Why Home Depot Could See Muted Store Growth in the Medium-Term

Home Depot’s fiscal 2017 sales estimates

Home Depot (HD) expects to generate sales growth of between 5.1% and 6.0% in fiscal 2017. This would imply full-year sales of between $93 billion and $93.8 billion. Sales growth (IWF) is expected to be driven by both new store sales and higher same-store sales.

Home Depot projects that it will open five new stores in Mexico this fiscal year. Based on current exchange rate levels, the retailer (XRT) (XLY) expects adverse foreign exchange movements to negatively impact sales by $800 million in fiscal 2017.[1. Guidance provided by Carol Tomé, chief financial officer of HD] Same-store sales are expected to grow 3.7%–4.5% in the year.

Why Home Depot Could See Muted Store Growth in the Medium-Term

Home Depot’s earnings per share growth

Earnings per share (or EPS) are projected to rise faster for Home Depot in fiscal 2017. The world’s largest home improvement (ITB) retailer is projecting EPS of $6.12–$6.18 in fiscal 2017, implying growth of between 12% and 13% year-over-year (or YoY).

Home Depot’s operating income margin is expected to expand by 0.70 percentage points in the region of 14%. The company is also targeting share repurchases of $5 billion in the year, which should reduce its diluted share count and provide an EPS upside.

In contrast, rival Lowe’s (LOW) is projecting sales growth of 6% with 45 new stores on the anvil this fiscal year. On the other hand, Pier 1 Imports (PIR) is projecting over 20 store closures in fiscal 2017 as it looks to revive sales growth and move more business online.

Medium-term outlook

In the next three years, HD expects to open between five and seven new stores per year, with compounded annual sales growth projected at 4.7% over the period, including sales from the Interline Brands acquisition.

The company is projecting annual sales to grow to $101 billion over the next few years, up from $88 billion in fiscal 2016.