Home Depot (HD 0.47%) will release its quarterly report on Tuesday, and the home-improvement retailer continued its impressive performance throughout 2013 to take full advantage of improving conditions in the housing market. Yet even as rival Lowe's (LOW 0.93%), industry specialists Lumber Liquidators (LL) and Trex (TREX 1.45%), and other companies that make money in housing benefited from a better industry environment, Home Depot and its peers could all face a new challenge if recent data from the housing market turn out not to be merely a seasonal aberration.

Home Depot has done an excellent job of weathering the choppiness in the housing market in recent years, finding ways to grow even when home prices kept falling after the financial crisis. After a nice recovery in 2013, housing appears to be back for good, but upward pressure on interest rates and negative sentiment from the homebuilding industry have made some fear a coming reversal in Home Depot's fortunes. Let's take an early look at what's been happening with Home Depot over the past quarter and what we're likely to see in its report.

Stats on Home Depot

Analyst EPS Estimate

$0.71

Change From Year-Ago EPS

6%

Revenue Estimate

$17.92 billion

Change From Year-Ago Revenue

(1.8%)

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Can Home Depot earnings keep soaring even if housing pauses?
In recent months, analysts have had mixed views on Home Depot earnings, reducing their January-quarter estimates by $0.02 per share but raising their full-year 2014 projections by a penny per share. The stock has taken a pause from its upward momentum, falling 2% since mid-November.

Home Depot's earnings results have been strong over the past year, and last quarter was no exception. Revenue jumped on same-store sales gains of 7.4% globally, with 8.2% comps in the U.S. reflecting the health of the housing market. Home Depot reported higher average ticket sales and greater traffic. The company also boosted its full-year estimates, projecting 7% growth in same-store sales and earnings growth of 24% from 2012's earnings.

Home Depot has benefited greatly from a rebound in spending on home improvement, spurred largely by pent-up demand and long-awaited gains in average home prices in many key areas across the nation. Combined with the company's efforts to keep costs under control, Home Depot is in an enviable position compared to companies in many industries that are struggling to keep revenue from falling.

Yet a recent set of troubling housing data has called Home Depot's future growth into question. Some hope that poor figures for housing starts and existing-home sales in January are just a symptom of extremely cold weather in many areas of the U.S., but others fear that signs of sluggishness even in areas that weren't affected by weather could point to a slowdown. Moreover, the Federal Reserve's gradual reduction of its bond-buying activity could send interest rates higher, making it harder for homeowners to finance projects. Home Depot isn't letting the data stop it from aggressive plans to hire more than 80,000 seasonal workers for its key spring season, but it'll be interesting to see whether the coming quarter plays out the way the company hopes.

Perhaps more important for the long run, Home Depot is now large enough that its smaller competitors can provide much faster growth. Lumber Liquidators posted impressive results last week, with revenue jumping 23% on a 15.6% rise in same-store sales and impressive margin growth. Decking specialist Trex followed suit this morning by reversing a year-ago loss and reporting 38% growth in revenue. As Trex and Lumber Liquidators get bigger in their niche areas, they could pose a larger threat to Home Depot and Lowe's.

In the Home Depot earnings report, watch to see whether the home-improvement retailer sees itself growing even if the housing market starts to pause. Having successfully driven growth in past housing slumps, Home Depot has the capability to do so again if it can develop a good strategic vision for tapping demand from building professionals and do-it-yourself customers alike.

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