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Home Depot EBITDA Margin: From 2013-2018, Home Depot improved margins to about 18.5% by streamlining its operations, supply chain, and cutting down heavily on its SG&A expenses. Margins were also aided due to the substantial growth in same-store sales. Going forward, we expect the margins to continue to slightly increase to reach the 19.6% mark over the Trefis forecast period, with further operating leverage as comps improve. However, if the comps grow only modestly, and there is limited or no operating leverage, the margins would remain steady, causing a 5% downside to our current price estimate. On the other hand, if the housing market and home improvement industry continues to strengthen, and outpace previously forecast growth estimates, and comps improve better than expected, resulting in the margins reaching 20.6%, there could be an over 5% upside to our current price estimate.
Home Depot is the world’s largest retailer of home improvement products. Home Depot has grown to 2,287 stores spanning across the U.S., Canada, and Mexico. It offers a wide range of home improvement products and installation services to individual home owners as well as professional builders. In addition to the physical stores, consumers can buy these products through the company’s dedicated website. Home Depot has deep penetration in the U.S., Canada, and Mexico.
Home Depot's business is vulnerable to the housing market, and the housing slowdown has widely affected its sales. In fact, Home Depot had to close down its EXPO and HD supply businesses as their sales were badly impacted during the housing market downturn, making these businesses highly unprofitable.
Home Depot and Lowe's are the number one and two home improvement retailers in the U.S. In 2013, Home Depot outpaced Lowe's in terms of same store sales growth with better pricing. In 2014, sales growth was recorded at 4.3% for Lowe's and 5.3% for Home Depot. In 2015, while Home Depot's comps grew 5.6%, that of Lowe's grew only 4.8%. Home Depot bucked the trend of declining sales for retailers in early 2016 on higher consumer spending on home improvement. The company comfortably beat Lowe's comps in FY 2017 and FY 2018, given the guidance provided by the two companies for 2019, we expect the trend to continue.
Home Depot has been stealing valuable market share from arch-rival Lowe's due to better pricing models. In late 2011, Lowe's had decided to move away from promotions to everyday low prices to establish itself as the retailer offering the most competitive prices. However, Lowe's sales continue to struggle more than they already would have in a depressed housing market as customers continued to seek discounts, particularly for discretionary and big-ticket purchases. Home Depot has been grabbing market share from Lowe's due to better pricing models.
Following the recession, Home Depot focused on cost-cutting and improving customer service, whereas Lowe's opted for promotional sales and kept opening new stores, which produced diminishing returns. Since mid-2010, Home Depot's quarterly comparable-sales-growth rates have consistently outpaced Lowe's.
Online retail has been an emerging threat to the market share of brick and mortar home improvement retailers like Home Depot and Lowe's. For this reason both companies have made significant investments in online strategies, including small acquisitions and improvements in the web experience for their customers.
As a result of the gradual market recovery, Home Depot's same store sales growth (comps) has gradually improved from 2.9% in 2010 to 6.8% in 2017. This figure declined slightly in 2018 to 5.4% due to tougher y-o-y comparison and unfavorable weather conditions. Further, this expected to increase by 5% in 2019. This helped Home Depot improve its margins through operating expense leverage during 2010-2018. Going forward, we expect comps to continue to improve, as sales rise. This should bring in further operating expense leverage, thereby pushing up margins.
Home Depot has been focusing on supply-chain improvements through its central distribution system. We expect overall margins to further improve as the company continues its supply-chain improvements. Rapid Deployment Centers (RDC) aim to aggregate product needs for multiple stores to a single purchase order, and then rapidly allocate and deploy inventory to individual stores upon arrival at the RDC. This move aims to simplify the ordering process and improve inventory management. Home Depot has 18 fully mechanized RDCs in the U.S.
The pro segment is estimated at $120 billion a year, nearly as large as the do-it-yourself segment. A breakdown of Home Depot's comparable sales growth in the last few quarters shows a broader increase in the average ticket size as compared to a customer traffic increase. Transactions of $1000 or more have grown by high single-digit or double-digit percentages in the last few quarters. Pro sales continue to grow disproportionately faster than Home Depot's average, boosting its top line and leading to a market-beating growth in categories such as plywood, fencing, and industrial lighting.
A survey from NRHA suggests a change in the buying patterns among U.S. home improvement consumers. People are no longer only loyal to products made in the U.S. Consumer demand is driven more by price and quality. Consumers may find foreign products, which may be better suited to their needs, and more appealing than products made in the U.S. Another observable trend is the shift in consumers toward buying green or eco-friendly products, such as water-saving flushes and electricity-saving appliances.
