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Home Depot’s Performance Has Had More Highs than Lows Lately

Phalguni Soni

The Home Depot: Potential and Prospects in 2016 and Beyond

(Continued from Prior Part)

A recap of Home Depot’s strong performance in fiscal 2016

The Home Depot’s (HD) performance in the first three quarters of fiscal 2016 has been largely upbeat. The company beat the consensus Wall Street analyst estimates on both adjusted EPS (earnings per share) and revenue in all three quarters of the year.

Home Depot’s sales grew by 5.5% YoY (year-over-year) to $67.5 billion in the first three quarters of fiscal 2016. Comparable store sales growth accelerated, with same-store sales growth coming in at 5.1%, up from the 4.6% in the first nine months of fiscal 2015. In 1Q16, Home Depot’s performance was particularly strong, with the company’s revenue growing by 6.1% YoY to $20.9 billion. HD also raised its full-year guidance for fiscal 2016 in 1Q16.

HD’s operating income, on the other hand, grew over 11% YoY to $9.2 billion. Home Depot’s performance was lifted by upbeat results in the United States, boosted by the demand for home improvement products, an improving housing market, and rising consumer employment and incomes. Besides, growth in the number of big-ticket transactions boosted sales. The company’s multiyear productivity enhancement plan also provided some profitability upside.

Rivals post slower growth

In contrast, rival Lowe’s (LOW) increased sales by 4.9% in the first three quarters of fiscal 2016, while Bed Bath & Beyond (BBBY), and Williams-Sonoma (WSM) reported sales increases of 1.7% and 3.4% in their respective last three quarters. Consumer durables firm Whirlpool (WHR) reported sales growth (RPG) of 3.5% and HD supplier Mohawk (MHK) increased sales by 3.8%.

HD, LOW, BBBY, MHK, WSM, and WHR together constitute 27.7% of the portfolio holdings in the SPDR S&P Homebuilders ETF (XHB).

International performance

The strengthening US dollar affected Home Depot’s sales growth in the Canadian and Mexican markets, a factor that’s likely to put the brakes on international performance in the fourth quarter of fiscal 2016 as well. Despite the headwind, both markets have seen sales growth in constant currency terms for several straight quarters. Home Depot derives about 10% of its sales from outside the United States, while the number is far less significant for home improvement player Lowe’s (LOW), which also competes with Home Depot in Canada and Mexico. The next article discusses top-line expectations for Home Depot in 4Q16 and the medium-term outlook.

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