On Tuesday, Home Depot (HD) released first-quarter results that were mixed. Though its first-quarter performance was solid thanks to warm spring weather, its outlook for the remainder of 2012 was somewhat concerning. Still, we're sticking with our fair value estimate.
The world's largest home-improvement retailer said sales increased almost 6% from the same period a year ago thanks to roughly a similar increase in comparable store sales. Home Depot noted that the most recently reported quarter was the second in a row where it had a positive US comps of over 6% -- something not achieved in 8 years! The number of transactions increased roughly 4% from the same period a year ago, while the average ticket price advanced just over 2%. Net earnings jumped 36%, to $0.68 per share, from last year's quarter thanks to a 20.5% jump in operating income, significantly lower interest expense, and nearly a 5% lower share count.
Looking ahead, Home Depot raised its top-line guidance for 2012 to about 4.6% growth (was 4%) and its earnings per share guidance to about 17% expansion (now $2.90 per share, was $2.79 per share). The revised top-line guidance, however, is somewhat concerning since it suggests the pace of sales will slow considerably from the first quarter. We think the conservative top-line outlook for the year is a red flag for performance in the current second quarter, as management would have at least set the bar level through the course of the year if expansion had not already slowed. Home Depot registers a 5 on our Buying Index.
Here's a quick excerpt about what management had to say about the housing market on its conference call:
"While there are still some -- while there are some positive signs in the housing market, it is still under pressure. Pricing is stabilizing, but not yet solid. Inventory is down, but shadow inventory remains a concern and credit availability continues to be constrained. In this environment, our customers are looking at DIY projects as a way to save money while they improve their homes."