For years, home-improvement retailer Home Depot (NYSE:HD) has kept climbing to unprecedented heights, taking advantage of the recovery in the housing sector and also leading its industry with innovative ways to bolster sales and improve profitability. Yet along the way, investors have worried that the stock has come too far too quickly, and coming into Tuesday morning's fiscal fourth-quarter financial report, many Home Depot shareholders worried that the company might be poised for a letdown. In its report, though, Home Depot dispelled those fears, sending the stock to a new all-time high in pre-market trading and affirming the retailer's dominance. Let's look more closely at Home Depot's results and what they mean for the company in 2015.
Home Depot builds a towering edifice of growth
As we saw last quarter, Home Depot managed to surpass investor expectations by a huge margin. Sales soared by 8.3% to $19.2 billion, crushing consensus projections by half a billion dollars. Comparable-store sales systemwide climbed 7.9%, and in the U.S., Home Depot's growth rate was even faster, with comps of 8.9%. Net income jumped 36% to $1.38 billion, and thanks to stock repurchases that reduced its share count over the course of the year, Home Depot's earnings per share soared at an even faster rate. Even after adjusting downward for the impact of the sale of part of its interest in HD Supply Holdings (NASDAQ:HDS), earnings came in at $1.00 per share, $0.11 higher than what most investors were looking to see from Home Depot.
The results closed a solid year for Home Depot. In fiscal 2014, sales grew 5.5% to $83.2 billion, with comps rising 6.1% in the U.S. and 5.3% systemwide. Earnings came in at $4.71 per share, up 25% from fiscal 2013's results.
Home Depot benefited from favorable trends on several fronts. The number of customer transactions during the quarter jumped 5.1% to 332.1 million, and average tickets for those customers also climbed, with 3% gains taking the figure to $57.79 per ticket. As a result, Home Depot's sales per square foot of retail space climbed more than 8% to just under $325, continuing the home-improvement giant's run of improving figures.
CEO Craig Menear noted the achievement with excitement. "We had a strong finish to the year, as strength across the store, the recovering U.S. housing market, and solid execution aided our business in 2014," Menear said, and he gave much of the credit to Home Depot's workforce of associates for the improvement.
Home Depot rewards shareholders
In response to the favorable results, Home Depot made two huge moves to return capital to shareholders. The company boosted its dividend by a whopping 26%, sending its quarterly payout to $0.59 per share and giving the stock a 2% dividend yield. Even more meaningfully, Home Depot authorized a massive $18 billion stock repurchase program, an amount that represents nearly an eighth of the retailer's market capitalization and continues a long history of buybacks for the company. Home Depot intends to use up that entire $18 billion within the next three years.
If there was any sign of trouble at Home Depot, it came from the strong U.S. dollar. In Home Depot's fiscal 2015 guidance, the company cited a negative impact of $1 billion to sales growth if exchange rates remain stable at current levels, with a corresponding hit to earnings of about $0.06 per share. In addition, Home Depot continued to warn that its guidance doesn't include estimates for what the company's data breach might end up costing it in 2015.
As a result, some of Home Depot's guidance for revenue and earnings was slightly less ambitious than investors had expected. Home Depot expects revenue to grow 3.5% to 4.7% for 2015, with 3.3% to 4.5% growth in comps and earnings in a range of $5.11 to $5.17 per share.
Nevertheless, investors celebrated Home Depot's results, sending the stock soaring almost 4% in the first two hours of pre-market trading after the 6 a.m. EST announcement. Even though Home Depot's valuations have raised concerns, the company's ability to deliver solid growth has thus far justified those high earnings multiples. As long as it can keep benefiting from strong conditions in the real-estate market, Home Depot appears poised to deliver more attractive returns to shareholders.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Home Depot. 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.