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Category: Stock Market and The Home Depot
Date: 19 May 2020 Stock Price: $241.28 We take a look at the 1st quarter 2020 earnings report of the world's largest home improvement company, The Home Depot. The Company employs more than 400,000 associates but the Covid-19 pandemic has hit the group's earnings and they withdrew their fiscal guidance for 2020.
As the COVID-19 pandemic evolved, we anchored to the core values of our Company by focusing on two key priorities: working to ensure the safety and well-being of our associates and customers, and providing our customers and communities with essential products. " |
About The Home Depot
When The Home Depot was founded in 1978, Bernie Marcus and Arthur Blank had no idea how revolutionary this new “hardware store” would be for home improvement and the retail industry.Today, we’re proud to be the world’s largest home improvement retailer. In more than 2,200 stores across North America, we aspire to excel in service – to our customers, associates, communities and shareholders. That’s what leadership means to us. That's The Home Depot difference. Our founders’ vision of one-stop shopping for the do-it-yourselfer came to fruition when they opened the first two Home Depot stores on June 22, 1979, in Atlanta, Georgia. The first stores, at around 60,000 square feet each, were cavernous warehouses that dwarfed the competition and stocked 25,000 products, much more than the average hardware store at that time.
Today, The Home Depot is the world’s largest home improvement retailer with nearly 400,000 orange-blooded associates and more than 2,200 stores in the U.S., Canada and Mexico. The typical store today averages 105,000 square feet of indoor retail space, interconnected with an e-commerce business that offers more than one million products for the DIY customer, professional contractors, and the industry’s largest installation business for the Do-It-For-Me customer.
Today, The Home Depot is the world’s largest home improvement retailer with nearly 400,000 orange-blooded associates and more than 2,200 stores in the U.S., Canada and Mexico. The typical store today averages 105,000 square feet of indoor retail space, interconnected with an e-commerce business that offers more than one million products for the DIY customer, professional contractors, and the industry’s largest installation business for the Do-It-For-Me customer.
Overview of The Home Depot's 1st quarter 2020 earnings report
The data refers to the latest quarter unless specified otherwise
- Net sales: $28.260 billion (up from $26.381 billion for the same quarter of the previous year)
- Net sales increased by 7.1% over the last 12 months
- Cost of sales: $18.635 billion (up from $17.364 billion for the same quarter of the previous year)
- Cost of sales increased by 7.3% over the last 12 months
- Some margin pressure on The Home Depot as their revenues increased at a slower rate than their cost of sales
- Net earnings: $2.245 billion (down -10.7% from $2.344 billion for the same quarter of the previous year)
- Diluted earnings per share: $2.08 (down -8.4% from $2.27 for the same quarter of the previous year)
- PE ratio of The Home Depot: 28.9
- Dividend declared: $1.50
- Dividend yield of The Home Depot: 2.48%
- Diluted shares in issue: 1.077 billion (down -2.6% from 1.106 billion for the same quarter of the previous year)
- Cash and cash equivalents: $8.696 billion
- Cash and equivalents per share: $8.07
- Cash and equivalents makes up 3.35% of The Home Depot's market capital
- Cash and equivalents makes up 14.8% of The Home Depot's total assets
- Merchandise inventories: $14.989 billion
- Home Depot merchandise inventories decreased by -3.26% over the last 12 months
- Inventories makes up 25.5% of Home Depot's total assets
- Receivables: $2.610 billion
- Receivables makes up 4.44% of The Home Depot's total assets
- Home Depot receivables increased by 12.65% over the last 12 months
- Cash generated from operations; $5.737 billion
- Cash generated from operations per share; $5.32
- Customer transactions (in millions): 374.8 (down -3.9% from the 390 million transactions for the same quarter of the previous year)
- Average ticket $74.70 (up 11% from $67.31 for the same quarter of the previous year)
- Sales per square foot: $466.58 (up 7.2% from $435.18 for the same quarter of the previous year)
The Home Depot management commentary on their 1st quarter 2020 earnings
ATLANTA, May 19, 2020 /PRNewswire/ -- The Home Depot®, the world's largest home improvement retailer, today reported sales of $28.3 billion for the first quarter of fiscal 2020, a 7.1 percent increase from the first quarter of fiscal 2019. Comparable sales for the first quarter of fiscal 2020 were positive 6.4 percent, and comparable sales in the U.S. were positive 7.5 percent.
