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Dow 30 Earnings: The Home Depot – Fiscal Fourth Quarter 2011
The Home Depot (HD – Free Home Depot Stock Report), the world's largest home-improvement retailer, has reported better-than-expected fiscal fourth-quarter (ended January 29th) results, causing its stock to move higher in early morning trading following the release. The company earned $0.50 a share on sales of $16.0 billion in the January term, representing year over year advances of 5.9% and 38.9%, respectively. These figures also compared favorably to our estimates of $15.5 billion and $0.42. Comparable-store sales climbed 5.7% in the quarter, with stores in the United States up 6.1%. Too, the retailer experienced increases in both traffic (the number of customer transactions was up 3.6%) and the average ticket (up 2.4%). Additionally, the gross margin expanded modestly (29 basis points), helped by improvements to the supply chain, and operating expenses as a percentage of sales fell, due to SG&A spending restraint and lower depreciation and amortization. A reduced tax rate and share count also helped, while increased interest expenses were one of the few headwinds. The company's strong fourth-quarter performance resulted in fiscal 2011 sales and share earnings of $70.4 billion (up 3.5%, year to year) and $2.47 (a 21.7% advance), respectively.
Mild winter weather helped drive the top line in the January period, as exterior projects were not hampered by the cold and snow the way they were last year. Sales of maintenance and repair items remained solid, and the holiday period was bolstered by decorative items. Moreover, recent data from the housing market have been encouraging and, in our view, augur well for The Home Depot in 2012 (see below). Specifically, January numbers on building permits (up 19.0%, year over year) and housing starts (up 9.9%) were solid. Although the increases came against easy comparisons, recent figures indicate that this long-beleaguered sector of the economy may finally be stabilizing.
Fiscal 2012, which contains 53 weeks, should be another good year for The Home Depot. Management anticipates opening 11 new stores this year (two in the U.S. and more in Mexico), and comparable-store sales will likely increase by a low single-digit percent (fiscal 2011 comps rose 3.4%). Modest expansion of both the gross and operating margins is probable, and additional stock repurchases ($3.5 billion in fiscal 2012) should bolster share net. On the flip side, the tax rate will likely increase by about 100 basis points, to 37%, this year. All told, we now look for the retailer to earn roughly $2.80 a share on sales of $73.2 billion. If achieved, this would represent year-to-year growth of 13% and 4%, respectively.
Investors should note that we will have to wait until Monday, February 27th, to see how The Home Depot stacked up against its primary rival, Lowe's Companies (LOW).
About the Company:The Home Depot, Inc. operates a chain of 2,252 retail building supply/home improvement “warehouse'' stores across the United States and in Canada, Mexico, and China. The company's average store size is around 105,000 square feet indoor, plus 24,000 additional square feet in its garden centers. The Home Depot's product lines include building materials, lumber, floor/wall coverings, plumbing, heating, electrical, paint and furniture, seasonal and specialty items, and hardware and tools.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.