Home Depot Inc Earnings Model (Dharmesh)
Author: Janushkaa Dharmesh, Published: February 2, 2020 7:45pm, Category: Earnings Preview (Prior to the Fiscal 4Q2019 earnings)
Summary of Model: The three driving forces behind Home Depot's earnings forecast are the annual holiday shopping season, the increase in the prices of goods, and the assumption that the new strategic initiatives will accelerate sales during this final quarter. Although Home Depot's operating expenses will round out at a quarterly high for the 2019 fiscal year, the expenses will be counteracted by the benefits of the modern technological initiatives, such as BOPIS, which aim to improve customer service experience at brick-and-mortar stores by reducing wait times and improving customer relations. The initiatives allowed Home Depot to capitalize on the recent holiday shopping season. Due to a stable economy, BOPIS and online services and a quick holiday season, Black Friday, Cyber Monday, and Super Saturday generated $34.4 billion in sales revenue for 2019. The record-high spending is another reason why I have a bullish view on 2019Q4 and 2020 projections. I believe comparable-store sales will be at 5.7% for 2019Q4. Finally, lumber and copper prices rose during 2019Q4 to rates seen earlier in the year. Since management cited lumber and copper deflation as a key reason for falling comp-store sales, an increase in 2019Q4 should result in high comp. store sales for that quarter. I believe that an increase in comp-store sales for 2019Q4 will yield a 3.7% comp-store sales for the entirety of 2019. The estimate beat’s management’s guidance by 0.2%. Ultimately, I predict that the FY2019E gross margin will be 33.8% due to the high lumber and copper price.
Disclosure of Potential Conflicts of Interest: The author of this article/model has no financial investment or other conflict of interest related to the subject company or other companies discussed. Any views made or implied in the content represent the author’s opinions.