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Home Depot Beats on Q4 Earnings

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The world's largest home improvement retailer, The Home Depot Inc. (HD - Free Report) reported better-than-expected bottom-line results for the fourth quarter of fiscal 2013. The company’s earnings of 73 cents per share exceeded the year ago quarter’s adjusted earnings of 67 cents as well as Zacks Consensus Estimate of 71 cents, primarily driven by effective cost management and lower share counts.

The fourth quarter of fiscal 2012 was of fourteen weeks. The company stated that the fourteenth week contributed approximately 7 cents to its earnings results. Excluding that, Home Depot’s earnings on a 13-week comparable basis increased 19.7% year over year in the reported quarter.

Quarterly Details

Net sales of this Zacks Rank #3 (Hold) company decreased 3% to $17,696 million from $18,246 million in the year-ago quarter. Moreover, net sales missed the Zacks Consensus Estimate of $17,916 million. The company’s overall comparable store sales (comps) increased 4.4% while comps in the U.S. stores grew 4.9%.

The fourth quarter of fiscal 2012 was of fourteen weeks. The company believes that the fourteenth week contributed approximately $1.2 billion to its fourth quarter fiscal 2014 revenues. Excluding that, Home Depot’s net sales increased 3.9% year over year.

Gross profit fell 2.7% to $6,192 million from $6,366 million in the comparable year-ago quarter primarily due to lower sales. However, gross profit margin expanded 10 basis points (bps) to 35.0% from 34.9% in the fourth quarter of fiscal 2012. The rise was mainly attributable to lower cost of sales as a percentage of net sales.

Operating profit during the quarter marginally improved to $1,761 million from $1,750 million in the year-ago comparable quarter. Operating margin expanded 40 bps to 10.0% from 9.6% in the year-ago quarter. The improvement in operating margin was driven by improved gross margin and effective cost management.

Synopsis of Fiscal 2013 Performance

Net sales in fiscal 2013 increased approximately 5.4% to $78,812 million from $74,754 million in fiscal 2012. However, net sales fell short of the Zacks Consensus Estimate of $79,047 million. Earnings for the fiscal came in at $3.78 per share, up 21.9% from the adjusted earnings of $3.10 in fiscal 2012. Moreover, it surpassed the Zacks Consensus Estimate of $3.74 per share.

Balance Sheet and Cash Flow

Home Depot, which competes with Lowe’s Companies Inc. (LOW - Free Report) , ended the fiscal with cash and cash equivalents of $1,929 million, long-term debt (excluding current maturities) of $14,691 million and shareholders’ equity of $12,522 million. During fiscal 2013, the company generated $7,628 million of cash from operations and deployed its available funds toward share buyback worth $8,546 million, dividend payment of $2,243 million, capital expenditures of $1,389 million and long-term debt repayment of $1,289 million.

Dividend Hike

Along with its earnings release, Home Depot announced that its board of directors has approved a 21% hike in quarterly dividend. The increased dividend of 47 cents per share will be paid on Mar 27 to shareholders of record on Mar 13. This will mark the company’s 108th consecutive quarterly dividend payment.

Initiated Fiscal 2014 Outlook

After concluding fiscal 2013, Home Depot provided its outlook for fiscal 2014 with sales and comps growth of approximately 4.8% and 4.6%, respectively. Further, the company projects gross margin to remain flat year over year while expecting operating margin to expand nearly 70 bps.

Tax rate is anticipated to be about 37% and the company anticipates to repurchase its common stocks worth $5 billion. Considering these, Home Depot expects diluted earnings for the fiscal to grow 16.5% to $4.38 per share.

The company intends to make capital expenditure of $1.5 billion while generating cash flow of about $8.8 billion from its operating activities during the fiscal.

Other Stocks That Warrant a Look

Other stocks worth considering in the wholesale retail sector include Macy’s, Inc. (M - Free Report) and Haverty Furniture Companies Inc. (HVT - Free Report) . Both of these have a Zacks Rank #2 (Buy).

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