Why Is Home Depot (HD) Up 5.6% Since Last Earnings Report?
It has been about a month since the last earnings report for Home Depot (HD). Shares have added about 5.6% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Home Depot due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Home Depot Q4 Earnings & Sales Beat Estimates, Dip Y/Y
Home Depot has reported fourth-quarter fiscal 2023 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate. Meanwhile, the company’s sales and earnings per share declined year over year in the fourth quarter and fiscal 2023.
HD noted that fiscal 2023 was a year of moderation. Nonetheless, the company is confident about its initiatives to strengthen the business. It has been on track with its investments to craft the best interconnected experience for customers, improving the pro wallet through its unique ecosystem of capabilities and expanding stores. It is also optimistic about the future of the home improvement industry and its ability to expand market share in this industry.
Q4 Details
Home Depot's earnings of $2.82 per share declined 14.5% from $3.30 in the year-ago quarter. However, the bottom line beat the Zacks Consensus Estimate of $2.77. In fiscal 2023, the company reported earnings per share of 15.11, down 9.5% from $16.69 in the year-ago quarter.
Net sales fell 2.9% to $34,786 million from $35,831 million in the year-ago quarter. However, sales beat the Zacks Consensus Estimate of $34,551 million. In fiscal 2023, the company’s sales declined 3% year over year to $152.7 billion.
Home Depot's comparable sales fell 3.5% in the reported quarter and 2.7% for fiscal 2023. The company’s comparable sales in the United States declined 4% in the fiscal fourth quarter. Comps were impacted by a decrease in customer transactions and average tickets. In the fiscal fourth quarter, customer transactions declined 1.7% year over year, while the average ticket was down 1.3%. Sales per retail square foot fell 3.6% in the reported quarter.
Our model predicted comps to decline 3.8% in fourth-quarter fiscal 2023 due to continued headwinds related to lumber and copper deflation. Our model estimated comps for fiscal 2023 to be down 3.3%.
In dollar terms, the gross profit decreased 3.5% year over year to $11,508 million in the fiscal fourth quarter. The operating income fell 12.8% year over year to $4,143 million.
SG&A expenses of $6,679 million grew 2% from the $6,549 million reported in the year-ago quarter.
Other Updates
Home Depot ended fiscal 2023 with cash and cash equivalents of $3,760 million, a long-term debt (excluding current installments) of $42,743 million, and shareholders' equity of $1,044 million. In the 12 months ended Jan 28, 2024, the company generated $21,172 million of net cash from operations.
Concurrent with the earnings release, the company raised its quarterly dividend by 7.7% to $2.25 per share. This sums up to an annualized dividend of $9.00 per share. The raised dividend is payable on Mar 21, 2024, to shareholders of record as of Mar 7, 2024.
FY24 View
Management has outlined its view for fiscal 2024. It notes that the company’s fiscal 2024 will include an additional 53rd week. Home Depot anticipates sales to increase 1% year over year for fiscal 2024, including $2.3 billion of sales contribution from the 53rd week. The company expects comparable sales to decline 1% for the 52-week period.
HD expects to open 12 stores for fiscal 2024. It estimates the gross margin for fiscal 2024 to be 33.9%, with an operating margin of 14.1%.
The company expects an effective tax rate of 24.5% for fiscal 2024. Interest expenses are likely to be $1.8 billion for fiscal 2024. HD estimates earnings per share to increase 10% year over year for fiscal 2024. It expects the 53rd week to contribute 30 cents per share to earnings in fiscal 2024.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
VGM Scores
At this time, Home Depot has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Home Depot has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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The Home Depot, Inc. (HD) : Free Stock Analysis Report
