In the face of a very competitive environment and concerns for the housing market, Home Depot (HD) looks to have a very strong fiscal year 2012.
In Q4 2011, Home Depot's revenue increased 5.9% to $16.014 billion, up from $15.126 billion. Home Depot reported earnings of $744 million, or .$50 per share, which is up from a year-earlier when Home Depot reported a profit of $587 million, or $.36 per share. The improved performance was due to the stores customer service initiatives. Because of the companies attention to building customer service initiatives, Home Depot's strong quarter has been led by the quarterly comparable store sales.
Over the past few years, Home Depot has been increasingly focused on building it's customer service initiatives. The plan is for Home Depot to create a more convenient store by creating more store services. Frank Blake stated in Home Depots Earnings Conference Call:
Based on the changes we've made throughout the year, we now have approximately 53% of our store labor hours dedicated to customer-facing activity. Just four years ago, we were at 40%, so this is a significant improvement in a short period of time. It has required a lot of detailed planning and focused execution at the regional, district and store level to make this happen, and this speaks to the alignment of our store operations and support teams.
Aided by the customer initiatives, the quarterly comparable store sales rose 5.7%. The rise in per store sales was due to unseasonably warm weather and a pick up in the economy in some of the hardest hit areas in the U.S. The unseasonably warm weather helped drive customer traffic, as people were able to work on their houses in the winter months. Sales in gutters, roofing, vinyl siding, patio furniture, fencing, exterior paint, pressure washers, exterior lighting and concrete all facilitated double-digit comps.
The combination of the weather and Home Depots increase of services helped support the companies sales in Q4. Frank Blake - Chairman and CEO stated, "The unseasonably warm weather helped customer traffic and clearly was a factor in our sales performance."
Also aiding in the increase in revenues, was the companies comparable store sales. Comparable store sales increased thoughout the U.S. but a large increase was in some of the economically hardest hit areas in the U.S. Frank Blake - Chairman and CEO stated:
We've also seen the steady recovery of some of the hardest hit markets like Florida and California. Our major Florida markets all outperformed the Company average and California was in line with the company average. Both states have posted positive comps for eight consecutive quarters."
Because of the pick up in the hardest hit areas in the U.S, sales comps for American stores were positive 6.1%.
In fiscal year 2012, Home Depot will continue to improve on its customer services. Home Depot will be adding in-store repair services, as well as significant improvements to the companies online presence.
Frank Blake highlights plans for Home Depot new store services in Morningstar's report of Home Depot's Q4 earnings call. He stated:
This year our stores will be offering in-store repair services for power equipment and power tools. Previously, we had an off-site third-party service that would provide equipment repair. We can provide that service ourselves now leveraging our tool rental centers and reverse logistic centers. Customers can have tune-ups and other maintenance completed at our stores. We think this will be a significant improvement in convenience for our customers and will enhance the overall value of our power tool and equipment product offerings.
Including plans to add in-store repair services, Home Depot is upgrading its online presence with enhanced layout, visual appeal, and responsiveness. Frank Blake stated:
On the merchandising front, Craig and his team continued to develop our merchandising tools. The most significant recent activity was the upgrade of our dotcom platform. This upgrade enhances the layout, visual appeal, and responsiveness of our site and gives us the best-in-class platform for future interconnected retail development.
Looking forward into fiscal year 2012, Home Depot anticipates a strong year. According to Home Depot's Fiscal year 2012 guidance the store states:
The Company will have 53 weeks of operating results in fiscal 2012 and provided the following guidance for fiscal 2012:
Sales growth of approximately 4 percent including the 53rd week
53rd week projected to add approximately $1 billion to total sales
Low single-digit comparable store sales growth for the 52-week period
11 new stores
Moderate gross margin expansion
Operating margin expansion of approximately 50 basis points
Tax rate of approximately 37%
53rd week expected to contribute approximately 3 cents of diluted earnings per share
53-week diluted earnings-per-share growth before share repurchases of approximately 10 percent to $2.72
53-week diluted earnings-per-share growth after anticipated share repurchases of approximately 13 percent to $2.79
Capital spending of approximately $1.325 billion
Depreciation and amortization expense of approximately $1.65 billion
Cash flow from the business of approximately $6.6 billion
Share repurchases of approximately $3.5 billion
Even though fiscal year 2012 looks to be strong, Home Depot sees many challenges going forward.
The uncertainty of the housing market in the U.S. remains of concern for Home Depot. With the uncertainty in the housing market people are more reluctant to spend money on their homes. Frank Blake stated:
Housing remains a drag on economic recovery with factors such as delayed household formation and credit supply contributing to a continued imbalance between housing supply and demand. The fed has suggested that policy actions will be needed to fix this, but it wouldn't appear that any major policy changes are likely in the near term.
As well as the U.S. housing market concerns, Home Depot also recognizes that they are in a very competitive market. Rival companies such as Lowe's (LOW) and Rona (OTC:RONAF) in Canada make it very challenging to compete for market share. "Strong competition could adversely affect prices and demand for our products and services and could decrease out market share" (Home Depot Annual report). The report continues to state: "We operate in markets that are highly competitive. We compete principally based on customer service, price, store location and appearance, and quality, availability and assortment of merchandise." As Home Depot continues to implement more store services that create a convenience for the shopper, Home Depot believes that they will continue to remain competitive in the market place.
Even with a very competitive environment and concerns in the housing market, Home Depot looks to have a very strong fiscal year 2012 ahead. With sales estimates in the $74 billion range, profit margins around 5%, Home Depot should have an EPS around $2.50 which will set the target around $50.00.
Estimated sales = 73.92 billion
Estimated profit margin = 5.01%
Estimated profit = $3.70 billion
Shares outstanding = 1.46 billion
EPS = $2.54
Forward P/E = 19.8
$50.29 Price Target
HD - Home Depot Inc - Stock Price Target for 2012 = $50.29 USD
|Target||Raymond James||$56.00 « $54.00||04/04/12|
|Target||Jefferies & Co||$55.00||03/22/12|
|Target, Reinitiate||Deutsche Bank||Hold||$50.00 « $48.00||03/20/12|
|Maintain||BMO Capital Markets||Market Perform||02/27/12|
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.