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Will 2017 Be a Tough Nut for Home Depot to Crack?

- By Sangara Narayanan

The Home Depot Inc. (HD), the world's largest home improvement store, scaled all-time highs after the company reported fourth-quarter results that beat market expectations on revenue as well as earnings.

Wall Street was expecting Home Depot to post $21.8 billion in revenues with adjusted EPS of $1.34, but the company surpassed both projections, posting $22.21 billion in revenues with adjusted EPS coming in at $1.44 per share.

Home Depot's comparable store sales improved by 5.6% in 2016, recording $94.6 billion in sales for the year - a growth of 6.9% compared to the previous year. Comparable store sales in the United States grew by 6.2% during the year, and Home Depot expects the good times to continue based on its comparable store sales growth forecast of 4.6% and six new stores expected to open during the year.


Comparable store sales accelerated during the second half of the year as Home Depot's U.S. comps during the last three quarters read 5.4%, 5.9% and 6.3%. Total transactions during the fourth quarter grew 2.8% while average ticket grew 2.9%. Home Depot was able to pass on some price increases, while customers also spent more than they did last year. The uptick in transactions is a clear sign that underlying demand for home improvement products has been improving rather than slowing down, as some expected.


U.S. housing starts stayed around the 1.15 million mark throughout the first half of 2016 before pushing to higher levels during the second half of the year. The housing market has stayed resilient and, looking at Home Depot's forecast, the company expects market conditions to be favorable in 2017. Sales grew 6.9% with comps improving by 6.2% in 2016. Home Depot expects sales and comps to grow by 4.6% in 2017.


So a good 2017 is in the cards, but matching 2016's performance looks like it is going to be a task for the home improvement retail giant.

Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.

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This article first appeared on GuruFocus.