Backed by the U.S. housing market recovery and strength in core store activities, The Home Depot, Inc. (HD) ended fiscal 2014 on a positive note with better-than-expected bottom-line results in all four quarters.
The company posted its fourth-quarter fiscal 2014 results, wherein its adjusted earnings of $1.00 per share jumped nearly 37% from the year-ago quarter and surpassed the Zacks Consensus Estimate of 89 cents.
Including one-time items, the quarterly earnings surged 43.8% year over year to $1.05 per share.
Quarterly Details
Net sales advanced 8.3% to $19,162 million from $17,696 million in the year-ago quarter, beating the Zacks Consensus Estimate of $18,672 million. The company’s overall comparable-store sales (comps) increased 7.9% while comps in the U.S. stores grew 8.9%.
Gross profit in the quarter improved 8.6% to $6,723 million from $6,192 million in the comparable year-ago quarter, primarily driven by higher sales. Gross profit margin expanded 10 basis points (bps) from last year, to 35.1%.
The impact of the enhanced gross margin trickled down, leading the operating income to soar 24.4% to $2,191 million during the quarter. Further, operating margin expanded 140 bps to 11.4% from approximately 10% in the year-ago quarter.
Glimpse at Fiscal 2014
Taking a look at the yearly performance, Home Depot’s adjusted earnings for fiscal 2014 came in at $4.58 per share, up 21.8% year over year, coming much ahead of the Zacks Consensus Estimate of $4.49. Including one-time items, earnings for the fiscal ascended 25.3% to $4.71 per share.
Further, net sales for the fiscal escalated 5.5% year over year to $83,176 million. Net sales also cruised ahead of the Zacks Consensus Estimate of $82,956 million.
Balance Sheet and Cash Flow
Home Depot, which competes with Lowe’s Companies Inc. (LOW), ended fiscal 2014 with cash and cash equivalents of $1,723 million, long-term debt (excluding current maturities) of $16,869 million and shareholders’ equity of $9,322 million. Also, during fiscal 2014, the company generated $8,242 million of net cash from operations.
Fiscal 2015 Outlook
Following a spectacular year, Home Depot hiked its quarterly dividend, announced its capital allocation plans and issued a favorable guidance for fiscal 2015.
The company declared a 26% hike in its quarterly dividend to 59 cents a share, payable on Mar 26, 2015, to shareholders of record as on Mar 12. Also, management authorized a share buyback plan of roughly $18 billion, which it aims to complete by 2017 as one of its capital allocation goals.
In fiscal 2015, the company plans to buy back shares worth roughly $4.5 billion. Further, it plans to spend $1.6 million as capital expenditure and expects to generate cash flow of roughly $9 billion from its business in the fiscal.
With these announcements, the company reaffirmed its capital allocation objectives, including achieving a target dividend payout ratio of about 50%. Also, it aims to achieve a return on invested capital of 27% by fiscal 2015.
Additionally, taking a cue from the strengthening U.S. dollar, the company projects sales growth of 3.5%–4.7% for fiscal 2015, with comps growth anticipated in the range of 3.3%–4.5%. Also, the company forecasts gross margin to remain flat year over year, while it projects operating margin to expand 60 bps in the fiscal. Tax rate in the fiscal is anticipated to be nearly 37%.
Consequently, Home Depot envisions diluted earnings per share to grow in the range of 8.5%–10%, with earnings expected in the band of $5.11–$5.17 per share in fiscal 2015. This guidance includes the expected impact of share buybacks in the fiscal.
Other Stocks That Warrant a Look
Currently, Home Depot carries a Zacks Rank #3 (Hold). Better-ranked stocks in the retail sector include Tile Shop Holdings, Inc. (TTS) and Kohl's Corp. (KSS), each carrying a Zacks Rank #2 (Buy).
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