HD Stock: Home Depot: Beating My More Aggressive Expectations

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Summary

As I had anticipated last week, Home Depot delivered another impressive set of results

The quarter’s natural disasters impacted the financial performance, which I believe would have still been quite solid regardless of the events.

I believe HD might react more timidly than an otherwise solid beat-and-raise would usually suggest, but I continue to appreciate the stock

Home Depot (HD) continues to stand out in the brick-and-mortar retail world. This Tuesday morning and as I had anticipated last week, the company delivered another impressive set of results, this time aided by hurricane recovery efforts in the United States.

Revenues of $25.0 billion were substantially better than consensus and my own estimate of $24.5 billion, the largest top-line beat since 4Q15 and the 13th of the past 14 quarters. Comps came in very strong, 250 bps above consensus, driven primarily by a robust U.S. market that was hit by severe weather, wild fires and earthquakes in 3Q17. I calculate that the top-line results were responsible for a nine-cent uplift to EPS compared to my expectations (see table below). Excluding hurricane-related sales, I estimate that the revenue beat would have been only about half as pronounced, but still impressive nonetheless.

Source: DM Martins Research, using data from company reports

Gross margins of 34.6% came in exactly where I expected. But profitability could have been better if not for the fact that “sales related to the hurricanes were struck at a lower margin rate than the company average”. I believe average ticket price, up +5.1% and well ahead of inflation, helped to keep gross margins afloat.

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