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Factors Likely to Influence Home Depot's (HD) Q1 Earnings

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The Home Depot, Inc. (HD - Free Report) is slated to report first-quarter fiscal 2020 results on May 19, before the opening bell. In the trailing four quarters, the company’s earnings outpaced the Zacks Consensus Estimate by 4.1%, on average.

The consensus estimate for fiscal first-quarter earnings of $2.24 per share suggests a decline of 1.3% from the year-ago period’s reported figure. However, the consensus estimate has moved up by a penny in the past seven days. The consensus mark for revenues is pegged at $27.23 billion, indicating an increase of 3.24% from the figure reported in the year-ago quarter.

Key Factors to Note

Home Depot has a robust earnings record, backed by ongoing strategies — including the integrated retail strategy and solid execution. Its efforts to connect offline and online channels as well as investments in front-end stores to optimize labor and merchandise space productivity have been aiding customer satisfaction scores and conversion rates in stores.

The Home Depot Inc Price and EPS Surprise


The Home Depot Inc Price and EPS Surprise

The Home Depot Inc price-eps-surprise | The Home Depot Inc Quote

In addition, the company’s efforts to enhance the website and other applications along with investments in automated lockers are likely to have worked in its favor. Moreover, strength in the Pro business has been a key growth driver for Home Depot.

In the wake of the coronavirus outbreak, the company has implemented modified store hours and norms for the safety of customers and employees. Its stores in the United States and Canada are open up to 6 p.m. daily, providing time for sanitization and restocking. Also, it has limited the number of customers in stores at a given time, and implemented social and physical distancing via marked floors. Further, the company has eliminated spring promotions in a bid to avoid high traffic in stores.

Home Depot has also provided thermometers to store associates and those working in distribution centers. It has reduced installation and other related services, except for those related to maintenance and repairs.

We believe these efforts and the soft traffic due to stay-at-home orders enforced amid the coronavirus outbreak are likely to have somewhat affected the company’s performance in the to-be-reported quarter. Further, the incremental safety measures to safeguard employees and customers are likely to have resulted in additional costs for the company. This is expected to get reflected in the quarter’s results.

Overall, the company has been witnessing higher supply-chain costs, associated with startup costs for the “One Home Depot” supply-chain initiative, which are expected to have hurt its margin. Higher shrink and unfavorable mix of products sold have also been hurting the gross margin.

Zacks Model

Our proven model does not conclusively predict an earnings beat for Home Depot this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Home Depot carries a Zacks Rank #3 but has an Earnings ESP of -2.51%.

Stocks With Favorable Combinations

Here are some companies you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat:

GameStop Corp GME currently has an Earnings ESP of +56.70% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Kroger Co KR presently has an Earnings ESP of +8.48% and a Zacks Rank #2.

Dollar General Corporation DG currently has an Earnings ESP of +1.25% and a Zacks Rank #3.

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