Home Depot Beats Consensus, Will Growth Continue For FY 2019?

Home Depot (NYSE: HD) announced its Q1 2019 (ended April 2019) results on May 21, 2019, followed by a conference call with analysts. The company just beat consensus for revenue which was recorded at $26.4 billion, up by 5.7% y-o-y. The increase was driven largely by growth in comparable sales by 2.5% (3% in the US).  The earnings also beat consensus and was recorded at $2.27, higher than the $2.08 per share in the same period of 2018.

Home Depot reported $108.2 billion in Total Revenues in Fiscal year 2018.  The revenue comes from the sale of home improvement supplies like tools, construction products, and related services.

We have summarized our key expectations from the earnings announcement in our interactive dashboard – What Has Driven Home Depot’s Revenues & Expenses Over Recent Quarters, And What Can We Expect For Full-Year 2019? In addition, here is more Consumer Discretionary data.

Key Factors Affecting Earnings:

Revenue to grow:

• The company has seen revenue fluctuating over the quarters. In-spite of the fluctuations, the company has seen a revenue growth in all quarters of FY 2018 vis-à-vis the same quarters of FY 2017. In Q1 2019 (ended April 2019) revenue was recorded at $26.4 billion, up 5.7% y-o-y
• The company’s revenue growth is mainly contributed by the revenue per square foot metric. It has increased from $399 in 2016 to $456.60 in 2018. Trefis estimates the metric will reach $470.40 by 2019.
• The number of stores and square footage per store metrics have remained nearly flat for a few years now and are expected to continue in the same manner in 2019.

Trend in Expenses:

• Total Expenses have moved in tandem with Total Revenue over the quarters. Cost of Sales has been steady at around 66% of Total Revenue over the quarters. In Q1 2019 (ended April 2019) the metric stood at 65.8%
• Indirect expenses decreased in FY 2018 and we expect the same to continue in FY 2019 as they are estimated at $8.7 billion.

Full Year Outlook:

• For the full year, we expect gross revenue to increase by 3.2% to $111.6 billion in FY 2019.
• EBITDA margin is expected to increase slightly to around 18.7%.

Trefis has a price estimate of $207 per share for Home Depot’s stock. The value is based on the expectations of improvement in comparable sales and EBITDA margin.

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