoY, driven by Prisma and Cortex growth.

• EPS Jumps to $0.80: Topped the $0.77 estimate; up +21% YoY as operating leverage improved.

• Security ARR Hits $5.1B: Grew +34% YoY, crossing a key milestone in platform adoption.

• Operating Income Up 24%: Operating expenses rose 12%, but margins expanded to 27.4%.

• Remaining Performance Obligations: Rose +19% YoY to $13.5B; strong visibility into future revenue.

👀 What You Need to Know

Palo Alto continues to solidify itself as the cybersecurity platform of choice. This quarter's performance was fueled by robust demand for its subscription-based offerings, especially across cloud and AI-enabled security tools. The company’s focus on consolidation via Prisma and Cortex is clearly resonating, as seen in the $5.1B Security ARR milestone. Management reaffirmed its full-year revenue target of $9.17B–$9.19B and nudged up the EPS range to $3.26–$3.28. With Q4 guidance implying +31% revenue growth, Palo Alto is setting up for a strong close to the fiscal year.

PANW shares are -3.9% so far this week.

Target (TGT)

Target’s $TGT ( ▲ 0.08% ) Q1 2025 results came in below expectations on both the top and bottom lines. Revenue fell 3% year-over-year to $23.85 billion, missing estimates by 1.6%, and adjusted EPS dropped a steep 36% to $1.30 — well below the $1.61 consensus. Store traffic remained weak, but digital momentum, especially in same-day delivery, was a bright spot. Despite margin pressures and reduced guidance, the company highlighted operational progress and raised its capital return efforts.

🔑 Key Points

• Revenue Falls to $23.85B: Down 3% YoY and missed estimates by $380M.

• EPS Declines to $1.30: Missed by 19% YoY; driven by softer sales and operating deleverage.

• Store Revenue Weak: $19.1B, down 5% YoY, as foot traffic declined.

• Digital Sales Grow: Digital revenue hit $4.7B, up 5% YoY, with same-day delivery up 36%.

• Margins Compress: Gross margin slipped to 28.2%, while operating cash flow fell 75% to $275M.

👀 What You Need to Know

Target continues to face headwinds from soft discretionary spending and tighter consumer budgets, especially in-store. Same store sales dropped 3.8% and operating leverage deteriorated despite a 14% gain in operating income, largely driven by one-time settlement benefits. EPS missed sharply as costs outpaced sales. The company bought back $251 million in stock and maintained its dividend. Guidance was lowered to reflect a low single-digit sales decline for FY25, with EPS now expected in the $7.00–$9.00 range, down from prior estimates of $8.80–$9.80.

TGT shares are -3.6% so far this week.

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Mark & Chris

The Investor’s Edge

Disclosure

This is not investing advice. It is very important that you do your own research and make investments based on your own personal circumstances, preferences, goals and risk tolerance.