On Jun 12, 2014, we issued an updated research report on
Home Depot Inc.
) after the company posted sturdy results for first-quarter fiscal
2014 despite a slow start to the spring selling season.
Home Depot reported first-quarter adjusted earnings of 96 cents per
share, up nearly 15.7% from the year-ago quarter's earnings of 83
cents, primarily driven by effective cost management and a lower
share count. However, adjusted quarterly earnings fell short of the
Zacks Consensus Estimate by a couple of cents.
Home Depot's first-quarter adjusted earnings do not include a
benefit of approximately 4 cents per share associated with the
partial sale of equity ownership interest in
HD Supply Holdings Inc.
). On inclusion the same, the company's earnings stand at $1.00 per
Net sales of Home Depot increased 2.9% to $19,687 million from
$19,124 million in the year-ago quarter. The company's overall
comparable-store sales (comps) increased 2.6% while comps in the
U.S. stores grew 3.3%. The year-over-year improvement in the top
line was mainly attributable to a 2.2% rise in the number of
customer transactions and an increase of 0.6% in average ticket
size. However, net sales missed the Zacks Consensus Estimate of
Following the strong performance, management reiterated its sales
guidance and raised its earnings forecast for fiscal 2014.
Home Depot has always maintained a disciplined capital allocation
strategy, focused on making investments to develop its business,
while using the excess cash to enhance shareholder returns via
dividend payouts and share buybacks.
We expect Home Depot's focus on developing merchandising tools and
increasing investment in e-Commerce to boost its top line and
increase market share. Moreover, we believe that the company is on
track to achieve its long-term dividend payout target, share
repurchase and return on investment targets.
However, we remain slightly cautious about the stock due to impact
of soft economic recovery on discretionary spending and intense
competition from specialty stores and mass retailers. Apart from
this, the company remains exposed to risks of operating in overseas
markets, primarily currency fluctuations.
The weakening of foreign currencies against the U.S. dollar may
require the company to either raise product prices or contract
profit margins in locations outside the U.S. An increase in product
price may have an adverse effect on consumer demand.
Currently, Home Depot carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some better-ranked stocks worth considering in the Retail industry
Foot Locker Inc.
), both carrying a Zacks Rank #2 (Buy).
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HOME DEPOT (HD): Free Stock Analysis Report
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HD SUPPLY HLDGS (HDS): Free Stock Analysis
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