Home improvement retailer Home Depot (HD) reported strong earnings that topped analyst estimates by a comfortable margin, indicating that the housing recovery in the U.S. hasn’t ended yet. During its second quarter, Home Depot’s earned $1.24 per share, or $1.8 million, up from the $1.53 billion, or $1.01 per share, it earned in the prior year quarter. Revenue rose over 9% to $22.52 billion. Analysts had expected Home Depot to earn $1.21 per share on revenue of $21.79 billion. Home Depot’s same-store sales rose 10.7% globally and 11.4% in the United States. The company finished the quarter with 2,258 stores in the United States, Puerto Rico, the U.S. Virgin Islands, Guam, Canada and Mexico.
The company attributed its strong top and bottom line growth to robust sales from promotions during Memorial Day, Father’s Day and the Fourth of July. Strong categories of growth include kitchens, gardens, lumber, lighting, tools and other categories. A wet and cool spring across many parts of the United States helped outdoor project sales recover and exceed the company’s original expectations.
For the full year, Home Depot expects to earn $3.60 per share, up from its prior forecast of $3.52 per share. Revenue is now expected to rise 4.5% to $78.1 billion, also higher than its prior estimate of 2.8% top line growth. Wall Street had anticipated earnings of $3.64 per share on revenue of $77.57 billion. That slight miss in its bottom line growth disappointed investors, causing shares to slide 6% over the following few days.
Macro factors seem to be on Home Depot’s side for now. The U.S. Commerce Department recently reported that new home construction in July rose 6% from June to 896,000 new units, although it still falls short of its peak of over a million in March. The National Association of Home Builders/Wells Fargo builder sentiment index also hit its highest level in eight years recently, indicating that strong demand for new homes should fuel strong sales well into next year. However, rising mortgage rates, exacerbated by the persistent fear of the Fed’s early tapering, could throttle the industry’s growth. Rising interest rates could end up taking a bite out of the housing market, dampening Home Depot’s sales considerably.
CEO Frank Blake remained upbeat regarding the company’s prospects, stating, “The second quarter results exceeded our expectations as our business benefited from a rebound in our seasonal categories, continued strength in the core of the store and the recovering housing market in the U.S.”
Shares of Home Depot currently trade at 17 times forward earnings with a 5-year PEG ratio of 1.3, indicating that the company still could have room to grow if its top and bottom line growth can meet analyst projections. The company also pays a quarterly dividend of $0.39 per share — a 2.1% yield at current prices.
Other News About HD
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How did Home Depot turn around so remarkably?
Lowe’s to Home Depot Sales Gains Contingent on Housing Comeback
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