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Home Depot Falls Sharply After Release of 3rd-Quarter Results

Shares of The Home Depot Inc. (NYSE:HD) fell sharply by $9.42 (or 3.94%) per unit to a price of $229.56 in premarket trading on Tuesday. The company missed analyst forecasts on third-quarter revenue by $290 million, having posted $27.22 billion. The top line grew 3.5% year over year.

Third-quarter GAAP earnings of $2.53 per share matched consensus estimates. GAAP earnings per share increased by 0.8% from the same quarter of 2018.


The Home Depot said that comparable store sales rose 3.6% and that comparable U.S. store sales rose 3.8%.

Further, the number of customer transactions year over year went up 1.5% to 400.9 million, the price per average ticket climbed 1.9% to $66.36 and sales per square foot increased 3.5% to $449.17. The gross profit margin rate deteriorated 31 basis points to 34.48% of net sales in the third quarter of 2019 from 34.79% of net sales in the third quarter of 2018. The operating income margin declined as well, dropping 21 basis points to 14.5% from 14.71% the previous year. The involution of the operating profit margin took place despite selling, and general and administrative expense rate improved 10 bps to 18.2% of net sales.

Home Depot operated a total of 2,290 stores in the third quarter of 2019 versus 2,291 stores in the second quarter of 2019, 2,289 stores in the first quarter of 2019 and 2,286 stores in the same quarter of 2018.


"Our third quarter results reflected broad-based growth across our business, yet sales were below our expectations driven by the timing of certain benefits associated with our One Home Depot strategic investments," chairman, Chief Executive Officer and President Craig Menear said in a statement, adding: "We are largely on track with these investments and have seen positive results, but some of the benefits anticipated for fiscal 2019 will take longer to realize than our initial assumptions."



For full fiscal 2019, the company guided for 1.8% growth in total sales versus the previous 2.3% growth rate and 3.5% growth in comparable-store sales compared to the prior 4% growth rate from full fiscal 2018. Forecasters projected a 2.4% growth in total sales to $110.76 billion. According to the company's expectations, we should witness a 3.1% rise in earnings per diluted share to $10.03 versus consensus estimates of $10.13.

Most likely, lower company guidance on total sales growth and earnings per share for the full fiscal year 2019 has created some extra pressure, causing the sharp drop in the share price in premarket trading.

The balance sheet of The Home Depot had nearly $2.2 billion in cash and equivalents and $27.29 billion in total debt as of Nov.3. Total merchandise inventories were valued $15.71 billion, up 6.5% year over year. Total equity was a deficit of $1.082 billion.

The Home Depot closed at $238.85 per share on Monday for a market capitalization of $261.58 billion. The stock price has risen 39% so far this year through Nov. 18 to above the 120-, 70- and 50-day simple moving average lines.

The 52-week range is $158.09 to $239.31.

Analysts in Wall Street issued an overweight recommendation rating for shares of Home Depot. Analysts have also produced price targets averaging $239.39 per share. The average target price implies only 0.23% upside within 12 months.

On Sept. 19, Home Depot paid a $1.36 quarterly cash dividend per common share to its shareholders, generating a 2.29% forward dividend yield and a 2.16% trailing 12-month dividend yield versus the S&P 500 yield of 1.83%. Yields are as of Nov. 18.

Disclosure: I have no positions in any security mentioned.

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This article first appeared on GuruFocus.