The Home Depot Inc. (HD, Financial) is scheduled to report fourth-quarter 2018 financial results before the opening bell on Feb. 26.Â
A look back
The home improvement retailer's first three quarters of 2018 were terrific as revenue inched up 6% in the first nine months of the year. The company’s stellar performance was powered by strength in the housing market, robust growth in the digital arena as well as a lower effective tax rate. The company projects these trends to continue in the near future.
Mounting transportation expenses, however, coupled with tougher same-store sales, are expected to take a toll on the company’s fourth-quarter earnings.
Earnings and revenue projections
Analysts expect fourth-quarter earnings will be $2.17 per share. Revenue for the same period is projected to be $26.56 billion. Full-year sales are anticipated to come it at $108.23 billion.
Factors affecting results
While softness in the housing market is developing, the company remains optimistic as homes in the U.S. are old and in need of restoration and remodeling, something that can increase revenue for the company. In addition, low unemployment rates and rising wages are indicative of a healthy economy. Consequently, the home improvement retailer is likely to benefit from these favorable macroeconomic conditions.
Shifting gears, the company’s e-commerce performance will be critical to results. Digital sales grew mammothly over the first nine months of the year, owing to heavy online customer traffic. Furthermore, the transaction ticket price in the digital space is three times of what it is in stores, which is why the average revenue the company generates for every square foot of sales space keeps on rising.
A persistent rise in the average ticket size also benefited the company in the first nine months of the year. The same trend is expected to continue in the fourth quarter as well. Pro and digital sales are some factors that affected the average ticket price. Additionally, emphasis on appliances and innovation are important factors that drove Home Depot's ticket price.
Higher transportation costs are likely to have an adverse affect on Home Depot's gross margins. Furthermore, a shift toward online shopping as well as same-day delivery put pressure on the company. As a result, Home Depot projects gross margins will increase 37 basis points, down from the previous estimate of 44 basis points.
Disclosure: I do not hold any positions in the stocks mentioned.
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