Shares of The Home Depot (HD - Free Home Depot Stock Report) rose modestly to an all-time high after the world's largest home-improvement retailer announced fiscal first-quarter (ended April 30th) results that were better than expected. The top line increased nearly 5% from a year earlier, to $23.887 billion, slightly ahead of our $23.625 billion forecast. Growth was broad based across categories and geographies, as seasonable weather resulted in more normalized Spring selling than had been seen recently. Growth in sales to professionals outpaced those to DIY shoppers, and ongoing efforts to bolster the retailer's digital capabilities and interconnected retail drove a 23% increase in online revenues. All told, comparable-store sales rose 5.5% (up 6.0% in the United States); the number of customer transactions climbed 1.6%; the average ticket was up 3.9%; and sales per square foot jumped 4.6%.
In terms of profitability, the gross margin narrowed slightly (nine basis points) due to a change in the product mix, although operating expenses decreased as a function of the top line. A lower tax rate and ongoing stock repurchases also supported per-share comparisons. In fact, share net came in at $1.67, up 16% from a year earlier and $0.07 ahead of our call.
The near-term outlook is also favorable. Leadership noted that sales in the first half of May had been "very good", and we look for the same factors that drove April-period results to keep the momentum going. GDP forecasts have been mixed, as management noted, but housing (home price appreciation, household formation, housing turnover, etc.) has been a bright spot in the U.S. economy, a trend we expect to continue. On the other hand, the gross margin will likely narrow a bit this year from the comparable fiscal 2016 figure, and some foreign exchange pressure is expected. Overall, however, fiscal 2017 should be another very good year for The Home Depot. Sales and comps are both likely to rise 4.6%, and earnings per share are now pegged to climb 11%, to $7.15 a share, matching our previous forecast.
As for the stock, we continue to like this blue chip for conservative accounts looking for exposure to the housing market.
About the Company: The Home Depot, Inc. operates a chain of 2,275 retail building supply/home improvement “warehouse” stores across the United States, Canada, and Mexico. The company's average store size is around 104,000 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.
