Why Home Depot Got Hammered After Earnings

Paul Ausick

Home Depot Inc. (NYSE: HD) reported first-quarter 2018 results before markets opened Tuesday. The home improvement store posted diluted net earnings per share of $2.08 on revenues of $24.95 billion. In the same quarter of last year, the company reported EPS of $1.67 and revenues of $23.9 billion. Consensus estimates called for $2.06 in EPS and revenues of $25.22 billion.

While revenues were a bit shy of estimates, the real downer for Home Depot was same-store sales. Analysts were looking for total same-store sales to rise by 5.6%, and that target was not in sight as the company reported same-store sales of 4.2%. U.S. same-store sales missed by even more, 3.9% versus an estimate for growth of 5.5%.

Home Depot expects fiscal year 2018 sales to rise by 6.7% and same-store sales to rise by about 5%. EPS growth is tabbed at 28%, and EPS is forecast at $9.31. Analysts were estimating second-quarter revenues of $29.72 billion and EPS of $2.84. For the full year, analysts were looking for EPS of $9.43 and sales of $107.76 billion, an increase of 6.8%.

CEO Craig Menear said:

Outside of our seasonal business, we had solid results in all markets and categories and are seeing strong momentum in all lines of business during these first few weeks of May. These trends, as well as a favorable housing and macroeconomic backdrop, give us confidence to reaffirm our sales and earnings guidance for fiscal 2018.

Cost of sales rose 5.7% to $16.33 billion and operating expenses were up 9% to $5.24 billion. Operating income rose year over year by 1% to $3.38 billion. Net profit rose 19.4% to $2.4 billion.

Customer transactions fell 1.3% to 375.9 million, but the average sale rose by 5.8% to $66.02. Sales per square foot rose 4.5% to $412.03.

There is just enough weakness in Home Depot’s results (revenues were soft, same-store sales missed badly) to induce shareholders to sell in Tuesday’s premarket. Close is not enough in an equities market that many investors and analysts think is overvalued.

The stock traded down about 2.4% to $186.50, in a 52-week range of $144.25 to $207.61. The 12-month consensus price target on the shares is $211.24.