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Home Depot (HD) Q2 Earnings Beat, Stock Down on Soft Margins

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The Home Depot, Inc. (HD - Free Report) has posted second-quarter fiscal 2022 results, wherein earnings and sales beat the Zacks Consensus Estimate and improved year over year. The company’s results represented the highest ever sales and earnings in its history. It gained from continued strong demand for home-improvement projects, robust housing market trends and ongoing investments. HD reiterated guidance for fiscal 2022.

Shares of this leading home improvement retailer declined 2.5% in the pre-market trading session, despite strong results. Home Depot’s margins continued to contract, which might have resulted in the fall in its share price. HD reported a significant decline in the operating margin during the fiscal second quarter. The negative sentiment could also be attributed to lower customer transactions.

The Zacks Rank #3 (Hold) stock has gained 4.5% in the past three months compared with the industry's growth of 5.6%.

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Home Depot's earnings of $5.05 per share improved 11.5% from $4.53 registered in the year-ago quarter. The bottom line surpassed the Zacks Consensus Estimate of $4.95.

Net sales advanced 6.5% to $43,792 million from $37,500 million in the year-ago quarter and beat the Zacks Consensus Estimate of $43,346 million. Sales benefited from continued robust demand for home-improvement projects.

HD’s overall comparable sales (comps) grew 5.8%, with a 5.4% improvement in the United States. In the reported quarter, comps were aided by a 9.1% rise in average ticket. This was partly offset by a 3% decline in customer transactions. Sales per square foot improved 5.7% in the reported quarter.

In dollar terms, the gross profit increased 6% to $14,483 million from $13,665 million in the year-ago quarter, primarily driven by robust sales growth. This was partly offset by a 6.8% increase in the cost of goods sold. The gross profit margin contracted 10 basis points (bps) to 33.1% from 33.2% in the year-ago quarter.

The operating income increased 8.6% to $7,210 million, while the operating margin contracted 630 bps to 9.8%. The operating margin was affected by gross margin contraction as well as higher SG&A and other operating expenses. Total operating expense increased 3.5% in the quarter.

The Home Depot, Inc. Price, Consensus and EPS Surprise

The Home Depot, Inc. Price, Consensus and EPS Surprise

The Home Depot, Inc. price-consensus-eps-surprise-chart | The Home Depot, Inc. Quote

Balance Sheet and Cash Flow

Home Depot ended second-quarter fiscal 2022 with cash and cash equivalents of $1,259 million, long-term debt (excluding current maturities) of $39,271 million and shareholders' equity of $237 million. In first-half fiscal 2022, the company generated $7,182 million of net cash from operations.

In first-half fiscal 2022, HD paid out cash dividends of $3,910 million and repurchased shares worth $3,962 million.

Fiscal 2022 View

Home Depot reiterated guidance for fiscal 2022. HD anticipates sales and comps growth of 3% for fiscal 2022. The operating margin is estimated to be 15.4%. Net interest expenses are expected to be $1.6 billion. It continues to expect an effective tax rate of 24.6%. HD estimates earnings per share growth in mid-single digits for fiscal 2022.

3 Stocks to Consider

We highlighted three better-ranked stocks in the Retail - Wholesale sector, namely Tecnoglass (TGLS - Free Report) , Ulta Beauty (ULTA - Free Report) and CVS Health (CVS - Free Report) .

Tecnoglass manufactures and sells architectural glass and windows and aluminum products for the residential and commercial construction industries. TGLS currently sports a Zacks Rank #1 (Strong Buy). The stock has jumped 15.4% in the past three months.

You can see the complete list of today's Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Tecnoglass’ current financial-year sales and earnings per share suggests growth of 28.2% and 47.7%, respectively, from the corresponding year-ago reported figures. TGLS has a trailing four-quarter earnings surprise of 24.4%, on average.

Ulta Beauty, a leading beauty retailer in the United States, currently has a Zacks Rank #2 (Buy). ULTA has a trailing four-quarter earnings surprise of 49.8%, on average. The stock has risen 3.1% in the past three months.
 
The Zacks Consensus Estimate for Ulta Beauty’s current financial-year sales suggests growth of 10.4% from the corresponding year-ago reported figures. ULTA has an expected EPS growth rate of 10.7% for three-five years.

CVS Health, a pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care, currently has a Zacks Rank of 2. The company has a trailing four-quarter earnings surprise of 6.7%, on average. Shares of CVS have risen 7% in the past three months.

The Zacks Consensus Estimate for CVS Health’s current financial-year sales and earnings per share suggests growth of 6.6% and 1.1%, respectively, from the corresponding year-ago reported numbers. CVS has an expected EPS growth rate of 7.7% for three-five years.