Home Depot Inc Earnings Model (Lin)
Author: Gene Lin, Published: January 26, 2020 4:25pm, Category: Earnings Preview (Prior to the Fiscal 4Q2019 earnings release)
Summary of Model: Home Depot's key value drivers of this model include the 2019 holiday shopping season and increasing commodity prices. Home Depot has modernized key technological infrastructure as well as introduce new initiatives (BOPIS lockers, etc.) to improve the customer service experience. This allowed the company to capitalize on trends seen during the recent holiday shopping season and is part of why I have a bullish view on 2019Q4 and 2020 projections. I project comparable store sales increases in 2019Q4 to 5.3% due to a great holiday shopping season. Black Friday, Cyber Monday, and Super Saturday (which had a record $34.4bn run) all performed due to a solid economy, a shortened holiday season (Thanksgiving was six days late as compared to 2018), and BOPIS and online store sale services (both of which, Home Depot provides). Furthermore, lumber and copper prices rose during 2019Q4 to pre-2019Q3 levels. As lumber and copper deflation was cited by management as a key reason for falling comp store sales, an increase in 2019Q4 should result in the reverse. The result is a 2019FY comp store sales of 3.6%, which beat management's guidance by 0.1%. For gross margin, 2019Q4 gross margin is up to 34% due to increased lumber and copper prices as well as a stable (rather than escalating) trade war.
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Disclosure of Potential Conflicts of Interest: The author was a part time employee of the company during this time period. He witnessed first hand some aspects which are relevant to the model (such as the holiday shopping season).