
Why Home Depot’s Net Margin Fell in 4Q17
By Rajiv NanjaplaUpdated
4Q17 margins
In 4Q17, Home Depot (HD) posted gross margin, EBIT (earnings before interest and tax) margin, and net margin of 33.9%, 13.4%, and 7.4%, respectively. In 4Q16, those margins were 34%, 13.2%, and 7.9%, respectively.
The contraction in Home Depot’s net margin was due to a fall in gross margins and a higher effective tax rate. Its gross margin fell 0.12% due to an increase in lower-margin, hurricane-related sales. In 4Q17, its effective tax rate was 39.6% compared to 35.2% in 4Q16. However, some of the declines were offset by a contraction in its operating margin. The company’s SG&A (selling, general, and administrative) expenses fell 0.2%, from 18.8% in 4Q16 to 18.6% in 4Q17. D&A (depreciation and amortization) expenses fell from 2% to 1.9%.
Peer comparisons
Outlook
For 2018, analysts are expecting Home Depot to post gross margin, EBIT margin, and net margin of 34%, 14.7%, and 9.8%, respectively. Comparatively, in 2017, those margins were 32.2%, 14.6%, and 8.6%, respectively. The expansion of net margins is expected to be driven by a lower effective tax rate. Management expects the company’s effective tax rate for 2018 to be 26% compared to 37% in 2017.
Next, we’ll look at Home Depot’s 4Q17 EPS (earnings per share).