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The Home Depot (HD) Beats on Q4 Earnings, Dips on Soft View

The Home Depot, Inc. HD has posted fourth-quarter fiscal 2020 results, wherein earnings and sales beat the Zacks Consensus Estimate and improved year over year. The company gained from the continued strong demand for home-improvement projects as well as its ongoing investments. However, it did not provide a specific outlook for fiscal 2021.

The company stated that it is difficult to predict the demand environment in fiscal 2021 due to the uncertainty related to the duration of the pandemic and its impacts on consumer spending. Based on the expectations that the demand environment prevalent in the second half of fiscal 2020 will continue throughout fiscal 2021, the company anticipates comparable sales growth of flat to slightly positive. Moreover, operating margin is expected to be at least 14% compared with 13.8% reported in fiscal 2020.

Shares of the home-improvement retailer declined 2.1% in the pre-market session despite better-than-expected results in fourth-quarter fiscal 2020. The soft pre-market performance can be attributed to the company’s soft view for fiscal 2021, owing to the pandemic-led uncertainties.

Moreover, the Zacks Rank #3 (Hold) stock has risen 3.9% year to date compared with the industry’s growth of 6.2%.

 

 

Q4 Highlights

 

Earnings of $2.65 per share improved 16.2% from $2.28 registered in the year-ago quarter. Excluding the one-time cost related to the acquisition of HD Supply Holdings Inc., adjusted earnings was $2.74 per share. The bottom line beat the Zacks Consensus Estimate of $2.63.

Net sales advanced 25.1% to $32,261 million from $25,782 million in the year-ago quarter and beat the Zacks Consensus Estimate of $30,655.1 million. Sales benefited from the continued robust demand for home improvement projects. The company is effectively adapting to the high-demand environment, driven by investments in its business over the years and the dedication of its associates to serve customers. Its overall comps grew 24.5%, with a 25% improvement in the United States.

The Home Depot, Inc. Price, Consensus and EPS Surprise

 

The Home Depot, Inc. price-consensus-eps-surprise-chart | The Home Depot, Inc. Quote

In the reported quarter, comps were aided by a 10.8% rise in average ticket and a 12.8% increase in customer transactions. Moreover, sales per square foot rose 24%.

In dollar terms, gross profit increased 24% to $10,831 million from $8,736 million in the year-ago quarter, primarily driven by robust sales growth. Meanwhile, gross profit margin contracted 31 basis points (bps) to 33.6%.

Operating income increased 20% to $4,083 million, while operating margin declined 54 bps to 12.66%. Despite gains from the robust top line, operating margin was hurt by a gross margin decline as well as higher SG&A and other operating expenses.

Balance Sheet and Cash Flow

 

The Home Depot ended fiscal 2020 with cash and cash equivalents of $7,895 million, long-term debt (excluding current maturities) of $35,822 million, and shareholders' equity of $3,299 million. In fiscal 2020, it generated $18,839 million of net cash from operations.

In fiscal 2020, the company paid out cash dividends of $6,451 million and repurchased shares worth $791 million.

Moreover, it has raised its quarterly dividend by 10% to $1.65 per share. This brings the company’s annualized dividend to $6.60 per share. The hiked dividend is payable Mar 25, 2021, to shareholders of record as of Mar 11.

3 Better-Ranked Retail Stocks

 

Lumber Liquidators Holdings, Inc. LL has a long-term earnings growth rate of 27.5% and a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Target Corporation TGT, also a Zacks Rank #2 stock, has a long-term earnings growth rate of 8.5%.

Dollar Tree, Inc. DLTR has a long-term earnings growth rate of 10.9%. It presently carries a Zacks Rank #2.

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