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Home Depot's (HD) Q1 Earnings Beat Estimates, Sales Lag

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The Home Depot, Inc. HD reported solid earnings growth in first-quarter fiscal 2018, continuing with its five-year-long trend of beating earnings estimates. However, sales missed estimates after a positive surprise in the preceding six quarters.

Shares of this home-improvement retailer have declined 2.2% in the pre-market session, following soft top-line results. However, it has returned 9.6% in the past month, outperforming the industry’s growth of 6.5%.

The company posted fiscal first-quarter adjusted earnings of $2.08 per share, which escalated 24.6% from $1.67 recorded in the year-ago quarter. The figure also beat the Zacks Consensus Estimate of $2.06.

The Home Depot, Inc. Price, Consensus and EPS Surprise

The Home Depot, Inc. Price, Consensus and EPS Surprise | The Home Depot, Inc. Quote

Results gained from strength in the company’s core business despite a slow start to spring season. The company’s relentless focus on affording innovative products, boosting interconnected customer experience and driving productivity seems to be paying off. Further, the company continued to reap benefits of a steady housing-market recovery and strong customer demand.

Quarterly Details

Net sales grew 4.4% to $24,947 million from $23,887 million in the year-ago quarter. However, the top line lagged the Zacks Consensus Estimate of $25,202 million. The company's overall comparable-store sales (comps) increased 4.2% while comps in the United States grew 3.9%.

During the reported quarter, comps benefited from 5.8% increase in average ticket, offset by 1.3% decline in customer transactions. Moreover, sales per square-feet rose 4.5%.

Gross profit margin expanded 40 basis points (bps) to 34.5%. In dollar terms, gross profit improved 5.7% to $8,617 million from $8,154 million in the year-ago quarter, primarily driven by higher sales.

Operating income increased 1% to $3,381 million while operating margin contracted 40 bps from the year-ago quarter to 13.6%.

Balance Sheet and Cash Flow

Home Depot ended first-quarter fiscal 2018 with cash and cash equivalents of $3,599 million, long-term debt (excluding current maturities) of $24,244 million and shareholders' equity of $1,687 million. In the fiscal first quarter, the company generated $3,981 million of net cash from operations.


Going into the fiscal second quarter, the company continues to witness strength in all lines of business in the first few weeks of May. This robust momentum, along with a favorable housing market and macroeconomic backdrop, led the company to retain its earnings and sales forecast for fiscal 2018.

Including the impacts of the adoption of ASU No. 2014-09, which pertains to revenue recognition, Home Depot expects sales growth of nearly 6.7% in fiscal 2018, accompanied by 5% increase in comps. Further, the company estimates earnings per share for fiscal 2018 to be up nearly 28% to $9.31.

Zacks Rank

Currently, Home Depot carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the retail sector are The Buckle, Inc. BKE with a Zacks Rank #1 (Strong Buy), Nordstrom Inc. JWN and Builders FirstSource, Inc. BLDR, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Buckle has gained 39% in the past year. Moreover, it delivered an average earnings beat of 9.1% in the last four quarters.

Nordstrom, with long-term earnings growth rate of 6%, gained 21.3% in the past year.

Builders FirstSource has delivered an average earnings beat of 49.9% in the last four quarters. Further, the stock has improved 26.6% in the past year.

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The Home Depot, Inc. (HD) : Free Stock Analysis Report
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