The Home Depot Inc. HD has reported second-quarter fiscal 2024 results, wherein earnings and sales surpassed the Zacks Consensus Estimate. Meanwhile, the company's top line showed slight year-over-year improvement in the second quarter of fiscal 2024. However, earnings per share declined year over year.
In the quarter, the company continued to experience the adverse impacts of higher interest rates and greater macroeconomic uncertainty, further pressurizing the consumer demand for home improvement projects. However, Home Depot benefited from its store readiness and product assortments in stores and online.
Nonetheless, HD is confident about its initiatives to strengthen the business. It has been on track with its investments to craft the best inter-connected experience for customers, improving the pro wallet through its unique ecosystem of capabilities and expanding stores. It is also optimistic about the future of the home improvement industry and its ability to expand market share in this space.
Shares of Home Depot dipped 2.4% in the pre-market trading session on Aug 13 probably due to HD's soft fiscal 2024 forecasts for earnings per share and comps. The Zacks Rank #3 (Hold) company's shares have gained 1.6% in the past three months compared with the industry's rise of 0.2%.
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Q2 Details
Home Depot's adjusted earnings of $4.67 per share declined 0.2% from $4.68 in the year-ago quarter. However, the bottom line beat the Zacks Consensus Estimate of $4.54.
Net sales rose 0.6% to $43.2 billion from $42.9 billion in the year-ago quarter. Also, sales beat the Zacks Consensus Estimate of $42.6 billion. The company's sales included a $1.3-billion contribution from the recently completed acquisition of SRS Distribution Inc. The acquisition represented about six weeks of sales in the quarter.
Home Depot's comparable sales fell 3.3% in the reported quarter. The company's comparable sales in the United States declined 3.6% in the fiscal second quarter. The comps decline resulted from a decrease in customer transactions and the average ticket. In the fiscal second quarter, customer transactions declined 1.8% year over year, whereas the average ticket was down 1.3%. Sales per retail square foot fell 3.6% in the reported quarter.
Our model predicted comps to decline 1.4% for second-quarter fiscal 2024 due to continued headwinds related to lumber and copper deflation. We expected the comps decline to result from a 1.1% dip in the number of customer transactions and a 0.4% fall in the average ticket.
The Home Depot, Inc. Price, Consensus and EPS Surprise
The Home Depot, Inc. price-consensus-eps-surprise-chart | The Home Depot, Inc. Quote
In dollar terms, the gross profit rose 1.8% year over year to $14.4 billion in the fiscal second quarter. However, the gross margin of 33.4% expanded 40 basis points (bps) year over year in the reported quarter.
The adjusted operating income declined 0.1% year over year to $6.6 billion, whereas the adjusted operating margin of 15.3% contracted 20 bps year over year. The decline in the operating margin mainly resulted from higher SG&A expenses, as a percentage of sales, offset by an improved gross margin.
SG&A expenses of $7.1 billion increased 3.3% from the $6.9 billion reported in the year-ago quarter. SG&A expenses, as a percentage of sales, increased 40 bps year over year to 16.5%.
Our model predicted the SG&A expense rate to increase 30 bps year over year to 16.4%. Consequently, we anticipated the operating income to decline 1.5% year over year and the operating margin to contract 20 bps to 15.2% for the fiscal second quarter.
Other Updates
Home Depot ended second-quarter fiscal 2024 with cash and cash equivalents of $1.6 billion, a long-term debt (excluding current installments) of $51.9 billion, and shareholders' equity of $4.4 billion. In the first six months of fiscal 2024, the company generated $10.9 billion of net cash from operations.
FY24 View
Management has updated its view for fiscal 2024, driven by the first-half performance and the inclusion of SRS results. It notes that the company's fiscal 2024 will include an additional 53rd week. Home Depot anticipates sales to increase 2.5-3.5% year over year for fiscal 2024, including $2.3 billion of sales contribution from the 53rd week and $6.4 billion incremental sales from SRS.
The company expects comparable sales to decline 3-4% for the 52 weeks. A decline of 3% in comps is expected to reflect the continued impacts of the adverse consumer demand environment, as witnessed in the first half. While the company does not expect comps to decline at the lower end of the range, a decline of 4% should result from incremental pressure on consumer demand.
HD expects to open 12 stores for fiscal 2024. It estimates the gross margin for fiscal 2024 to be 33.5%, with an operating margin of 13.5-13.6%.
The company expects an effective tax rate of 24% for fiscal 2024. Net interest expenses are likely to be $2.2 billion for fiscal 2024.
HD estimates GAAP earnings per share to decline 2-4% year over year for fiscal 2024. It expects adjusted earnings per share to slip 1-3%. The company anticipates the 53rd week to contribute 30 cents per share to earnings in fiscal 2024.
Stocks to Consider
Some better-ranked stocks are Abercrombie & Fitch, American Eagle Outfitters AEO and Deckers Outdoor DECK.
Abercrombie operates as a specialty retailer of premium, high-quality casual apparel for men, women, and kids. It has a Zacks Rank #2 (Buy) at present.
The Zacks Consensus Estimate for Abercrombie's current fiscal-year earnings and sales indicates growth of 11.5% and 51.1%, respectively, from the previous year's reported figures. ANF has a trailing four-quarter average earnings surprise of 210.3%.
American Eagle is a specialty retailer of casual apparel, accessories and footwear for men and women aged 15-25 years. It currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for American Eagle's current financial-year sales and earnings suggests growth of 3.3% and 17.1%, respectively, from the year-ago period's actuals. AEO has a trailing four-quarter earnings surprise of 28.1%, on average.
Deckers Outdoor is a leading designer, producer and brand manager of innovative, niche footwear and accessories developed for outdoor sports and other lifestyle-related activities. It currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Deckers' current financial-year sales and earnings indicates growth of 11.5% and 8.3%, respectively, from the year-ago reported numbers. DECK has a trailing four-quarter earnings surprise of 47.2%, on average.
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