Home Depot (HD) Q3 Earnings Beat, Sales Miss, Stock Down

The Home Depot, Inc. (NYSE:HD) has posted better-than-expected earnings results for third-quarter fiscal 2019, retaining its positive earnings trend. However, the company’s top line lagged the Zacks Consensus Estimate but improved year over year. The top line lagged primarily due to timing issues related to the receipt of certain benefits from the One Home Depot investments. Based on the delays, the company slashed its sales and comparable sales (comps) view for fiscal 2019.

Shares of the home-improvement retailer declined 5.5% in the pre-market session on sales miss and lowered sales view for fiscal 2019. Nonetheless, the Zacks Rank #3 (Hold) stock has gained 39% year to date, outpacing the industry’s growth of 33.7%.

Q3 Highlights

Adjusted earnings of $3.53 per share grew 0.8% from $2.51 registered in the year-ago quarter. The bottom line also surpassed the Zacks Consensus Estimate of $2.52.

Net sales rose 3.5% to $27,223 million from $26,302 million in the year-ago quarter but missed the Zacks Consensus Estimate of $27,472.2 million. Lower-than-expected sales resulted from timing issues related to the receipt of some benefits from its One Home Depot investments. Though these investments are delivering positive results, some of the benefits from these initiatives will take longer than planned to be realized. The company's overall comps grew 3.6%, with 3.8% improvement in the United States.

In the reported quarter, comps were aided by 1.9% rise in average ticket and 1.5% increase in customer transactions. Moreover, sales per square foot rose 3.5%.

In dollar terms, gross profit improved 2.6% to $9,387 million from $9,151 million in the year-ago quarter, primarily driven by higher sales. However, gross profit margin contracted 30 basis points (bps) to 34.5%.

Operating income rose2% to $3,947 million, while operating margin contracted 20 bps to 14.5%.

Balance Sheet and Cash Flow

Home Depot ended the quarter with cash and cash equivalents of $2,193 million, long-term debt (excluding current maturities) of $26,597 million, and shareholders' deficit of $1,082 million. In the first nine months of fiscal 2019, it generated $10,664 million of net cash from operations.

Further, the company paid out cash dividends of $4,477 million and repurchased shares worth $3,909 million in the first nine months of fiscal 2019.

Outlook

Driven by the aforementioned delay in realizing benefits from the One Home Depot investments, the company lowered sales and comps guidance for fiscal 2019. It now expects sales growth of 1.8% for fiscal 2019 compared with 2.3% rise stated earlier. It now anticipates comps (for the comparable 52-week period) growth of 3.5% compared with 4% improvement mentioned previously.

However, the company reiterated earnings view for fiscal 2019. It continues to project earnings per share of $10.03 for fiscal 2019, suggesting 3.1% growth from the year-ago reported figure.

3 Better-Ranked Stocks from the Same Industry

BMC Stock Holdings, Inc (NASDAQ:BMCH) delivered average positive earnings surprise of 29.3% in the trailing four quarters. It presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Builders FirstSource, Inc (NASDAQ:BLDR) delivered average positive earnings surprise of 28.2% in the trailing four quarters. It currently carries a Zacks Rank #2 (Buy).

GMS Inc (NYSE:GMS) has a long-term earnings growth rate of 7% and a Zacks Rank #2 at present.

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