Where Home Depot Earnings, Guidance Went Soft

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Home Depot Inc. (NYSE: HD) reported fourth-quarter and full-year 2018 results before markets opened Tuesday. The home improvement store posted diluted net earnings per share (EPS) of $2.09 for the quarter on revenues of $26.5 billion. In the same period last year, the company reported EPS of $1.52 and revenues of $23.88 billion. Consensus estimates had called for EPS of $2.16 and revenues of $26.57 billion.

For the full year, Home Depot reported EPS of $9.73 on sales of $108.2 billion, compared with fiscal 2017 EPS of $7.29 and sales of $100.9 billion. Analysts had forecast EPS of $9.80 and sales of $108.38 billion.

Same-store sales rose 3.2% globally and 3.7% in the United States during the quarter. The company noted that the fourth quarter included 14 weeks compared to 13 weeks in the prior year. The extra week was not included in the same-store sales calculations.

Home Depot had forecast full-year sales growth at 7.2% year over year and hit the nail right on the head. Home Depot’s global same-store sales guidance for the full year had been a range of 5.3% to 5.5%. The actual increase was 5.2%.

More concerning to investors is the company’s forecast of 2019 same-store sales growth of 5%. That weaker outlook, combined with a lower-than-expected outlook for EPS, is not welcome news and is leading to a sell-off in Tuesday’s premarket trading.

CEO Craig Menear said:

We achieved record sales and net earnings in fiscal 2018, while making great progress on the strategic investments we laid out in December of 2017. We focused on enhancing the interconnected retail experience for our customers, providing localized and innovative product, and delivering best in class productivity. Our view on the health of the economy and the consumer, as well as the momentum of our strategic investments, supports our belief that we can deliver comparable sales growth of 5.0 percent in fiscal 2019.

Share repurchases totaled $9.96 billion for the year and are guided to $5 billion for 2019. Same-store sales growth is forecast at 3% and diluted EPS is forecast at $10.03, well short of a consensus analysts’ estimate of $10.26.

The stock traded down about 2.5% in Tuesday’s premarket session, at $185.29 in a 52-week range of $158.09 to $215.43. The 12-month consensus price target on the shares was $203.07 before this morning’s report.

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