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Home Depot (HD) Stock Up on Q3 Earnings and Sales Beat

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The Home Depot Inc. (HD - Free Report) reported better-than-expected top and bottom-line results for third-quarter fiscal 2016, gaining from balanced sales growth as well as persistent focus on productivity that bolstered earnings. With this, the company retained its four-year long trend of beating earnings estimates.

Consequently, shares of this home improvement retailer jumped 1.6% in the pre-market trading session.

The company posted fiscal third-quarter adjusted earnings of $1.60 per share, which jumped 18.5% from $1.35 in the year-ago quarter and beat the Zacks Consensus Estimate of $1.58.

HOME DEPOT Price, Consensus and EPS Surprise

HOME DEPOT Price, Consensus and EPS Surprise | HOME DEPOT Quote

Quarterly Details

Net sales advanced 6.1% to $23,154 million from $21,819 million in the year-ago quarter. Further, the top-line marginally surpassed the Zacks Consensus Estimate of $23,036 million. The company's overall comparable-store sales (comps) increased 5.5%, while comps in the U.S. grew 5.9%. Sales growth can be attributable to a 2.4% increase in the number of customer transactions and a 3% rise in average ticket.

Gross profit in the reported quarter improved 6.3% to $8,042 million from $7,565 million in the year-ago quarter, primarily driven by higher sales. However, gross profit margin remained flat at 34.7%.

Improved gross profit led operating income to increase 11.4% to $3,320 million during the fiscal quarter. Further, operating margin expanded 60 bps from the year-ago quarter to 14.3%.

Balance Sheet and Cash Flow

Home Depot ended fiscal third-quarter with cash and cash equivalents of $3,589 million, long-term debt (excluding current maturities) of $22,338 million and shareholders' equity of $5,622 million. In the first three quarters of fiscal 2016, the company had generated $7,919 million of net cash from operations.

Fiscal 2016 Outlook

Following the robust fiscal third-quarter, Home Depot reiterated its sales and comps guidance, while it raised its earnings forecasts for fiscal 2016. The company continues to project sales growth of 6.3%, with about 4.9% improvement in comps.

Home Depot now envisions diluted earnings per share to grow about 15.9% year over year compared with $6.33 earned in fiscal 2015. Previously, the company had forecast earnings per share growth of 15.6% year over year.

Zacks Rank

Currently, Home Depot carries a Zacks Rank #4 (Sell). Better-ranked stocks in the retail space are Tile Shop Holdings, Inc. (TTS - Free Report) , Foot Locker Inc. (FL - Free Report) and Zumiez Inc. , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Tile Shop has gained nearly 15.2% year to date. Moreover, it has a long-term earnings growth rate of 25%.

Foot Locker, with a long-term earnings growth rate of 9.9%, is up nearly 9.8% year to date.

Zumiez has jumped 64.4% year to date. The stock has a long-term earnings growth rate of 15%.

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