The housing sector plays a key role in the health of the U.S. economy, and home-improvement retailer Home Depot (NYSE:HD) is at the forefront of housing, helping do-it-yourselfers and professional contractors alike get the tools and materials they need to keep homes in top condition. Coming into Tuesday morning's fiscal-first-quarter financial report, the stock remained strong, although some shareholders were nervous about the potential for the housing market to react badly to fears of higher interest rates. But Home Depot gave investors even more than they expected, with solid results that point toward further growth ahead. Let's take a closer look at Home Depot's latest numbers and what's ahead for the company.
Home Depot keeps climbing the earnings ladder
Home Depot has built up a solid streak of outperformance in recent quarters. During the fiscal first quarter, revenue climbed more than 6% to $20.9 billion, edging over the figure that most of those following the stock had expected. Home Depot's systemwide comparable-store sales rose 6.1%, with U.S. comps growing by an even faster 7.1%. Net income rose by 14.5% to $1.58 billion. With the total number of outstanding shares down 5% since this time last year, earnings came in at $1.21 per share, up from last year's $1-per-share figure and more than a nickel ahead of investors' consensus estimate. Even if you adjust earnings downward to reflect a favorable tax-audit settlement, Home Depot still outpaced expectations.
Home Depot got a big lift from increased traffic during the quarter, as the number of customer transactions rose 4.6% to more than 360 million. The average amount that customers spent also rose, albeit at a slower pace of 1.8%, but a $58.60 purchase average still spiked sales per square foot by almost 6%.
CEO Craig Menear pointed to favorable conditions in explaining the strong performance. "We had a stronger than expected start to the year as we experienced a more normal spring across much of the country and continued recovery of the U.S. housing market," Menear said in the earnings press release, and he largely credited Home Depot's workforce of associates for the improvement.
Why things are looking up for Home Depot
Shareholders got even better news in Home Depot's guidance for the remainder of the year. The retailer now believes overall revenue will climb by 4.2% to 4.8%, which took the upper end of its previous guidance range and pushed it slightly higher. The same holds true for comparable-store sales, which Home Depot now believes will rise by 4% to 4.6% this year. The earnings guidance range of $5.24 to $5.27 per share is more than a dime per share higher than Home Depot projected last quarter.
Despite the company's healthy share price, Home Depot continues to double down on its share repurchase program. The company spent $1.125 billion on buybacks during its first quarter, and expects to spend another $3.7 billion throughout the remainder of the fiscal year. Even when you add in another $769 million in dividends paid to shareholders through the company's higher quarterly payout, Home Depot still raised the amount of cash and equivalents on its balance sheet by more than $1 billion.
As with last quarter, though, Home Depot warned again about the potential for unknown liability related to its data breach last year. The company spent just $7 million during the first quarter on breach-related expenses, but Home Depot also said it cannot estimate future costs, which could have a material impact on results going forward if things go badly for the retailer.
With all signs pointing to continued strength in the U.S. economy and the housing market in particular, Home Depot could have more room to run higher despite its premium share price.