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Home Depot (HD) Raises FY16 Outlook as Q1 Earnings Beat

The Home Depot Inc. HD reported better-than-expected top- and bottom-line results for first-quarter fiscal 2016. Results benefited from the company’s focus on improving customer experience, solid execution and broad-based growth across the store. Earnings increase was also a function of consistent housing market recovery.

The company posted fiscal first-quarter adjusted earnings of $1.44 per share, which increased 19% from the year-ago quarter and beat the Zacks Consensus Estimate of $1.33.

Quarterly Details

Net sales advanced 9% to $22,762 million from $20,891 million in the year-ago quarter. The company’s overall comparable-store sales (comps) increased 6.5%, while comps in the U.S. grew 7.4%. Sales gained on a weekly increase in demand due to changes in weather conditions.

Gross profit in the reported quarter improved 8.5% to $7,791 million from $7,179 million in the year-ago quarter, primarily driven by higher sales. However, gross profit margin contracted 20 basis points (bps) to 34.2%.

Improved gross profit led operating income to soar 18.5% to $3,077 million during the fiscal quarter. Further, operating margin expanded 110 bps from the year-ago quarter to 13.5%.

Balance Sheet and Cash Flow

Home Depot ended the fiscal first quarter with cash and cash equivalents of $3,257 million, long-term debt (excluding current maturities) of $20,904 million, and shareholders’ equity of $6,335 million. In the first quarter of fiscal 2015, the company had generated $3,636 million of net cash from operations.

Fiscal 2016 Outlook

Following the robust fiscal first quarter, Home Depot raised its sales, comps and earnings forecasts for fiscal 2016. The company now projects sales growth of 6.3% compared with 5.1%–6% expected earlier. Comps are anticipated to increase nearly 4.9%, above the previous guidance range of 3.7%–4.5%.

Home Depot now envisions diluted earnings per share to grow about 14.8% year over year to $6.27. The company had earlier expected earnings per share to increase 12–13% year over year, coming in the range of $6.12–$6.18.

Zacks Rank

Currently, Home Depot carries a Zacks Rank #2 (Buy). Other well-placed stocks in the same industry are BMC Stock Holdings Inc. STCK, with a Zacks Rank #1 (Strong Buy) and Lowe's Companies Inc. LOW and Tile Shop Holdings Inc. TTS, with a Zacks Rank #2 each.

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