Welcome to the $100 billion club, Home Depot (HD -0.60%). The retailer on Tuesday announced that fiscal 2017 was a stellar year that pushed it over that annual sales figure for the first time.
Home Depot's earnings were pinched by tax law changes, but revenue growth beat expectations for the third straight time as management issued an aggressive operating outlook and boosted the dividend.
More on that 2018 forecast in a moment. First, here's how the big-picture results stacked up against the prior year:
|
Metric |
Q4 2017 |
Q4 2016 |
Year-Over-Year Change |
|---|---|---|---|
|
Revenue |
$23.9 billion |
$22.2 billion |
8% |
|
Net income |
$1.8 billion |
$1.7 billion |
2% |
|
Earnings per share |
$1.52 |
$1.44 |
6% |
Data source: Home Depot.
What happened this quarter?
Home Depot achieved a healthy mix of gains in both customer traffic and average spending per visit to push comparable-store sales growth ahead of expectations for the third consecutive quarter.
Image source: Getty Images.
Highlights of the quarter included:
- Comps improved by 7.5% for just a tiny deceleration from the prior quarter's hurricane-fueled expansion pace. As a result, comps ended up 6.8% for 2017 to edge past the increased guidance management issued in mid-November.
- Customer traffic growth ticked down for the second straight quarter, dipping to 2% from 2.5%. However, average spending per visit shot up by more than 5%.
- Gross profit margin worsened slightly, to 33.8% of sales from 34%. Restrained expense growth, meanwhile, delivered higher profitability as operating margin improved to 13.4% of sales from 13.2% a year ago.
- Home Depot took a $150 million hit from the recently enacted tax law changes, in addition to expenses from one-time employee bonuses. These costs reduced earnings by $0.17 per share, leading to full-year profit growth of 13% compared to the 14% management had predicted back in November.
What management had to say
Executives credited their flexible retailing model, which includes a significant commitment to the e-commerce sales channel, with helping push the top and bottom lines to new highs this past year. "Our ongoing commitment to enhance the interconnected retail experience for our customers, provide localized and innovative product, and deliver best in class productivity resulted in record sales and net earnings for 2017," CEO Craig Menear said in a press release.
Looking forward
Menear and his team issued a detailed outlook for the current fiscal year that foresees steady growth in the home improvement industry. In 2018, executives predict comps will slow to a 5% pace while gross and operating margins both hold steady. That formula, plus a reduced tax burden, should yield earnings of $9.31 per share for a 28% spike over 2017's haul.
At the same time, Home Depot's extremely efficient business will likely produce $14 billion of cash flow in 2018, according to the company, much of which will be headed right back to shareholders. Executives cut their aggressive stock repurchase spending plans in half, with plans to invest just $4 billion in buybacks this year. Investors can expect significantly higher income payments, though, as Home Depot's dividend will increase by 16% in 2018 following last year's 29% spike. The company increased the quarterly dividend to $1.03 per share.
