Home Depot (HD) Lifts FY17 Outlook On Impressive Q3 Earnings

The Home Depot Inc. (NYSE:HD) reported better-than-expected bottom-line results for third-quarter fiscal 2017, retaining the five-year long trend of beating earnings estimates. Further, sales topped estimates and grew year over year.

Additionally, the company raised its top and bottom-line guidance for fiscal 2017, based on the solid year-to-date performance and anticipated gains from hurricane recovery activities.

Following the results, shares of this home improvement retailer displayed only a marginal improvement of 0.9% in the pre-market trading session. Nevertheless, Home Depot’s shares have returned a solid 23.3% year to date, outperforming the industry’s gain of 16.6%.

The company posted fiscal third-quarter earnings of $1.84 per share, which escalated 15% from $1.60 recorded in the year-ago quarter. The figure also beat the Zacks Consensus Estimate of $1.81.

Results gained from strength in the company’s core business. Its relentless focus on affording innovative products, boosting interconnected customer experience and driving productivity seems to be paying off. Further, the company continued to reap the benefits of a steady housing market recovery and strong customer demand.

Quarterly Details

Net sales grew 8.1% to $25,026 million from $23,154 million in the year-ago quarter. Moreover, the top line surpassed the Zacks Consensus Estimate of $24,523 million. The company's overall comparable-store sales (comps) increased 7.9%, while comps in the United States grew 7.7%.

The fiscal third quarter was marked by numerous natural disasters, including multiple hurricanes, wildfires in the West, and earthquakes in Mexico. However, the company steered through this environment due to underlying strength in its core business. The company believes hurricane-related activities aided comps by nearly $282 million. Nonetheless, gross margins on such sales were significantly below the company average.

Consequently, gross profit margin in the reported quarter contracted 10 basis points (bps) to 34.6%. In dollar terms, gross profit improved 7.5% to $8,648 million from $8,042 million in the year-ago quarter, primarily driven by higher sales.

Operating income increased 10.8% to $3,680 million, which included a $51-million negative impact from recent hurricanes. Furthermore, operating margin expanded 40 bps from the year-ago quarter to 14.7%.

Balance Sheet and Cash Flow

Home Depot ended the fiscal third quarter with cash and cash equivalents of $3,549 million, long-term debt (excluding current maturities) of $24,266 million and shareholders' equity of $2,543 million. In the first nine months of fiscal 2017, the company generated $9,741 million of net cash from operations.

Fiscal 2017 Outlook

Backed by solid year-to-date performance, strength of its core business and estimates gains from hurricane recovery activities, the company raised the fiscal 2017 sales and earnings growth guidance. It now expects sales growth of nearly 6.3%, alongside a 6.5% increase in comps. Earlier, the company projected net sales growth of 5.3% and comps increase of 5.5%.

Moreover, management now anticipates earnings per share to be up nearly 14% to $7.36 in fiscal 2017 compared with the previous guidance of 13% growth to $7.29. The guidance includes $8-billion impact from share repurchases.

Zacks Rank

Currently, Home Depot carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the retail space are Beacon Roofing Supply, Inc. (NASDAQ:BECN) , American Eagle Outfitters Inc. (NYSE:AEO) and Zumiez Inc. (NASDAQ:ZUMZ) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Beacon Roofing has gained 32.1% in the last three months. Moreover, it has a long-term earnings growth rate of 8.5%.

American Eagle, with a long-term earnings growth rate of 8.7%, gained 26.8% in the last three months.

Zumiez, with a long-term earnings growth rate of 18%, has improved a substantial 56.6% in the last three months.

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