Home Depot Updates Guidance: What Does It Mean for Investors?

Home Depot: A positive outlook

With its 2Q16 earnings report, The Home Depot (HD) released an upwardly revised outlook for the remainder of fiscal 2016. Revenue growth estimates for the year were revised to 5.2%–6.0% from the 4.2%–4.8% increase previously projected on the company’s 1Q16 earnings call. Comp (comparable) sales growth in fiscal 2016, which ends January 31, 2016, is now expected at 4.1%–4.9%, up from 4.0%–4.6%.

EPS (earnings per share) for fiscal 2016 was also revised upward. HD is now expecting to generate diluted EPS of $5.31–$5.36, up 13%–14% year-over-year. Earlier, HD’s guidance range for diluted EPS was $5.24–$5.27, a growth rate of 11%–12% over fiscal 2015.

Home Depot Updates Guidance: What Does It Mean for Investors?

Peer group guidance

Most of HD’s peers such as Wayfair (W) and Restoration Hardware (RH) are also upbeat on prospects, buoyed by the housing market resurgence, higher home prices, and a booming labor market.

Lowe’s (LOW), which released 2Q16 earnings a day after The Home Depot, has left sales and earnings guidance unchanged. The company is expecting top-line growth of 4.5%–5.0%, with comp sales growth of 4.0%–4.5%. LOW projects diluted EPS at $3.29 for fiscal 2016, a growth rate of ~21.9% over the previous year.

Pier 1 Imports (PIR), however, released a downward revised outlook in June, largely on expense management concerns for the balance of the current year.

HD’s guidance, the upside and downside

HD’s EPS guidance has been revised upward partly due to the better-than-expected growth in its top line, the proposed acquisition of Interline Brands, and the higher share repurchase estimate of $3.9 billion for the remainder of the fiscal year.

However, potential future headwinds to the EPS estimate include the cost and litigation liability for the 2014 data breach. While these aren’t a material component to HD’s cost structure and are insured in part, a higher-than-expected liability could affect the company’s reported EPS.

HD makes up ~1.5% of the holdings of the iShares Russell 1000 Growth ETF (IWF) and 0.7% of the holdings of the iShares Russell 1000 ETF (IWB).

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