Home Depot Inc. (HD, Financial) recently reported its first quarter results for fiscal 2015 with strong sales on the back of higher spending by the more affluent Americans in a gradually recovering housing market. The company logged 6.1% year-over-year sales at stores operational across the globe for over a year to $20.89 billion, beating the consensus estimate of 5.5% growth in comparable-store sales to $20.81 billion, while net income jumped 15% year-over-year. However, despite the results, Home Depot shares slipped 1.34% to a low of $122.34 at closing bell.
Revenues Grow on Higher Footfalls, Comparable-store Sales
Home Depot reported pre-tax earnings of $1.16 a share for the quarter, beating the consensus estimate by $0.01 a share. The company’s net earnings for the quarter came in at $1.58 billion or $1.21 per diluted share, compared to $1.38 billion in the year-ago quarter. The results were also helped by a tax audit settlement of $71 million. While comparable-store sales in the US climbed 7.1% year-over-year, Home Depot saw its merchandise inventory falling 0.30% to $12.31 billion during the quarter. At the same time, the company’s operating margin expanded 86 basis points to 12.43% of net sales during Q1 2015, while gross margins remained flat year-over-year at 34.3% of net sales. Home Depot also saw online sales growing 30% year-over-year during the quarter. However, online sales still accounts for a small fraction of the company’s overall revenue. The retailer saw more customer footfalls during the quarter, with the number of transactions growing 4.6% compared to the prior-year quarter. Concurrently, Home Depot saw average ticket size for the quarter growing 1.8% year-over-year to $58.60.
Home Depot, along with arch rival Lowe’s Companies Inc. (LOW, Financial) and other privately held rival businesses such as True Value Company and Menard Inc. in the Home Improvement Stores segment, has benefited greatly from the improving housing market in the US. While a recent report suggested that housing starts climbed 20% in April to an adjusted annual rate of 1.14 million, Home Depot also revealed that around half of its customers live in houses valued at more than $2 million.
Outlook for Fiscal 2015
Following the upbeat results, Home Depot also increased its earnings guidance for the full-fiscal 2015. While the company had earlier announced guidance in the range of $5.11 to $5.17 a share for FY2015, the retailer now expects earnings to be up by 11% to 12% and in the $5.24 to $5.27 a share range. This compares to the consensus estimate of $5.23 a share for the full-fiscal 2015. Likewise, revenues for the fiscal are also expected to grow at a higher range of 4.2% to 4.8%, compared to the previously projected growth of 3.5% to 4.7%.
Home Depot, which repurchased shares worth $1.1 billion and paid out dividends of $770 million during the first quarter, up from the payout of $650 million in the year-ago quarter, also announced an additional buyback of shares worth $3.4 billion as part of the company’s plans to repurchased shares worth $18 billion by the end of fiscal 2017.
Final Thoughts
Home Depot posted better-than-expected revenues and earnings for the first quarter of fiscal 2015. The home improvement retailer benefited from what is being seen as a positive rebound in the US housing market, especially in the higher income bracket. Buoyed by the upbeat results, the company also increased its full-fiscal guidance for 2015. At the same time, the company rewarded its investors well with a generous dividend as well as buyback of shares during the quarter. Experts are looking at a healthy 14.4% average annual earnings growth rate for Home Depot over the next five years and peg the company’s stock as a ‘hold’ for now.
