Home Depot Beat Lowe’s EPS Growth in the First Three Quarters



Home Depot’s EPS growth

Home Depot (HD) posted an EPS of $7.64 in the first three quarters of 2018—an increase of 32.0% from $5.79 in the first three quarters of 2017. Revenue growth, expanded net margins, and share repurchases drove the company’s EPS during this period.

For the first three quarters of 2018, Home Depot’s net margins improved from 8.9% in the same quarters of 2017 to 10.7%. The expansion was driven by an improvement in the gross margin and the lower effective tax rate. The expansion was partially offset by an increase in SG&A (selling, general, and administrative) expenses.

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During the same period, Lowe’s gross margins increased 0.3% to 34.4% due to adopting the new accounting standard. The improvement was partially offset by higher transportation and fuel expenses. The SG&A expenses increased 0.5% due to adopting the new accounting standard and the company’s planned investments to enhance customers’ experience. The increase was partially offset by sales leverage from the positive SSSG and implementing expense control initiatives.

Lowe’s EPS growth

In the first three quarters of 2018, Lowe’s (LOW) posted an EPS of $4.30—an increase of 17.8% from $3.65 in the same three quarters of 2017. Lowe’s EPS growth was driven by revenue growth, the expanded net margin, and share repurchases.

During the same period, Lowe’s net margins expanded from 5.8% to 6.3%. The expansion was driven by the lower effective tax rate. The expansion was partially offset by lower gross margins and higher SG&A expenses. The company’s effective tax for the first three quarters was 23.8%—compared to 36.3% in the same three quarters in 2017.

Inventory rationalization and reset-related clearance activity lowered the company’s gross margin during this period, which was partially offset by implementing the new revenue recognition standard. The SG&A expenses increased 1.8% due to deleveraging from adopting the new accounting standard, strategic reassessment, and a rise in delivery and labor expenses.

Next, we’ll discuss analysts’ revenue expectations for Home Depot in 2018 and 2019.


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