After an 80% rise since the March lows of this year, at the current price of around $270 per share, we believe Home Depot's stock (NYSE: HD) has reached its near term potential. ...More
After a 65% rise since the March lows of this year, at the current price of around $250 per share (as of June 18th), we believe Home Depot's stock (NYSE: HD) has reached its near term potential. ...More
Home Depot's (NYSE: HD) stock could grow at a reasonable rate but potentially underperform the broader S&P index post coronavirus and oil price war crisis, going by the trends seen during the 2008 slowdown. Home Depot's stock declined from about $229 on March 6th to $185 as of yesterday, March 24th, a 19% drop (vs. ...More
Home Depot's (NYSE: HD) fair price estimate based on expected 2019 earnings is $225, according to Trefis estimates. This is line with the current market price of around $225. The Home Depot, Inc. is the world’s largest home improvement retailer based on net sales for fiscal 2018. ...More
Lennar Corporation (NYSE: LEN) is the largest homebuilder in the U.S. in terms of consolidated revenue. The company is also an originator of mortgage loans and a developer of multifamily rental properties. ...More
Sherwin-Williams (NYSE: SHW) manufactures paints, coatings, and related products that cater primarily to the North and South American markets. The company’s stock has risen by about 40% this year, trading at levels of around $560 currently. ...More
D.R. Horton (NYSE: DHI), the largest home building company in the U.S., in terms of the number of homes closed, has seen its stock post a steady increase this year, rising by over 20% over the last 3 months and by close to 50% since January. There have been multiple factors driving this growth. ...More
Home Depot (NYSE: HD), whose stock is currently trading at around $230, generates its revenue from its Stores operating across the US, Canada, and Mexico. In this note we discuss the historical performance, and expected Total Revenue for FY 2019. ...More
Home Depot's (NYSE: HD) stock price has increased more than 1.6x from $134/share in August 2016 to $220/share in August 2019. The increase was primarily driven by a continuous increase in Total Revenue, Net Income margin, and the buyback of shares. ...More
Home Depot (NYSE: HD) announced its Q1 2019 (ended April 2019) results on May 21, 2019, followed by a conference call with analysts. The company just beat consensus for revenue which was recorded at $26.4 billion, up by 5.7% y-o-y. The increase was driven largely by growth in comparable sales by 2. ...More
Home Depot (NYSE: HD) is set to announce its Q1 2019 (ended April 2019) results on May 21, 2019, followed by a conference call with analysts. The market expects the company to report revenue close to $26.4 billion for Q1 2019 (ended April 2019), which would be an increase of 5.8% on a y-o-y basis. ...More
Trefis estimates that a continuous increase in the revenue per square foot covered metric will take Home Depot's (NYSE: HD) revenue to more than $122.1 billion by 2021. The company posted revenue of $108.2 billion and earnings of $9.78 for 2018. ...More
Despite ending fiscal 2018 on a fairly positive note, Home Depot's (NYSE: HD) shares fell by nearly 3% mainly due to a weaker-than-expected Q4 - as a result of unfavorable weather conditions, tougher year-on-year comparison, and a $247 million charge linked to Interline brands - in addition to soft fiscal 201... ...More
Home Depot (NYSE:HD) had a fairly strong first three quarters of 2018, as the home improvement retailer managed to grow its revenue by just over 6% in the first 9 months of the year. ...More
Home Depot (NYSE:HD) has reported solid revenue and earnings growth through the first nine months of the year, driven by the robust growth of its digital segment, coupled with marked improvement in the housing market. ...More
Home Depot (NYSE:HD) beat consensus expectations on both sales and earnings, with the metrics improving to $26.3 billion and $2.51 per share. The revenue increase has been driven by strength in the housing market and growth in its digital segment. ...More
Home Depot (NYSE:HD) is scheduled to report its third quarter earnings on November 13, wherein a 5% growth in sales and an over 23% improvement in earnings is expected. ...More
After a disappointing first quarter, due to colder than normal weather conditions, Home Depot (NYSE:HD) knocked one out of the park in Q2. Consequently, a better than expected first half performance prompted the company to up its full year guidance to 7% growth in sales and a diluted EPS of $9. ...More
Home improvement companies Home Depot (NYSE:HD) and Lowe's (NYSE:LOW) seem to be ready for the hurricane season even if the residents are not. With Hurricane Florence looming on the horizon, consumers have been flocking to grocery and hardware stores to stock up on the necessary supplies. ...More
Home Depot (NYSE:HD) knocked one out of the park in its second quarter, posting a beat of $450 million on revenues and $0.21 per share for earnings. The home improvement retailer delivered a comparable sales growth of an impressive 8%, versus a consensus expectation of 6. ...More