"As the COVID-19 pandemic evolved, we anchored to the core values of our Company by focusing on two key priorities: working to ensure the safety and well-being of our associates and customers, and providing our customers and communities with essential products. We took early and decisive action to intentionally limit customer traffic in our stores which we believe had a significant impact to sales in many markets," said Craig Menear, chairman, CEO, and president. "Even with these actions, the robust and flexible interconnected infrastructure that we have invested in for over a decade allowed us to quickly adapt to changing customer preferences and achieve strong sales performance in the quarter."
In support of these two objectives, the Company took several actions to prioritize safety and enhance associate benefits. To promote a safe environment for associates and customers, the Company implemented a number of operational changes in mid-March, including closing stores earlier to allow more time for sanitation and replenishing of essential products, limiting customer traffic in stores, and canceling traffic-driving events such as Spring Black Friday.
"As the COVID-19 pandemic evolved, we anchored to the core values of our Company by focusing on two key priorities: working to ensure the safety and well-being of our associates and customers, and providing our customers and communities with essential products. We took early and decisive action to intentionally limit customer traffic in our stores which we believe had a significant impact to sales in many markets," said Craig Menear, chairman, CEO, and president. "Even with these actions, the robust and flexible interconnected infrastructure that we have invested in for over a decade allowed us to quickly adapt to changing customer preferences and achieve strong sales performance in the quarter."
In support of these two objectives, the Company took several actions to prioritize safety and enhance associate benefits. To promote a safe environment for associates and customers, the Company implemented a number of operational changes in mid-March, including closing stores earlier to allow more time for sanitation and replenishing of essential products, limiting customer traffic in stores, and canceling traffic-driving events such as Spring Black Friday.
To support its associates during the COVID-19 pandemic, the Company took the following actions:
"I want to thank our associates and express how grateful and proud I am of the resilience and strength that our teams have demonstrated as we navigate these extraordinary circumstances together," said Menear.
Fiscal 2020 Guidance
While sales trends were strong at the end of the first quarter and into the first two weeks of the second quarter, as a result of the uncertainty related to the duration of COVID-19 and its impact on the broader economy, the Company is suspending its previously communicated fiscal 2020 guidance.
Dividend Declaration
The Company today announced that its board of directors declared a first quarter cash dividend of $1.50 per share. The dividend is payable on June 18, 2020, to shareholders of record on the close of business on June 4, 2020. This is the 133rd consecutive quarter the Company has paid a cash dividend.
- Expanded paid time off for all hourly associates with additional hours that can be used at their discretion and will be paid out at year-end if not used;
- Provided additional paid time off for associates who are 65 and older or deemed to be at higher risk according to CDC guidelines;
- Provided weekly bonuses for hourly associates in our stores and distribution centers, and doubled overtime pay; and
- Extended dependent care benefits and waived related co-pays.
"I want to thank our associates and express how grateful and proud I am of the resilience and strength that our teams have demonstrated as we navigate these extraordinary circumstances together," said Menear.
Fiscal 2020 Guidance
While sales trends were strong at the end of the first quarter and into the first two weeks of the second quarter, as a result of the uncertainty related to the duration of COVID-19 and its impact on the broader economy, the Company is suspending its previously communicated fiscal 2020 guidance.
Dividend Declaration
The Company today announced that its board of directors declared a first quarter cash dividend of $1.50 per share. The dividend is payable on June 18, 2020, to shareholders of record on the close of business on June 4, 2020. This is the 133rd consecutive quarter the Company has paid a cash dividend.
The Home Depot (NYSE: HD) stock price history
The image below, obtained from Google shows the stock price history of The Home Depot (NYSE:HD) for the last 5 years and it's been a pretty good time for Home Depot stockholders over the last 5 years. 5 years ago the stock was trading at $114.75 and its currently trading at $235.24. That's a very strong return of 105.1% provided to Home Depot stockholders over the last 5 years.
The stock of Home Depot is trading at a lot closer to its 52 week high of $247.36 than it is to its 52 week low of $179.52 which to us is a clear indication that the short term sentiment and momentum of The Home Depot stock is very positive at this point in time.
The stock of Home Depot is trading at a lot closer to its 52 week high of $247.36 than it is to its 52 week low of $179.52 which to us is a clear indication that the short term sentiment and momentum of The Home Depot stock is very positive at this point in time.
