Apparently, my family's incredible appetite for drywall, nails, and mud is not out of the ordinary. This morning, Home Depot (NYSE:HD) unloaded another corker of a quarter, notching record sales and earnings.
If, as my colleague Phil Wohl wrote yesterday, Lowe's (NYSE:LOW) earnings represented a challenge to fellow retailers, then Home Depot's numbers offer a pretty substantial "Yer Mama."
A 7.4% increase in the average customer ticket, plus comps growth of 7.7% yielded a total revenue ramp-up of 16% to $17.6 billion. Those sales increases were less than Lowe's, but at the bottom line, Home Depot takes the match. Earnings rose 26% to $0.49 per share.
How is Home Depot doing that? Gross margins are getting better while selling and administration costs are slimming. That leaves more money to trickle down to the profit line. It's as simple as that. Oh, and the continuing stock buyback program is shrinking the number of shares over which those profits need to be spread. Home Depot can do this, as W.D. Crotty pointed out last quarter, because its $4.3 billion in cash -- almost four times more than debt -- means minimal pesky interest payouts, plus ample funds for expansion.
I occasionally get angry email from Wall Street's wise because of my preference for companies that hoard cash rather than borrow at today's cheap rates, but this, my friends, is why I stick to my Foolish point of view. Cash is freedom. Cash is power. Cash is the kind of thing that should make your capitalist eyes leak with joy. Debt is an anchor, even when it's manageable. <End of rant>
Management raised its sales and profit projections for the year to targets of 10-12% and 10-14%, respectively. With shares currently trading around 16 times 2004 estimates of $2.10 per share, the stock looks reasonably valued. But if Home Depot can capitalize on its bigger presence in Mexico and its surging appliance sales and services segments, what looks fair today may turn out to have been cheap, in hindsight.
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Fool contributor Seth Jayson has a stack of Home Depot 1x4s in his garage, but owns no company mentioned. View his Fool profile here.
