Home Depot Earnings: Spring's Thaw Builds a New Foundation for Growth

After a less than stellar performance over the winter, Home Depot (NYSE: HD  ) had some investors worried about its ability to keep growing at the pace it has seen in recent years. This morning's second-quarter report, however, illustrated the strength of the home-improvement giant's earnings and reassured investors that Home Depot remains willing and able to take all available measures to bolster growth far into the future.

A big rebound for revenue and earnings

Home Depot collected $23.8 billion in revenue in the second quarter, which was up 5.7% from the year-ago quarter and higher than the $23.6 billion that most investors expected. In particular, comparable-store sales growth helped pull Home Depot's overall results higher, with a 5.8% jump in comps standing on an even stronger performance of 6.4% for the company's U.S. stores.

On the earnings front, the news was even better. Net income soared to $2.05 billion, or more than a 14% increase year over year. A large reduction in the number of shares outstanding via Home Depot's stock repurchase arrangements sent earnings per share up to $1.52, more than 22% higher than the same quarter a year ago. Investors had expected earnings to come in at $1.45.

Home Depot expects the remainder of the year to be equally strong. The company boosted its full-year earnings guidance by a dime, to $4.52 per share. It expects those results to come partially from higher net income, but the retailer also will use the second half of its planned $7 billion in total stock-buyback activity to help drive EPS higher.

Source: Home Depot.

With rival Lowe's scheduled to report earnings tomorrow, Home Depot's results set the bar high for the home-improvement industry. Moreover, Home Depot's success was far from assured, based on the poor performance of some of its smaller peers so far this earnings season. In particular, specialty flooring retailer Lumber Liquidators stumbled badly in its second quarter, booking a 7.1% drop in comparable-store sales connected to customer counts and average ticket sizes.

Home Depot's success wasn't all about spring

Home Depot executives touted the company's successful bounce-back from a tough winter season. CEO Frank Blake specifically mentioned how "our spring seasonal business rebounded," and given the impact that harsh weather had throughout the economy early in 2014, better conditions definitely played a role in the good results.

But when you compare them with year-ago figures and thereby take away the weather aspect of the results, Home Depot's numbers showed its continued ability to maximize efficiency and productivity in its stores. Traffic rose by 4.2% to nearly 410 million transactions. And even as some complain that the economic recovery hasn't restored purchasing power to the typical American shopper, Home Depot saw average ticket sales climb almost 2% on a year-over-year basis. Sales per square foot of floor space jumped 5.5% to climb above the $400-per-square-foot mark, as Home Depot strives to make the most of all the assets at its disposal.

Source: Home Depot.

Home Depot's strength comes even in the face of doubts about the sustainability of the housing market's recovery. Expectations that interest rates will continue to rise have many worried that homes will become less affordable, bringing recent price gains to a halt and potentially stalling building activity. So far, though, Home Depot hasn't seen any sign of sluggishness, and the work being done to bolster its internal efficiency points to a commitment to make the most of whatever environment in the housing industry it has to deal with.

Will the stock keep soaring?

After the earnings announcement, Home Depot shares climbed to their highest level ever, capping a strong advance since winter's discouraging quarterly report. Yet what's most important for long-term investors is that Home Depot's corporate strategy appears to be working, and that could bring much larger gains over the long run to those who are patient enough to stick with the home-improvement retailer's stock.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3075333, ~/Articles/ArticleHandler.aspx, 12/19/2014 10:06:01 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement