What Are Home Depot’s Key Drivers in Fiscal 2016?



Home Depot’s performance in 2Q16

Home Depot (HD) reported an adjusted EPS (earnings per share) of $1.71 in 2Q16—a rise of 12.5% compared to the same quarter last year. The company was slightly ahead of Wall analysts’ consensus estimates. This was the fifth straight quarter that the earnings beat the estimates.

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Upbeat outlook

In the earnings report for 2Q16, Home Depot released an upwardly revised full-year guidance for fiscal 2016. The revenue growth estimates for the year were revised to 5.2%–6.0% from the 4.2%–4.8% rise projected at the earnings call for 1Q16. The comps sales growth in fiscal 2016[1. Fiscal year ending January 31, 2016] is now expected to be 4.1%–4.9%. This is up from 4.0%–4.6% projected earlier.

The EPS for fiscal 2016 was also revised upwards. Now, Home Depot is expecting to generate a diluted EPS of $5.31–$5.36. This is up 13%–14% YoY (year-over-year). Earlier, Home Depot’s guidance range for the diluted EPS was $5.24–$5.27. This was a growth rate of 11%–12% compared to fiscal 2015.

Some firms in the home improvement and furnishing industries are also upbeat about future prospects. They released guidance that reflects this. The companies include Restoration Hardware (RH). Restoration Hardware expects its adjusted diluted EPS to be $3.06–$3.16 in fiscal 2016. This is up from the $3.02–$3.15 range projected at the end of 1Q16.

However, Lowe’s (LOW) left its full-year guidance unchanged. Its EPS growth is projected at 21.9% in fiscal 2016.

Home Depot accounts for ~0.31% of the portfolio holdings in the iShares MSCI USA Minimum Volatility ETF (USMV) and 0.87% in the Vanguard S&P 500 ETF (VOO).

Earnings drivers

The increase in the earnings projections comes as Home Depot is expecting higher growth in sales, partly due to its better-than-expected performance in 1H16. It’s also partially due to its acquisition of Interline Brands. Expense deleveraging, as we discussed in the last part, also contributes to higher future earnings growth.

In the next part of this series, we’ll discuss the EPS more as well as Home Depot’s stock drivers.


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