The world's largest home improvement retailer, The Home Depot Inc. (HD), posted its first-quarter 2011 adjusted earnings of 50 cents a share. The adjusted earnings not only surpassed the prior-year quarters' earnings of 45 cents (an increment of 11.1%), but also outpaced the Zacks Consensus Estimate by a penny.
During the reported quarter, net sales inched down 0.2% to $16,823.0 million compared with $16,863.0 million in the prior-year quarter, missing the Zacks Consensus Estimate of $16,998.0 million. The reduction in net sales resulted from a decline of 0.6% in comparable store sales. Comparable store sales for the U.S. stores slipped marginally 0.7% during the reported quarter.
However, operating margin for the reported quarter has witnessed an improvement of 80 basis points (bps) to 8.5% compared with 7.7% in the prior-year quarter. Improvement in operating margin was primarily driven by effective cost management.
Balance Sheet, Cash Flow and Dividend
Home Depot ended its first-quarter 2011 with cash and cash equivalents of $1,806.0 million and long-term debt-to-capitalization ratio of 37.1%. During the reported quarter, the company generated $2,098.0 million of cash from operations and deployed $1,301.0 million toward share buyback, $1,007.0 million for debt repayment and $199.0 million as capital expenditures.
Fiscal 2011 Guidance and Zacks Consensus
Home Depot raised its fiscal 2011 adjusted earnings guidance to $2.24 per share from $2.20 forecasted earlier on the back of a 2.5% increase in sales. The current Zacks Consensus Estimate for fiscal 2011 is $2.30 per share, which lies above the guidance.
Home Depot, which competes with Lowe's Companies Inc. (LOW) and Target Corporation (TGT), currently, has a Zacks #3 Rank, implying a short-term Hold rating on the stock. Besides, the company retains a long-term Neutral recommendation.
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