Home Depot (HD, Financial), the world's largest home improvement specialty retailer, reported strong third-quarter results and is poised to grow. The third quarter witnessed increase in sales and positive comparable store sales (up 5.5%). It also updated its financial guidance. There were increases in both tickets and transactions.
Third-quarter performance
Sales during the quarter were $23.2 billion (an increase of 6.1% from $21.8 billion in the prior-year quarter).
Gross profit during the quarter increased to $8 billion ($7.5 billion in the prior-year quarter).
Operating income increased to $3.3 billion (an increase of 11.4% from $3 billion in the prior-year quarter).
Net earnings during the quarter increased by 14.1% and were around $2 billion ($1.7 billion in the prior-year quarter).
Basic EPS during the quarter was $1.61 ($1.35 in the prior-year quarter).
Diluted EPS during the quarter was $1.60 ($1.35 in the prior-year quarter).
Number of customer transactions during the quarter was 380 (371.1 in the prior-year quarter).
Average ticket during the quarter increased to 59.78 (58.03 in the prior-year quarter).
Cash and cash equivalents as of Oct. 30, 2016 were $3.6 billion.
It had 2,276 retail stores in all 50 states at the end of the quarter.
Dividend
The company declared a third-quarter cash dividend of 69 cents per share.
Guidance
| Â | 2016 |
| Sales | To increase by around 6.3% |
| Comp sales | To increase by around 4.9% |
| Diluted earnings per share | To be around $6.33 (an increase of 15.9% from fiscal 2015) |
Focus
- Disciplined capital allocation.
- Innovation.
- To be a low-cost provider.
- Cost curtailment.
- Optimizing supply chain network.
- Improving inventory, transportation and distribution productivity.
Conclusion
It has more than 2,200 retail stores spread over the U.S., Canada and Mexico, employing more than 385,000 associates. More than 40% of its online orders are picked up inside a Home Depot store after the introduction of the Buy Online, Pick Up in Store and Buy Online, Ship to Store programs. It caters to a wide variety of building materials, home improvement products, lawn and garden products along with providing a number of services.
It operates in a highly competitive environment. It faces stiff competition from online and multichannel retailers. It is trying to be a low-cost provider to combat the competition. It is a strong stock and focusing on productivity contributed to double-digit earnings-per-share growth during the quarter.
It is continually investing in business to drive productivity and efficiency. The company expects to grow sales to $101 billion and a 14.5% operating margin with a 35% return on invested capital. It has plenty of opportunities ahead. It is committed to the three-legged stool strategy in a bid to drive and productivity. It is constantly evolving to cater to the customers' changing preferences and to be a best-in-class interconnected retailer.
During the quarter, it increased its sales. The company is known for its dividend increases. The third quarter marked the 119th consecutive quarter the company has paid a cash dividend. It is targeting a 50% payout of its net earnings to the shareholders. It is increasing sales and earnings consistently. It increases the guidance also regularly.
Adding this company will reap shareholder returns.
Disclosure: I do not hold any position in the company.
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