Home Depot Inc Earnings Model (Patel)
Author: Vandan Patel, Published: February 17, 2020 9:47pm, Category: Earnings Preview (Prior to Fiscal 4Q2019 earnings)
Summary of Model: In Q3, Home Depot beat earnings by $0.01 ($2.53 vs. $2.52 expected). Yet, they missed on revenue ($27.22 billion vs. 27.33 billion expected) and comparable store sales (3.6% vs. 4.7% expected). This resulted in shares dipping 5% after the report went public.
Home Depot reaffirmed its guidance fiscal 2019, 52-week year compared fiscal 2018, a 53-week year, as follows total sales growth of approximately 1.8% and comparable sales growth for the comparable 52-week period of approximately 3.5% and diluted earnings-per-share growth of approximately 3.1% from fiscal 2018 to $10.03.
In addition, Home Depot is providing a preliminary fiscal 2020 outlook projecting total sales growth of approximately 3.5 to 4.0%, comparable sales growth of approximately 3.5 to 4.0%, operating margin of approximately 14.0%, and return on invested capital of approximately 45.0%.
The market this past year has soared as consumer spending has been strong and stable. I believe this will factor into a Q4 rebound from a poor Q3 performance in comparable store sales and revenue. Home Depot’s long-term strategic investment initiatives are being seen as sales from digital expansion increased online sales by 22% from a year earlier. I believe this will assist strong results in Q4 results as revenue from Black Friday and Cyber Monday sales will be strong. As business get more digital, Home Depot is taking the right steps by investing in their online platforms. I believe these results will compound over time and gain momentum for long term growth. The focus on the customer and enhancing customer experience is a long-term strategic move to keep Home Depot competitive and retain growth.
I believe comparable store sales is one of the most important metrics to perceive a company’s success. In Q3 comp sales growth was negatively affected because of lumber price deflation which drove numbers down by 0.65% or $175 million. Fortunately, lumber prices have been on the uptrend during 4Q, which I believe will play a big role for driving comparable sales growth. On top of this, I believe they will adapt to tariff changes, keep costs low, and manage operating costs effectively resulting in a strong performance.
Home Depot reaffirmed its guidance fiscal 2019, 52-week year compared fiscal 2018, a 53-week year, as follows total sales growth of approximately 1.8% and comparable sales growth for the comparable 52-week period of approximately 3.5% and diluted earnings-per-share growth of approximately 3.1% from fiscal 2018 to $10.03.
In addition, Home Depot is providing a preliminary fiscal 2020 outlook projecting total sales growth of approximately 3.5 to 4.0%, comparable sales growth of approximately 3.5 to 4.0%, operating margin of approximately 14.0%, and return on invested capital of approximately 45.0%.
The market this past year has soared as consumer spending has been strong and stable. I believe this will factor into a Q4 rebound from a poor Q3 performance in comparable store sales and revenue. Home Depot’s long-term strategic investment initiatives are being seen as sales from digital expansion increased online sales by 22% from a year earlier. I believe this will assist strong results in Q4 results as revenue from Black Friday and Cyber Monday sales will be strong. As business get more digital, Home Depot is taking the right steps by investing in their online platforms. I believe these results will compound over time and gain momentum for long term growth. The focus on the customer and enhancing customer experience is a long-term strategic move to keep Home Depot competitive and retain growth.
I believe comparable store sales is one of the most important metrics to perceive a company’s success. In Q3 comp sales growth was negatively affected because of lumber price deflation which drove numbers down by 0.65% or $175 million. Fortunately, lumber prices have been on the uptrend during 4Q, which I believe will play a big role for driving comparable sales growth. On top of this, I believe they will adapt to tariff changes, keep costs low, and manage operating costs effectively resulting in a strong performance.
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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.