Depot (HD 187.86, -3.22, -1.68%) is trading lower today after reporting Q1 (Apr) earnings this
morning. EPS rose 24.6% year/year to $2.08, which was slightly better than
market expectations. Revenue rose 4.4% year/year to $24.95 bln, which was a bit
short of market expectations. Same store comps are always important for
retailers and HD came in at +4.3% overall and +3.9% in the US. The company also
reaffirmed full year guidance as it expects EPS of approximately $9.31 and
revenue of approx $107.5 bln. Full year same store comps should be up +5%.
So why is the stock trading lower? It's mainly because that +4.3% comp number is being seen as a bit lower than expected. Expectations had come down during the quarter as this has been a cold Spring season for much of the country. This had a big impact on HD's garden and outdoor categories in Q1 (Apr).
HD says it was pleased by the strength of its business despite a slow start to the spring selling season. Outside of its seasonal business, HD had solid results in all markets and categories and the company is seeing strong momentum in all lines of business during these first few weeks of May. These trends, as well as a favorable housing and macroeconomic backdrop, give HD confidence to reaffirm its sales and earnings guidance for fiscal 2018.
On the call, management said that it saw significant strength in its PRO business, interior projects, and maintenance and repair categories. The negatively impacted garden categories historically represents around 15% to 20% of Q1 (Apr) sales and had negative comps in the quarter, driven by softness in chemicals, fertilizer, mulch, and live goods, just to name a few.
Breaking it down by departments, appliances, electrical, and lumber had double-digit comps in the quarter. Categories like interior doors, bath fixtures, storage, and organization, interior paint, door locks, ceiling fans, and window treatments all had comps above the company average. Floor maintenance and repair categories also performed well during the quarter with strong results in safety and security, water heaters, plumbing repair, pipe and fitting, and air circulation.
PRO heavy categories like lumber, gypsum, insulation, pneumatics, wiring devices, and flooring tools all had comps above the company average. HD also saw healthy customer appetite for big ticket projects. This was driven in part by vinyl plank flooring, appliances, and various lumber and building materials categories.
Of note, during AprQ, the company began to launch the customer's ability to attach install services when they buy certain products online in select markets. For example, it is now possible to include installation in the purchase of a faucet online. In December, HD outlined its commitment to accelerate an investment plan to create the One Home Depot experience. Key initiatives are on track.
In sum, the cold Spring weather had a bigger impact on HD's AprQ revenue and comps than investors were expecting. However, the stock is already bouncing off its lows and the stock is now down only modestly. The stock had fallen from $207 in late January to mid-$170's in March and April on cold weather concerns, so it seems a lot of the impact had already been priced into the stock. Lowe's (LOW) is down slightly in sympathy with HD.
From a long-term perspective, the stock has made an impressive and steady run higher over the past few years. It was trading in the $30 range in mid-2011 and has been on a consistent and steady trajectory higher since then. This would have been a good stock to own as we exited the housing crisis in 2008-2010. It's now trading near $190.
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