Home Improvement Retailer Home Depot's Q4 2014 Earnings: What You Need to Know

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Mayank Marwah
Feb 28, 2015
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Home Depot (

HD, Financial), the worlds top home improvement retailer, came out with fiscal 2014 fourth quarter and full year numbers on February 24, setting stock price surge of 3.7% in afternoon trading as it posted better than anticipated numbers. The retail mammoth is among the lucky few who have been benefiting from the improving U.S. housing and job market. Average Americans had more disposable income to spend on home renovations and other work and this made way for more business. Lets take a look at the retailers latest earnings release to get some insight about its performance.

How was the retailers performance?
The Atlanta, Georgia based retailer reported sales worth $19.2 billion for the fourth quarter of fiscal 2014, up 8.3% from the prior year period, and the operating income came to $2.2 billion compared to previous years $1.8 billion, translating into an improvement of 24.4% year on year. During the quarter, number of customer transactions improved by 5.1% and sales per square-foot increased 8.1%. All this trickled down to the bottom-line as the company posted net earnings of $1.4 billion, up 36.1% from last year fourth quarters $1.0 billion. Diluted earnings per share came to $1.05, up from prior year periods $0.73, improving 43.8%. However, one point to be noted in this context is, the EPS figure reflects the effect of a pre-tax gain on sale of equity ownership in HD Supply Holdings worth $111 million or $0.05 a share.

Craig Menear, Home Depot President and CEO, mentioned during the earnings call,

Our sales were aided by a strong response to our holiday dcor, gift center, as well as our Black Friday events during the quarter. Our online channel also had a strong performance over the Cyber week period with record traffic and orders.

For Home Depot, this Black Friday turned out to be the biggest sale day in the companys history as buyers spent $500 million in that single sale day.

Turning to the full year performance, Home Depot posted impressive annual sales of $83.2 billion, up 5.5% over previous year. Annual operating income improved 14.2% year on year and came to $10.5 billion and reported net earnings of $6.3 billion, up 17.8% from previous years $5.4 billion. Diluted earnings per share improved 25.3% at $4.71. For the full year 2014, number of customer transactions improved 3.7% and sales per square-foot surged 5.3%

What happened at the physical stores?
For the three months ended February 1, comp sales were positive 7.9%, and considering stores located in the U.S. only, comp sales were positive 8.9%. However, for the full year, comp store sales increased 5.3% and that for U.S. stores increased 6.1%. According to the companys Merchandising EVP Ted Decker, areas that showed strength were, tools, lumber, millwork, lighting, dcor, building materials, kitchen, bath, and hardware. The U.S. market is very crucial for Home Depot since more than 85% of its 2,269 stores are located in the geography, and thats why the decent positive comp store sales figures are much encouraging.

What about online shopping?
Another area that witnessed robust development during the year was the online sales. For the full year Home Depots online sales grew over $1 billion, resulting in a growth of more than 36% - definitely a reason for investors to rejoice. The company has been working very hard to popularize its e-commerce offering and making shopping easier as deliveries are available from its physical stores. During the year almost 40% of all online orders were picked up from the physical stores, suggesting retailers initiatives are working and consumers are finding the option viable. One major reason for the tremendous growth in online sales was the strong performance during the Cyber week, which observed record traffic and orders.

Whats the short term outlook for the retailer like?
Looking forward, Home Depot expects the business environment to support is growth even more. The company expects the recovering U.S. housing market to bolster sales by 4.5%, subject to the unfavourable effect of currency exchange rates. According to a Wall Street Journal report, small contractors account for 3% of Home Depots customers and 35% of its sales.

As the housing market improves, demand from small professional contractors will improve further. Millions of homes in the U.S. are under-maintained and with more disposable income in the hands of the consumers, there are high chances for the maintenance and renovation activities of these homes. All this will add significantly to the companys growth. On the back of such optimistic market conditions, the company expects 2015 earnings per share to range between $5.11 and $5.17 a share. All in all, Home Depot had a good year, and the current year is expected to equally good, or may be even better.

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