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Company earningsNewsSupply ChainsTrucking

Home Depot not baking in any impact from coronavirus

The retailer reports record holiday sales during 2019

The world’s largest home improvement retailer, The Home Depot Inc. (NYSE: HD), doesn’t see any material impact from the coronavirus at this point. On its Feb. 25 earnings conference call, management said that all of the company’s first quarter merchandise is either on shore or on its way. Further, management said that they were encouraged to see production in China coming back on line.

On the potential for supply chain disruption, management said that the second quarter “picture [is] still developing,” but added that 70% of the company’s merchandise is sourced domestically.

The retailer reported earnings per share (EPS) of $2.28 for its fiscal fourth quarter 2019 ended Feb. 2, better than analysts’ expectations of $2.11, and the $2.09 reported for the fiscal 2018 fourth quarter.

“Fiscal 2019 was a record year for our business and one marked by significant progress as we invest to transform ourselves into The Home Depot of the future. We had a strong finish to the year as our fourth quarter results reflect strength in our core business, solid execution around our holiday events and the overall health of the consumer,” said Home Depot Chairman and CEO Craig Menear.

The Atlanta-based company reported a 5.2% year-over-year increase in comparable sales for the quarter. Total net sales declined 2.7% in the period to $25.8 billion, but the prior year period included one additional week, which the company said accounted for $1.7 billion in additional sales.

The Home Depot’s Key Performance Indicators

On the call, management called out a record sales year in 2019 with news sales records being achieved on Black Friday and during Cyber Week. When comparing the November-December holiday shopping period on a year-over-year basis, comparable sales increased 5%. Management noted a 35-basis point favorable impact to the fourth quarter, versus the third quarter, given the later Thanksgiving holiday and start to the shopping season.

Online sales rose 20.8% year-over-year in the quarter, excluding the impact from the extra week.

Management said that the economy is “strong” and that the “consumer is very strong,” noting improvement in all of its segments with the largest year-over-year outperformance being reported in appliance demand.

Thus far, The Home Depot has experienced “neutral” winter weather with “extended season” in some markets that haven’t been impacted by ground freeze. However, the offset has been lower sales for items involving snow removal and ice melt.

Inventories increased 4.4% year-over-year. Management said that it aims to be “better stocked” in 2020, stating later in the call that the company was gearing up for the spring selling season.

The company reiterated its fiscal 2020 guidance provided during its investor and analyst conference in December. Management’s outlook calls for year-over-year sales growth of 3.5% to 4% as it plans to open six new stores. EPS is expected to grow 2% to $10.45 compared to the current consensus estimate of $10.46. The company’s guidance assumes U.S. GDP growth of slightly less than 2% in 2020 with no impact from the virus outbreak included.

Similar to prior years, management said that the company will be hiring 80,000 new associates to accommodate the spring selling season.

Full-year fiscal 2019 EPS of $10.25 was 5.3% higher year-over-year and ahead of management’s guidance of $10.03 and analysts’ forecasts of $10.08.

The company announced a 10% increase in its quarterly dividend to $1.50 per share.

The Home Depot ended its fiscal year with 2,291 stores and 238 million square feet of store space.

Rival home improvement store, Lowes’ Companies Inc. (NYSE: LOW) reports its fiscal fourth quarter results on Feb. 26.

HD Stock Price Chart – Seeking Alpha

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Todd Maiden

Based in Richmond, VA, Todd is the finance editor at FreightWaves. Prior to joining FreightWaves, he covered the TLs, LTLs, railroads and brokers for RBC Capital Markets and BB&T Capital Markets. Todd began his career in banking and finance before moving over to transportation equity research where he provided stock recommendations for publicly traded transportation companies.

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