What Could Be Expected From Home Depot's Q3 Earnings?

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Nov 18, 2014

The world’s largest home improvement chain, Home Depot (HD, Financial), reports its third-quarter results for the fiscal year today before the market opens. Analysts worldwide have been in a speculative mood trying to calculate the top and bottom line that could be achieved after a couple of data breaches that were reported in the past few months. Even customers and investors are awaiting the results to be out from the company’s desk which will give a clear idea on where the company stands as on date. So, before the actual results are declared, let’s find out what the analyst consensus is on the Q3 earnings and what actually are the investors’ expecting from Home Depot.

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What are analysts contemplating?

The company has just seen a change happening in the top management with Craig Menear taking the CEO position November 1. In fact, analysts are stating that Menear’s 34-year experience in the industry would be crucial for Home Depot’s continued success in the coming quarters. His expertise will aid in facilitating a cohesive relationship between the company’s two most critical channels – its stores and e-commerce presence.

According to FactSet, the company should be reporting earnings of around $1.13 a share for the present quarter, up from $0.95 a share reported a year ago. This might be pretty possible to beat in the case of Home Depot, which has beaten earnings expectations in the past 12 quarters, with only a one-time episode of missing the analyst forecast during this time period.

Just to remind readers, Home Depot management also looks optimistic as it Ă‚ raised the bar for full-year earnings per share to $4.54 a share from $4.52 a share recently in September.

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Sales are also expected to rise to $20.46 billion from $19.47 billion in the year-ago period. As per Retail Metrics, the company might show increase of around 4.7% in same-store sales. Even the company forecast has been optimistic when the management shared this September that it expects the total sales to grow 4.8% over last year’s $78.81 billion, which implies full-year sales of $82.59 billion.

What are investors expecting?

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Though the stock is safely moving upwards and is already up 20% year to date, outpacing the Dow’s increase of 6.3%, investors are eager to find out how much of an impact the data breaches have had on the top and bottom lines of the company. Needless to mention, they want to understand whether the data breach in September and the next one the company disclosed a few days back has hurt the sales and put Home Depot on the back foot compared to its nearest rival, Lowe's (LOW, Financial).

Amid encouraging activity happening in the housing market, the data breach news just flew in before the start of the holiday season. Investors are worried that it might take a toll on sales due to lost consumer confidence and additional costs of security restoration and recuperation in Q3. Investors are reminded of Target’s (TGT, Financial) 46% year-over-year drop in profits in the Q3 2013 after its data breach incident was disclosed. So all fingers are currently crossed for investors still invested in Home Depot.

Also, it is to be remembered that the data breach incident will apparently lead to rising costs for the company – Home Depot will possibly incur around $62 million in expenses to cover the investigation, credit monitoring service, call center staffing and other steps to be taken after this terrible event which has raised a question mark about the future of Home Depot.

Investors are further worried that the damage done might also spill over to the next fiscal year leading to fall in share price and continued drag in revenue.

Last word

While analysts are still optimistic on the company’s results, investors have chosen to remain cautious till the actual results are made public. Time is ticking and the results that might soothe investors’ nerves would be out in a few hours. Let’s stay tuned and keep an eye on what the actual numbers have to say.