Recent Google search trends for HD stock price
The graphic below shows the trends in Google searches for HD stock price and Home Depot stock price over the last 12 months in the United States as obtained from Google Trends. As the graphic shows there was a significant spike in the searches for HD stock price and Home Depot stock price towards the end of March 2020, and this coincides with a significant decline in the stock price of Home Depot due to global markets selling off due to the coronavirus pandemic.
The Home Depot (NYSE: HD) stock price vs Lowes (NYSE: LOW) stock price over last 3 years
The image below shows the stock price performance of The Home Depot (HD) and Lowes (LOW) over the last three years. And over the three year period the stock of Lowes has outperformed the stock of The Home Depot quiet easily. Over the last three years the stock of Lowes has increased by 38.7% compared to the stock of The Home Depot (HD) that over three years increased by 29.09%
Recent coverage of The Home Depot
The extract below covers the latest regarding The Home Depot as obtained from TheStreet.com
Home Depot (HD) - Get Report reported first quarter earnings on Tuesday, May 19 with both positive and negative news about how the coronavirus pandemic has impacted the hardware and home goods retailer. On the one hand, Home Depot’s sales rose sharply, up more than 7% from a year earlier. The big box retailer has been deemed essential in most states, meaning shoppers are showing up for in-store purchases and curb-side pickups. On top of that, many consumers are stuck at home and, if they have the dispensable cash available, working on do-it-yourself home-improvement projects.
However, coronavirus-related costs dragged down Home Depot’s earnings overall. Home Depot boosted wages, expanded paid time off, and doubled overtime and weekly bonuses for workers to encourage them to continue working through the pandemic. These measures cost the retailer $640 million after taxes
"As the COVID-19 pandemic evolved, we anchored to the core values of our Company by focusing on two key priorities: working to ensure the safety and well-being of our associates and customers, and providing our customers and communities with essential products," said CEO Craig Menear. "We took early and decisive action to intentionally limit customer traffic in our stores which we believe had a significant impact to sales in many markets."
Read the full article here
Home Depot (HD) - Get Report reported first quarter earnings on Tuesday, May 19 with both positive and negative news about how the coronavirus pandemic has impacted the hardware and home goods retailer. On the one hand, Home Depot’s sales rose sharply, up more than 7% from a year earlier. The big box retailer has been deemed essential in most states, meaning shoppers are showing up for in-store purchases and curb-side pickups. On top of that, many consumers are stuck at home and, if they have the dispensable cash available, working on do-it-yourself home-improvement projects.
However, coronavirus-related costs dragged down Home Depot’s earnings overall. Home Depot boosted wages, expanded paid time off, and doubled overtime and weekly bonuses for workers to encourage them to continue working through the pandemic. These measures cost the retailer $640 million after taxes
"As the COVID-19 pandemic evolved, we anchored to the core values of our Company by focusing on two key priorities: working to ensure the safety and well-being of our associates and customers, and providing our customers and communities with essential products," said CEO Craig Menear. "We took early and decisive action to intentionally limit customer traffic in our stores which we believe had a significant impact to sales in many markets."
Read the full article here
The Home Depot (HD) latest stock valuation
So what is Home Depot stock worth based on their 1st quarter 2020 earnings report and the fact that The Home Depot withdrew their earnings guidance provided for their 2020 fiscal year? Based on their earnings report and the fiscal guidance being pulled our valuation model provides a target (full value) price for Home Depot at $196.30 a stock (down from our 4th quarter 2020 earnings report review of Home Depot).
We therefore believe the stock of The Home Depot is overvalued
We usually recommend long term fundamental or value investors look to enter a stock at least 10% below our target (full value) price, which in this case is $196.30, thus a good entry point into The Home Depot would be at $176.70 or below.
We expect the stock of Home Depot to pull back slightly from current levels in coming weeks and months to levels closer to our target price (full value price), as their stock is price is overvalued and has been for some time based on our previous valuations of The Home Depot.
We therefore believe the stock of The Home Depot is overvalued
We usually recommend long term fundamental or value investors look to enter a stock at least 10% below our target (full value) price, which in this case is $196.30, thus a good entry point into The Home Depot would be at $176.70 or below.
We expect the stock of Home Depot to pull back slightly from current levels in coming weeks and months to levels closer to our target price (full value price), as their stock is price is overvalued and has been for some time based on our previous valuations of The Home Depot.
Next earnings release for The Home Depot
It is expected that The Home Depot will release their 2nd quarter 2020 earnings report towards the end of August 2020