The Home Depot (NYSE: $HD) is a major American retailer that deals in home improvement equipment including construction equipment, appliances, tools and services. Founded in 1978 in Atlanta, Georgia, it has grown into the world’s biggest home improvement retailer, with over 2,300 stores throughout North America.
On Tuesday, May 14, 2024, Home Depot released its Q1 fiscal 2024 results to a positive market reception.
Home Depot Q1 Sales Miss Estimates
In Q1, Home Depot reported sales of $36.4 billion, a 2.3% decline Y/Y from the same period last year, below the $36.65 billion estimate by Zacks.
Comparable sales for stores opened for at least one year declined by 2.8% globally in the first quarter and 3.2% in the US, higher than the forecast of a 2.19% global decline. This quarter’s sales decline marks the sixth consecutive quarter in which Home Depot reported a decline.
The retailer saw a 1% decline in customer transactions. Meanwhile, shopper spending declined slightly to $90.68 per receipt compared to $91.92 the previous year, a 1.30% decline, compared to the forecast of a 1.50% decline.
Net earnings in Q1 came in at $3.6 billion for an EPS of $3.63, below last year’s net earnings of $3.9 billion and $3.82 EPS the previous year. However, it was above Zacks estimate of a $3.61 EPS. Over the past four quarters, Home Depot has beaten EPS estimates 100% of the time.
The quarter ended with 2,337 retail stores worldwide, with around 465,000 associates.
CEO’s Comments
Commenting on the results, Home Depot CEO Ted Decker stated, “The team executed at a high level in the quarter, and we continued to grow market share.”
He added that the delayed start of the spring season and continued softness in discretionary spending had impacted Q1 sales.
Americans Pull Back on Heavy Spending
On Thursday, May 9, Freddie Mac reported that average 30-year mortgages had fallen for the first time in over a month. While this provided some relief for buyers facing rising prices amidst a shortage of homes, it came on the back of five consecutive weekly rises.
The rise in mortgage rates could increase borrowers’ monthly costs by hundreds of dollars, limiting their spending power. Consequently, Americans have cut down on large home redesign projects like kitchen makeovers, new bathrooms, and more.
The result has been slowed sales for Home Depot, the biggest supplier for these types of projects. Amidst financial constraints, Home Depot is also likely to face intensified competition from smaller players in the industry as buyers look for bargains.
Home Depot Issues Fiscal 2024 Guidance
For fiscal 2024, Home Depot reaffirmed its previous guidance for 53 weeks. It expects total sales to increase by 1% compared to $152.7 billion in fiscal 2023, with the 53rd week projected to add around $2.3 billion to total sales.
It expects to open around 12 new stores throughout the year. The company forecast a full-year gross margin of around 33.9%, an operating margin of around 14.1%, and a tax rate of around 24.5%.
The company expects net interest expense of around $1.8 billion and 53-week diluted EPS growth of around 1% compared to $15.11 in fiscal 2023. It expects the 53rd week to contribute around $0.30 to the diluted EPS.
Home Depot (HD) Stock Performance
Following the Q1 revenue miss, Home Depot (HD) shares sank 0.89% on Tuesday morning to $337.94 as of 10:43 AM EDT. Since the start of the year, the stock is down 2.03%. However, it is up 17.17% in the past 52 weeks, underperforming the SPX, which has gained 27.04% in the same period.
The stock’s 52-week range is a high of $396.87 and a low of $274.2. It is currently trading above both its 50 DMA and 200 DMA of $357.43 and $335.08, respectively.
HD shares have a volume of 1.95 million, below the average three-month volume of 3.53 million. Short interest in the shares has reduced by 12.74% in the past month to 8.63 million shares as of April 30, 2024. In total, short sellers hold 0.87% of the shares outstanding.
Analysts’ Outlook on HD Stock
Analysts are cautiously optimistic about HD stock’s future, giving it an overall moderate buy rating. Of the 26 stock analysts who shared their opinions on the stock, 19 gave it a Buy rating, two a Sell rating, and the rest a Hold rating. They forecast a wide range for the stock, with a high of $40 and a low of $310. Their average forecast of $385.83 is a 13.87% upside from the most recent price.
Should You Add Home Depot to Your Portfolio?
The Home Improvement Retail industry has suffered significantly amidst rising inflation. It has experienced an overall decline of 0.71% so far this year, compared to the 9.62% of the SPX in the same period. However Home Depot has outperformed the overall industry performance, which is up 13.31% in the past 52 weeks. Despite this, the overall industry has underperformed the SPX in the past 52 weeks, up around 27% in the same period.
However, the recent increase in focus on professional services could help turn things around for the retailer. In late March, it announced that it had acquired SRS Distribution for $18 billion, the biggest deal in its history. Home Depot noted in its forecast that since the deal had not been concluded, it was not included in the guidance figures. Despite the potential for new revenue streams, the stock has been pulling back since the deal was announced.
Overall, analysts’ moderate buy rating of Home Depot accurately represents the stock’s performance in the medium term. On a 10-year horizon, the stock’s future looks great. However, short-term pain will likely continue amid the current inflation figures.
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