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Home Depot’s 1Q16 Performance Has Some Strong Tailwinds

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Performance preview: Home Depot in 1Q 2016

Home Depot (HD), the largest home improvement retailer in the world, will report its earnings for the first quarter of fiscal 2016[1. The quarter ended April 30, 2015.] on May 19. The company is looking to build on its record-breaking performance in fiscal 2015, when it clocked $83.2 billion in revenue. Home Depot is projecting top-line growth between 3.5% and 4.7% year-over-year in fiscal 2016.

Consensus Wall Street estimates project that Home Depot’s sales will come in at $20.8 billion in 1Q16, an increase of 5.7% over 1Q15. The company came ahead of Wall Street expectations in its last three quarters.

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Same-store sales trends

In fiscal 2015, Home Depot (HD) clocked same-store sales growth of 5.3%, compared to 7.1% for Williams-Sonoma (WSM), 4.3% for Lowe’s (LOW), 2.4% for Bed, Bath & Beyond (BBBY), and 4.7% for Pier 1 Imports (PIR).

The company’s sales growth in 2015 was driven by higher store comps as well as higher customer store transactions and an increase in ticket size. Store comps rose 5.3% and 7.9% in fiscal 2015 and 4Q15, respectively. For the US market, store comps for HD were even higher, at 6.1% in fiscal 2015.

In the prior year’s comparable quarter ended May 5, 2014, Home Depot’s comps growth came in at 2.6%. Rival Lowe’s (LOW) reported same-store sales growth of 0.9%. Both Home Depot and Lowe’s were affected by last year’s cold snap and the resulting contraction in 1Q14 GDP that affected almost all economic sectors.

Outlook

Home Depot (HD) projects comps sales growth at about 3.3% to 4.5% in fiscal 2016—around 150 basis points above gross domestic product growth. In Part 5 of this series, I discuss how the US economic picture is likely to affect consumer spending (RXI) and performance for Home Depot (HD) and its competitors.

Home Depot (HD) and Lowe’s (LOW) together constitute ~9% and 8%, respectively, of the Consumer Discretionary Select Sector SPDR Fund (XLY) and the iShares U.S. Home Construction ETF’s (ITB) portfolio holdings.

For a detailed analysis of Home Depot, read our business overview series Home Depot (HD): Built of Strong Stuff.

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