Home Depot Beats Q2 Earnings on Strong Spring Season Sales - Analyst Blog

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Driven by the recovery in its spring season sales as well as strength in its core store activities and in all geographies, The Home Depot Inc. ( HD ) reported a year-over-year improvement in its financial results for the second quarter of fiscal 2014. The company's adjusted earnings of $1.52 per share jumped nearly 22.6% from the year-ago quarter's earnings of $1.24 and surpassed the Zacks Consensus Estimate of $1.44.

The Home Depot Inc - Earnings Surprise | FindTheBest

Quarterly Details

Net sales increased 5.7% to $23,811 million from $22,522 million in the year-ago quarter and beat the Zacks Consensus Estimate of $23,570 million. The company's overall comparable store sales (comps) increased 5.8% while comps in the U.S. stores grew 6.4%. The year-over-year improvement in top-line was mainly attributable to a 4.2% rise in the number of customer transactions and an increase of 1.8% in average ticket size.

Gross profit grew 5.7% to $8,161 million from $7,721 million in the comparable year-ago quarter, primarily due to higher sales. However, gross profit margin remained flat compared with last year at 34.3%. The rise was mainly attributable to flat cost of sales as a percentage of net sales compared with the prior-year quarter.

Operating profit during the quarter improved 14.2% to $3,448 million from $3,018 million in the year-ago comparable quarter. Operating margin expanded 110 basis points (bps) to 14.5% from 13.4% in the year-ago quarter. The improvement in operating margin was driven by effective cost management.

Balance Sheet and Cash Flow

Home Depot, which competes with Lowe's Companies Inc. ( LOW ), ended the quarter with cash and cash equivalents of $4,216 million, long-term debt (excluding current maturities) of $16,702 million and shareholders' equity of $11,457 million. During the first six months of 2014, the company generated $5,397 million of cash from operations and deployed its available funds toward share buyback worth $3.5 billion, dividend payment of $1.285 billion, capital expenditures of $631 million and long-term debt repayment of $21 million.

Updated Fiscal 2014 Outlook

After concluding the second quarter, Home Depot reaffirms its sales growth outlook of 4.8% for fiscal 2014. However, the company raised its diluted earnings per share growth guidance for the fiscal to 20.2% from the earlier anticipated growth of 17.6%. Therefore, Home Depot now expects fiscal 2014 earnings to come at $4.52 per share instead of previous forecast of $4.42.

Further, management revealed that the company's updated earnings guidance include a benefit of the company's year-to-date share buybacks worth $3.5 billion. Moreover, the company intends to repurchase another $3.5 billion worth of shares through the rest of the year.

Other Stocks That Warrant a Look

Currently, Home Depot carries a Zacks Rank #3 (Hold). Better-ranked stocks worth considering in the retail sector are Citi Trends Inc. ( CTRN ) and Zumiez Inc. ( ZUMZ ), both sporting a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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