Home Depot (HD) Beats on Sales & Earnings in Q3, Retains View
The Home Depot, Inc. HD has posted better-than-expected earnings and sales in third-quarter fiscal 2022. The top and bottom lines also improved year over year. The company’s results have benefitted from strong growth in project-related categories across the business. HD gained from continued strong demand for home improvement projects, robust housing market trends and ongoing investments. HD reiterated the guidance for fiscal 2022.
Shares of this leading home improvement retailer declined 2.1% in the pre-market trading session despite the strong results. Home Depot’s gross margin continued to contract, which is expected to have resulted in a fall in its share price. The negative sentiment could also be attributed to lower customer transactions.
The Zacks Rank #3 (Hold) stock has lost 6.3% in the past three months compared with the industry's decline of 3.6%.
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Home Depot's earnings of $4.24 per share improved 8.2% from $3.92 registered in the year-ago quarter. The bottom line surpassed the Zacks Consensus Estimate and our estimate of $4.11.
Net sales advanced 5.6% to $38,872 million from $36,820 million in the year-ago quarter and beat the Zacks Consensus Estimate of $37,970 million. The top line also surpassed our estimate of $37,823.8 million. Sales benefited from the continued robust demand for home-improvement projects, with strength in project-related categories.
HD’s overall comparable sales (comps) grew 4.3%, with a 4.5% improvement in the United States. In the reported quarter, comps were aided by an 8.8% rise in average ticket. This was partly offset by a 4.3% decline in customer transactions. Sales per square foot improved 5.3% in the reported quarter.
In dollar terms, the gross profit increased 5.3% to $13,224 million from $12,563 million in the year-ago quarter, primarily driven by robust sales growth. This was partly offset by a 5.7% increase in the cost of goods sold. The gross profit margin contracted 10 basis points (bps) to 34% from 34.1% in the year-ago quarter.
The operating income increased 6.1% to $6,148 million, while the operating margin expanded 10 bps to 15.8%. The operating margin was aided by top-line growth, which was partly negated by gross margin contraction and higher SG&A, and other operating expenses. Total operating expenses increased 4.6% in the quarter.
The Home Depot, Inc. Price, Consensus and EPS Surprise
The Home Depot, Inc. price-consensus-eps-surprise-chart | The Home Depot, Inc. Quote
Balance Sheet and Cash Flow
Home Depot ended third-quarter fiscal 2022 with cash and cash equivalents of $2,462 million, long-term debt (excluding current maturities) of $41,740 million, and shareholders' equity of $1,298 million. In the first nine months of fiscal 2022, the company generated $10,012 million of net cash from operations.
In the first nine months of fiscal 2022, HD paid out cash dividends of $5,856 million and repurchased shares worth $5,136 million.
Fiscal 2022 View
Home Depot has reiterated its guidance for fiscal 2022. HD anticipates comps growth of 3% for fiscal 2022. The operating margin is estimated to be 15.4%. Net interest expenses are expected to be $1.6 billion. It expects an effective tax rate of 24.6%. HD estimates earnings per share growth in the mid-single digits for fiscal 2022.
3 Stocks to Consider
We highlighted three better-ranked stocks in the Retail - Wholesale sector, namely Tecnoglass TGLS, GMS GMS and Wingstop WING.
Tecnoglass manufactures and sells architectural glass and windows, and aluminum products for the residential and commercial construction industries. TGLS currently sports a Zacks Rank #1 (Strong Buy). The stock has declined 5.3% in the past three months.
You can see the complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and earnings per share suggests growth of 40.5% and 76.4%, respectively, from the year-ago reported figures. TGLS has a trailing four-quarter earnings surprise of 26.9%, on average.
GMS, a distributor of wallboard and suspended ceiling systems, currently flaunts a Zacks Rank #1. GMS has a trailing four-quarter earnings surprise of 10.8%, on average. The stock has declined 9.5% in the past three months.
The Zacks Consensus Estimate for GMS’ current financial-year sales and EPS suggests growth of 10.8% and 10.2%, respectively, from the year-ago reported figures. GMS has an expected EPS growth rate of 10.7% for three-five years.
Wingstop, which franchises and operates restaurants, currently sports a Zacks Rank of 1. The company has a trailing four-quarter earnings surprise of 5.8%, on average. Shares of WING have rallied 23.7% in the past three months.
The Zacks Consensus Estimate for Wingstop’s current financial-year sales and earnings per share suggests growth of 25.3% and 22.2%, respectively, from the year-ago reported numbers. WING has an expected EPS growth rate of 11% for three-five years.
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