Holiday Spending and Warmer Winter Boost Home Depot’s Results

HD: Home Depot logo
Home Depot

Home Depot (NYSE:HD) continued to beat analyst estimates last quarter as its sales grew 6% (y/y) to $16 billion, riding on holiday and warmer winter sales. For the complete fiscal 2011, the home improvement retailer’s sales rose 3.5% from fiscal 2010 with 3% growth in same store sales. With signs of positive sentiment in the housing market, its share price has gained 20% over the last three months. Home Depot, nonetheless, maintained a cautious view on the housing market recovery. It has continued to outperform its closest competitor Lowe’s (NYSE:LOW) over the last few quarters. Lowe’s is expected to announce its fourth quarter and annual results next week.

Our complete analysis for Home Depot’s stock

Warmer Winter Holidays Boost Sales

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Last quarter, the holiday season helped boost customer traffic which led to stronger sales. The uncharacteristic warm weather drove increased demand for exterior project categories, helping sales by another 2-2.5%, more than offsetting negative performance in winter weather categories like heating and insulation.

The core merchandising areas stayed strong, particularly maintenance-repair and interior categories. All categories reported positive comps, except mill-work which reported a negative performance as the energy-efficient tax credit expired in the U.S. in 2010. Overall, total transactions grew by 3.6%, while average ticket also increased 2.4% for the quarter.

Cautious On The Housing Market Recovery

The company noted a steady recovery in the hardest hit housing markets, particularly in Florida and California. Nonetheless, the company maintained a cautious view on the housing market despite signs of some improvements in private fixed residential investments (which are still at historical lows) and home builder sentiment.

Fiscal 2012 Guidance

For fiscal 2012, Home Depot expects sales growth of approximately 4%  including the 53rd week which could add up to $1 billion to total sales. Comparable store sales could grow in low single-digits, with moderate gross margin expansion and operating margin improvements by up to 50 basis points.

We are in the process of revising our Trefis price estimate of $40 for Home Depot’s stock.

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