Home Depot Inc Earnings Model (Murad)
Author: Rayhan Murad, Published: February 17, 2020 9:52pm, Category: Earnings Preview (Prior to Fiscal 4Q2019 earnings)
Summary of Model: This model projects future earnings for Home Depot (NYSE: HD). Key drivers in this model include the strength of the 2019 holiday shopping season and a positive online retail presence. Home Depot has begun executing on a series of strategic initiatives that modernize the customer experience (B2B website, etc) that create a unique value proposition for Pro and DIY customers alike. Management’s ability to execute on these initiatives are, in part, why I remain bullish on Home Depot’s performance in Q42019 and FY2020. I project comparable store sales to rise to 5.5% in Q42019, thanks to solid sales growth in the holiday season. Despite a shorter holiday season, a strong macroeconomic climate acted as a significant tailwind for the industry as a whole. Online store spending hit record levels in 2019, and I’m confident in Home Depot’s ability to capture a large portion of that spending. Furthermore, investments in Home Depot’s online retail presence are paying dividends now: online traffic growth was healthy, conversion is up, and online sales growth is up. Initiatives such as in-store pickups have been successful as well, as more than 50% of online orders are picked up in stores and 95% of customers rate their experience 5 out of 5 stars. The result of this is comparable-store sales of 3.6% in FY2019, which is higher than management’s expectation by one point. Increased commodity prices in copper and lumber and a phase one trade deal between the United States and China lend themselves to gross margins of 34% in Q42019.
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.