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Category: Stock Market and The Home Depot
Date: 24 August 2019 Stock Price: $217.47 We take a look at the 2nd quarter 2019 financial results from the world's largest home improvement company. Has the booming US economy benefited the group? Net earnings declined compared to a year ago but due to less shares in issue the earnings per share improved.
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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.
Financial overview
Numbers we are interested in: (for the quarter)
- Net sales: $ 30,839 billion (up 1.2% from $ 30,463 billion in the prior year)
- Cost of sales: $20,407 billion (up 1.5% from $20,098 billion in the prior year)
- Gross profit: $10,432 billion (up 0.6% from $ 10,365 billion in the prior)
- Net earnings $ 3,479 billion (down 0.8% from $ 3,506 billion in the prior year)
- Diluted earnings per share: $3.17 (up 3.9% from $3.05 in the prior year)
- Dividend per share for the quarter: None reported (trading at full year dividend yield of 2.5%)
- Cash generated from operations: $5.992 billion
- Cash generated from operations per share: $5.47 a share
- Cash and equivalents per share: $2.547 billion
- Cash per share on balance sheet: $2.36
- Merchandise inventories:: $14,741 billion (up 4.9% from $14,044 billion in the prior year)
- PE ratio: 17.1 (based on this quarter earnings being annualised to full year)
- Shares in issue: 1.095 billion (down 4.3% from 1.114 billion in the prior year)
- Receivables (money still owed to the group): $2.274 billion (up 5.1% from $2.164 billion in the prior year)
- Customer transactions (in millions) 455.5 which is the same as as the same quarter of the previous year
- Average ticket $ 67.31 up 1.7% from $ 66.20 for the same quarter of the previous year
- Sales per square foot $ 509.55 up 1.1% from $ 504.20 for the same quarter of the previous year
The Home Depot management commentary on the results and earnings guidance
ATLANTA, August 20, 2019 -- The Home Depot®, the world's largest home improvement retailer, today reported sales of $30.8 billion for the second quarter of fiscal 2019, a 1.2 percent increase from the second quarter of fiscal 2018. Comparable sales for the second quarter of fiscal 2019 were positive 3.0 percent, and comparable sales in the U.S. were positive 3.1 percent. In the second quarter, the principal difference between the Company’s sales growth and comparable sales performance reflects a shift in the fiscal calendar base due to 53 weeks of sales in fiscal 2018. Net earnings for the second quarter of fiscal 2019 were $3.5 billion, or $3.17 per diluted share, compared with net earnings of $3.5 billion, or $3.05 per diluted share, in the same period of fiscal 2018. For the second quarter of fiscal 2019, diluted earnings per share increased 3.9 percent from the same period in the prior year. “We were pleased with our results as we delivered accelerating comp performance throughout the quarter,” said Craig Menear, chairman, CEO and president. “I would like to thank our associates for their hard work and continued dedication to our customers.” “We are encouraged by the momentum we are seeing from our strategic investments and believe that the current health of the U.S. consumer and a stable housing environment continue to support our business. That being said, lumber prices have declined significantly compared to last year, which impacts our sales growth. As a result, today we are updating our sales guidance to account primarily for continued lumber price deflation, as well as potential impacts to the U.S. consumer arising from recently announced tariffs. We are reaffirming our earnings-per-share growth guidance for fiscal 2019.”
Fiscal 2019 Guidance
The Company updated its guidance for fiscal 2019, a 52-week year compared to fiscal 2018, a 53-week year. The Company expects its fiscal 2019 sales to grow by approximately 2.3 percent and comp sales for the comparable 52-week period to be up approximately 4.0 percent. The Company reaffirmed its diluted earnings-per-share growth guidance for the year and expects diluted earnings-per-share growth of approximately 3.1 percent from fiscal 2018 to $10.03. The Home Depot will conduct a conference call today at 9 a.m. ET to discuss information included in this news release and related matters. The conference call will be available in its entirety through a webcast and replay at http://ir.homedepot.com/events-and-presentations. At the end of the second quarter, the Company operated a total of 2,291 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico. The Company employs more than 400,000 associates.
The Home Depot's stock is traded on the New York Stock Exchange (NYSE: HD) and is included in the Dow Jones industrial average and Standard & Poor's 500 index.
The image below shows the categories within The Home Depot that showed above average growth during Q2:2019
Fiscal 2019 Guidance
The Company updated its guidance for fiscal 2019, a 52-week year compared to fiscal 2018, a 53-week year. The Company expects its fiscal 2019 sales to grow by approximately 2.3 percent and comp sales for the comparable 52-week period to be up approximately 4.0 percent. The Company reaffirmed its diluted earnings-per-share growth guidance for the year and expects diluted earnings-per-share growth of approximately 3.1 percent from fiscal 2018 to $10.03. The Home Depot will conduct a conference call today at 9 a.m. ET to discuss information included in this news release and related matters. The conference call will be available in its entirety through a webcast and replay at http://ir.homedepot.com/events-and-presentations. At the end of the second quarter, the Company operated a total of 2,291 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico. The Company employs more than 400,000 associates.
The Home Depot's stock is traded on the New York Stock Exchange (NYSE: HD) and is included in the Dow Jones industrial average and Standard & Poor's 500 index.
The image below shows the categories within The Home Depot that showed above average growth during Q2:2019
The Home Depot stock price history
The image below shows the stock price history of The Home Deport (NYSE:HD) for the last 5 years. Its been a fairly continuous upward trend in the share price of The Home Depot, with the group having rewarded shareholders handsomely over this period. With the stock price having more than doubled in the last 5 years from under $100 a share to the current $217.47 a share.
The Home Depot (HD) stock valuation
So what are The Home Depot shares worth considering their latest results and the fact that their net earnings declined for this quarter compare d to the same quarter of the previous year? Based on the group's strong cash generation, their well maintained receivables which is not ballooning out of hand we value the group's shares at $217.07 a share. We therefore believe that The Home Depot is fully priced and does not offer investors a great buying opportunity right now. Investors should look to buy at around 10% lower than our full valuation price. So a good price to buy The Home Depot shares at is around $196 a share