Home Depot (HD), which is set to report fourth quarter fiscal 2018 earnings results before the opening bell Tuesday, has a lot to prove.
Despite concerns about profit margin and doubts about the strength of the housing market, where the number of existing home sales has declined on a year-over-year basis for six straight months, Home Depot is expected to have a stellar year in 2019. Not only does the company enjoy its best-of-breed status, when compared to Lowe’s (LOW) and other specialty retailers, 2019 is shaping up to be a good year for home remodeling projects and repairs.
That said, the company has a tough comparisons of 2018 do deal with. Then there’s still the fear that weather-related issues and the government shutdown could impact the just-ended quarter. Elsewhere, home-price growth has slowed for the last several months, while the number of existing home sales has also moderated, thanks to rising mortgage rates. The company continues to invest in various technological advancements to enhance the customer experience.
To what extent can Home Depot overcome this soft housing environment? And can the company still deliver higher same-store sales growth? After years of expansion, the management last quarter hinted of weakened profitability, which might hurt the stock. Last but not least, can the company, which grew its market share and throughout 2018, guide in the manner that suggest it can continue to outperform in the new year.
In the three months that ended January, the Atlanta, GA.-based company is expected to earn $2.16 per share on revenue of $26.57 billion. This compares to the year-ago quarter when earnings came to $1.69 per share on revenue of $23.88 billion. For the full year, earnings of $9.80 per share would rise 31% year over year, while full-year revenue of the $108.38 billion would rise 7.42% year over year.
Not only has the retail giant beaten Wall Street expectations in the last two quarters, by 10.5% and 7.4%, respectively, during the span organic sales growth has surpassed 5%. As noted above, however, the partial government shutdown and weather-related issued were potential headwinds the company had to deal with during the quarter. In the last quarter, customer traffic was modest at just 1.2% in aggregate for the first nine months of the year.
As such, investors will want to see the extent to which customer traffic might have been impacted and what the management expects for the first half of the year in terms of traffic trends. The company has been able to offset lower customer traffic with better pricing and increased customer spending. The company, which is spending to grow in the realm of e-commerce, where it aims to increase both its two-day and one-day shipping initiatives, understands it can't rely solely on those trends.
It remains to be seen what impact the e-commerce shipping goals has on profit margins and that is something investors will focus on. But with Home Depot stock trading well below its 52-week high, combined with its promise to return about 55% of earnings to investors in the form of dividends each year, investors who are willing to buy and hold for the long term can do well here.