Home improvement retailer Home Depot Inc (NYSE:HD) will release fourth-quarter earnings on Tuesday. While an earnings report is packed full of information, there are really only a few items an investor needs to focus on in order to get a real feel on how the company is performing and whether HD stock will continue to climb higher.
But the thing to remember is that the important numbers are different for each company. Let’s dig into the numbers you should be looking at when Home Depot reports earnings.
HD Stock: Earnings Preview
Home Depot is expected to post earnings per share of 89 cents, a 30% increase from the the 73 cents per share the company posted in the quarter a year ago. For the year HD is expected to post EPS of $4.49, well above the $3.76 EPS from 2013.
As for revenue, analysts are expecting Home Depot to post sales of $18.7 billion for the quarter and $82.7 billion for the full year. The quarterly sales figure would represent 5.6% growth when compared to the fourth quarter of 2013, while the full year revenue estimate represents a 4.8% growth in sales over the prior year.
If sales figures are off, investors will want to see how much same-store-sales grew during the quarter. Wall Street is expecting an increase of 6%.
Both the EPS and revenue estimates are very much within reason for Home Depot. While slow, the economy is still improving and that is helping motivate new home sales, which is a major driver for HD stock. Homeowners spend more money at Home Depot than non-homeowners as they handle minor repairs, upgrades and full-fledged renovations.
In addition to increased sales in recent years, Home Depot has become more efficient with those sales, helping it put more money on the bottom line.
For example, analysts are expecting only a 5.6% increase in sales this quarter but a 30% jump in EPS. How are they doing this? The easiest way for a retailer to be more efficient is to increase its sales online, and Home Depot has done just that.
The company already has dumped money into building three shipment centers and is planning on opening two more in 2015. For that money to be recouped, which I expect it will be, Home Depot needs to keep increasing online sales. In its third-quarter earnings report HD reported an increase in online sales of 40% from the previous year.
Lastly, for the past few years Home Depot has been aggressively giving back to shareholders in the form of both stock buybacks and dividends. HD has been consistently buying back shares and some believe the company will have repurchased close to $1.3 billion in shares during the fourth quarter alone. Buying back HD stock is an easy way to increase EPS without big changes in sales.
If Home Depot misses on EPS, take a look at their repurchases, which will give you a little more insight into how well the business is performing overall.
As for the dividend, over the past few years Home Depot has increased its dividend when announcing its fourth quarter results and I don’t expect that to change. The past few years Home Depot has increased its dividend by 16%, 34% and 20%. As HD’s current dividend yield is 1.7%, — below the five-year average of 2.4% — I won’t be surprised if Home Depot investors get another large dividend increase this year.
The Bottom Line
HD stock has risen 38% over the past year, doubling the S&P 500‘s increase. Home Depot has been performing very well lately and there are no signs the good performance is going to change tomorrow.
Investors should expect to be happy with earnings results on Tuesday and their decision to own HD stock.
As of this writing, Matt Thalman owned shares of HD stock.
