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Mayank Marwah
Mayank Marwah
Articles (620) 

What Investors Need to Know About Home Depot’s 1st Quarter

Company surpassed earnings estimate but missed on revenue and same-store sales

May 17, 2018 | About:

Home Depot (NYSE:HD) released its first-quarter 2018 earnings on Tuesday that narrowly surpassed analysts' expectations. The company fell shy on the top line and same-store sales. The revenue was dragged by the lower-than-expected revenue from its gardening business.

Spring is a strong season for the company as several shoppers purchase gardening supplies and begin home repair and renovations. Evidently, this is a key period for home improvement retailers, such as Home Depot. Soft revenues and poor same-store sales were reasons enough that triggered shareholders to sell their shares, sending it down 1% on early trading on Tuesday. CEO Craig Menear said:

"This clearly is a garden story for us…The miss in terms of garden was significant for what we planned."

Here's a lowdown on how the company did compared with expectations.

Number crunching

Home Depot declared its quarterly results ahead of the markets. The home improvement store generated diluted net earnings per share of $2.08 on revenues of $24.95 billion. During the same period last year, Home Depot recorded earnings per share of $1.67 on revenues of $23.9 billion. For the quarter, consensus estimates for earnings per share stood at $2.06 on revenues of $25 billion.

Even same-store sales disappointed. Consensus estimates for the metric targeted an increase of 5.6%, while the company recorded same-store sales of 4.2%. U.S. same-store sales improvement was even worse at 3.9% relative to a growth estimate of 5.5%.

For the current fiscal, Home Depot expects sales to increase 6.7% and same-store sales to grow 5%. Earnings per share, on the other hand, is expected to see staggering growth of around 28%, with a solid forecast of $9.31. Analysts are projecting second-quarter revenues to hover around $29.72 billion and earnings per share to come in at $2.84. For the entire fiscal, analysts are expecting the company to report earnings per share of $9.43 on sales of $107.76 billion, Menear said:

"Outside of our seasonal business, we had solid results in all markets and categories and are seeing strong momentum in all lines of business during these first few weeks of May. These trends, as well as a favorable housing and macroeconomic backdrop, give us confidence to reaffirm our sales and earnings guidance for fiscal 2018. "

Home Depot reported an increase of 5.7% in cost of sales to $16.33 billion, partially attributable to the 9% rise in operating expenses to $5.24 billion. The company’s operating income went up 1% to $3.38 billion year-over-year. Net profit was up 19.4% to $2.4 billion. The number of customer transactions declined 1.3% to $375.9 million, however, average sales improved 5.8%. Also, sales per square foot went up 4.5% to $412.03.

Focus on developing e-commerce platform

Home Depot has been putting in effort on building its e-commerce platform, sensing that the road to future growth lies in building a strong digital arena. The retailer is already ahead of its rival Lowe's (NYSE:LOW) in this capacity.

As e-commerce is becoming increasingly popular among customers, it is imperative for the company to put in active efforts to build a well-integrated platform. Home improvement is one of the segments in the retail industry that is somewhat protected from e-commerce giant Amazon (NASDAQ:AMZN), which has not expanded into the space. Despite the lag, Amazon has begun offering more appliances. Home Depot is investing heavily in developing its e-commerce platform and digital sales. Home improvement is one of the best performing retail segments, and if Home Depot is able to set a strong digital platform, it will greatly benefit the company in the long run.

Disclosure: I do not hold any position in the stocks mentioned in this article.

About the author:

Mayank Marwah
A seasoned writer with keen interest in the automotive, technology, telecommunication, retail and aerospace sectors.

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