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Home Depot (HD) Revises Outlook on Upbeat Q3 Earnings

The Home Depot Inc.HD reported better-than-expected results for third-quarter fiscal 2015, benefitting from growth witnessed across all geographies and product categories on the back of improved transactions from both Do-It-Yourself and Pro customers.

The company posted fiscal third-quarter adjusted earnings of $1.36 per share, which increased 18.3% from the year-ago quarter and beat the Zacks Consensus Estimate of $1.32. Including one-time items, quarterly earnings surged 17.4% year over year to $1.35 per share.

Quarterly Details

Net sales advanced 6.4% to $21,819 million from $20,516 million in the year-ago quarter and were also ahead of the Zacks Consensus Estimate of $21,751 million. The company's overall comparable-store sales (comps) increased 5.1% while comps in the U.S. grew 7.3%.

Gross profit in the fiscal quarter improved 7.4% to $7,565 million from $7,043 million in the year-ago quarter, primarily driven by higher sales. Gross profit margin expanded 40 basis points (bps) to 34.7%.

Improved gross margin led operating income to soar 16.8% to $2,981 million during the quarter. Further, operating margin expanded 130 bps to 13.7% from the year-ago quarter.

Balance Sheet and Cash Flow

Home Depot ended the fiscal third quarter with cash and cash equivalents of $3,040 million, long-term debt (excluding current maturities) of $17,815 million and shareholders' equity of $7,619 million. Also, in the first nine months of fiscal 2015, the company generated $7,366 million of net cash from operations.

Fiscal 2015 Outlook

Driven by its robust performance so far in fiscal 2015 and in anticipation of a solid fourth quarter, Home Depot now expects its comps and earnings per share for the full fiscal year to be at the upper-end of its previously stated guidance. However, sales growth is expected to be near the mid-point of the previous guidance range.

The company now projects sales growth of 5.7% compared with 5.2%-6% rise expected earlier. Comps are anticipated to increase 4.9% compared with the previously projected range of 4.1%-4.9%.

Home Depot now envisions diluted earnings per share to grow 14% to $5.36 per share. Earlier, the company had projected earnings per share growth of 13%-14% and earnings of $5.31-$5.36 per share. The company's earnings per share guidance reflects the impact of its ongoing share repurchase program.

In the fourth quarter, the company plans to buy back another $2 billion worth of shares while in fiscal 2015 it plans to repurchase total $7 billion of shares.

Currently, Home Depot carries a Zacks Rank #2 (Buy).

Stocks That Warrant a Look

A favorably ranked stock in the same industry is Tile Shop Holdings Inc. TTS with a Zacks Rank #2. Other stocks performing well in the broader retail sector are American Eagle Outfitters Inc. AEO and L Brands Inc. LB , both carrying a Zacks Rank #2.

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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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