The Home Depot, Inc. Earnings: Can Fast Growth Continue?

Next Tuesday, Home Depot (HD -0.78%) will release its quarterly report, and investors continue to expect the home-improvement retailer to post solid growth in earnings and revenue. Even though concerns about the strength of the housing market have started to surface in the investing community, Home Depot has managed to overcome downturns in the past, and its main challenge is ensuring it can stay ahead of rival Lowe's (LOW -0.91%) while also fending off competition from appliance seller Sears Holdings (SHLDQ) as well as players in particularly lucrative specialty niches like wood flooring.

Home Depot's growth record is extraordinary and shows the depth of its playbook. When the housing market had collapsed, Home Depot focused on giving desperate homeowners the tools they needed to try to stand out from their peers in selling their homes, as well as catering to customers who had to make do with their current homes rather than trade up. More recently, as the housing market has recovered, Home Depot's dual focus on contractors and do-it-yourselfers has helped give it the best of both worlds. But can Home Depot succeed in another potential housing slowdown? Let's take an early look at what's been happening with Home Depot over the past quarter and what we're likely to see in its report.

Source: Home Depot.

Stats on Home Depot

Source: Yahoo! Finance.

Can Home Depot earnings climb even faster?
In recent months, investors have reined in their views on Home Depot earnings by the smallest bit, cutting 2% from their fiscal first-quarter estimates and a penny per share from their full fiscal-year projections. The stock has gone nowhere over the past quarter, staying almost exactly flat since mid-February.

Home Depot's fiscal fourth-quarter report in February kept the good times rolling for the stock. Even though revenue fell from the year-ago quarter, its corporate calendar had an extra week the previous year, and even with that handicap, Home Depot grew earnings per share by more than 7%. Even more encouraging was its guidance for 2014, as it expects same-store sales growth of 4.6% and an earnings-per-share increase of about 16%, coming both from rising net income and share repurchases to reduce share counts.

Many investors have even higher hopes for Home Depot's future. After a tough winter, spring gardening projects got delayed in many parts of the country. Yet the long winter could well make impatient homeowners attack projects with renewed enthusiasm as spring finally comes, and that could make Home Depot's spring season one to remember. Moreover, as Sears Holdings further loses its grip on its retail operations, Home Depot has the opportunity to poach its lucrative appliance business, adding to its dominance in the home.

Still, competition in the industry is fierce. To stay ahead of Lowe's and Sears Holdings, Home Depot has worked on modernizing its operations and giving customers all the tools they need to make orders efficiently. Integrating its online site with store operations has been a key priority, especially because almost a third of online orders get picked up at store locations and 10% of online orders come from within stores. Moreover, with a loyalty program aimed exclusively at contractors, building professionals get the added attention and service that make them return to Home Depot rather than go to Lowe's or other competitors.

In the Home Depot earnings report, watch to see what the company says about its expectations for home prices. Even with some economists expecting the recent surge in housing to slow, Home Depot has done a good job of positioning itself for whatever may come, but as long as supply of homes in hot areas remains tight, Home Depot should see strength from its core customer base.

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