The Home Depot, Inc. (HD): Here’s What to Look For in The Upcoming Earnings Report

Home Depot Inc. (NYSE:HD)Over the past few years, investors looking to capitalize on the housing recovery poured into shares of homebuilder sticks from Hovnanian to Lennar, and into the two retailers that cater directly to the housing industry: The Home Depot, Inc. (NYSE:HD) and Lowe’s Companies, Inc. (NYSE:LOW). But the housing recovery continues to struggle to move into high gear, and investors are constantly being hit with housing reports indicating that sales are moving higher one month, but lower the next. This pattern has increased the importance of why market participants need to focus more of their attention on earnings and understand that it will take time, but eventually the housing market will once again be a strong aspect of the U.S. economy.

Since every industry operates slightly differently, some of the metrics used to understand each industry are somewhat different as well, and unless investors know what to look for, it’s easy to miss a big red flag when reading through an earnings report.

So today let’s take a look at The Home Depot, Inc. (NYSE:HD) and a few key metrics to watch on May 21, when the company reports earnings.

First and foremost, we want to look at and compare current revenue and earnings per share with the prior year’s same-quarter performance, as well as what analysts were expecting. For this coming quarter, analysts expect The Home Depot, Inc. (NYSE:HD) to show revenue of $18.67 billion and earnings per share of $0.76. During the first quarter of 2012, Home Depot posted revenue of $17.8 billion and EPS of $0.68.

Next, since The Home Depot, Inc. (NYSE:HD) is a retailer at heart, we want to look for a few retail specific metrics such as average ticket cost, average sales per square foot, number of transactions, and comparable store sales increases.

For full-year 2012, The Home Depot, Inc. (NYSE:HD) posted an average ticket price of $54.89, higher than 2011′s $53.28. Compared to Lowe’s, Home Depot has some work to do here. In 2012, Lowe’s posted an ATP of $62.82, after hitting $62.00 in 2011.

Home Depot’s 2012 average sales per square foot hit $318.63, which was a strong increase of 6.6% over 2011. The company also saw a 3.5% increase in the number of transactions in 2012, while comparable-store sales rose 4.6%. On the whole, these are very strong results for a retailer of Home Depot’s size.

Finally, we want to see whether The Home Depot, Inc. (NYSE:HD) is giving any indication of opening new stores in the future, or whether it opened any during the current quarter. Store-count increases would cause revenue and the number of transactions to jump on a yearly or even quarterly basis and distort a few metrics, so it’s important to take this into account when comparing against past results, and of course it’s also key when attempting to determine future growth prospects. For retailers, if new stores aren’t being opened or even planned, growth will begin to flatten out, and shares could fall if growth had been built into the price.

Home Depot carries a price-to-earnings ratio of 24.45, which, when compared with Wal-Mart Stores, Inc. (NYSE:WMT)‘s 15.75 and Target Corporation (NYSE:TGT)’s 15.6, is rather high. While all three of these companies are giants in retail and are planning on opening new locations, Home Depot’s stock has been pushed higher because investors believe the recovery of the housing market will help boost sales, which is understandable when we look at the company’s past performance when we had a strong housing market.

For full-year 2006, The Home Depot, Inc. (NYSE:HD) had 2,100 stores worldwide but still managed to bring in $79 billion in annual sales. At the end of the company’s fiscal 2012, the company had 2,256 stores worldwide, yet it only produced revenue of $74.8 billion. That revenue began falling in 2007 with the start of the financial and housing crisis, though it still managed to come in at $77.3 billion for that year, with 2,196 stores.

Based on those statistics, it’s easy to see why many investors believe Home Depot will grow revenue and, more importantly, earnings in the coming years, which also explains why the stock has risen so dramatically both last year and thus far in 2013. While the Dow Jones Industrial Average (Dow Jones Indices:.DJI) gained 7.25% in 2012 and has risen 11.64% in 2013, shares of Home Depot rose by 46.7% last year and are already up 18.59% year to date. But while Home Depot’s stock performance has largely been attributed to the housing recovery, investors want to remain focused on earnings and how the company’s metrics compare with past quarters. If the company’s fundamentals begin to deteriorate, regardless of whether the housing market recovers, the stock is likely to experience poor performance.

The article A Few Things to Look For in Home Depot’s Upcoming Earnings Report originally appeared on Fool.com and is written by Matt Thalman.

Fool contributor Matt Thalman has no position in any stocks mentioned. The Motley Fool recommends Home Depot and Lowe’s.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Most Expensive States to Own a Car In

Top 10 Business Schools in US: 2014 Rankings

Top 20 Female Billionaires in 2014

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!