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

Home Depot's earnings report this morning prompted enthusiasm about the home-improvement retailer's prospects.

Aug 19, 2014 at 9:59AM


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.

Hd Bucket

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.

Hd Logo

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.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Home Depot and Lumber Liquidators. The Motley Fool owns shares of Lumber Liquidators. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers