Home improvement retail giant Home Depot (NYSE:HD) announced better-than-expected revenue in Q4 CY2024, with sales up 14.1% year on year to $39.7 billion. Its non-GAAP profit of $3.13 per share was 2.8% above analysts’ consensus estimates.
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Revenue: $39.7 billion vs analyst estimates of $39.12 billion (14.1% year-on-year growth, 1.5% beat)
Adjusted EPS: $3.13 vs analyst estimates of $3.04 (2.8% beat)
Adjusted EBITDA: $5.31 billion vs analyst estimates of $5.46 billion (13.4% margin, 2.7% miss)
Operating Margin: 11.3%, in line with the same quarter last year
Free Cash Flow Margin: 9%, down from 11.1% in the same quarter last year
Locations: 2,347 at quarter end, up from 2,335 in the same quarter last year
Same-Store Sales were flat year on year, breaking a streak of multiple quarters of decline (-3.5% in the same quarter last year)
Market Capitalization: $379.9 billion
“Our fourth quarter results exceeded our expectations as we saw greater engagement in home improvement spend, despite ongoing pressure on large remodeling projects,” said Ted Decker, chair, president and CEO.
Founded and headquartered in Atlanta, Georgia, Home Depot (NYSE:HD) is a home improvement retailer that sells everything from tools to building materials to appliances.
Home improvement retailers serve the maintenance and repair needs of do-it-yourself homeowners as well as professional contractors. Home is where the heart is, so any homeowner will want to keep that home in good shape by maintaining the yard, fixing leaks, or improving lighting fixtures, for example. Home improvement stores win with depth and breadth of product, in-store consultations for customers who need help, and services that cater to professionals. It is hard for non-focused retailers and e-commerce competitors to match these. However, the research, convenience, and prices of online platforms means they can’t be fully written off, either.
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul.
With $159.5 billion in revenue over the past 12 months, Home Depot is a behemoth in the consumer retail sector and benefits from economies of scale, giving it an edge in distribution. This also enables it to gain more leverage on its fixed costs than smaller competitors and the flexibility to offer lower prices. However, its scale is a double-edged sword because there are only a finite number of places to build new stores, making it harder to find incremental growth.
As you can see below, Home Depot’s sales grew at a mediocre 7.7% compounded annual growth rate over the last five years (we compare to 2019 to normalize for COVID-19 impacts) as it didn’t open many new stores.
Home Depot Quarterly Revenue
This quarter, Home Depot reported year-on-year revenue growth of 14.1%, and its $39.7 billion of revenue exceeded Wall Street’s estimates by 1.5%.
Looking ahead, sell-side analysts expect revenue to grow 2.9% over the next 12 months, a deceleration versus the last five years. This projection is underwhelming and suggests its products will see some demand headwinds.
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A retailer’s store count often determines how much revenue it can generate.
Home Depot operated 2,347 locations in the latest quarter, and over the last two years, has kept its store count flat while other consumer retail businesses have opted for growth.
When a retailer keeps its store footprint steady, it usually means demand is stable and it’s focusing on operational efficiency to increase profitability.
Home Depot Operating Locations
The change in a company’s store base only tells one side of the story. The other is the performance of its existing locations and e-commerce sales, which informs management teams whether they should expand or downsize their physical footprints. Same-store sales gives us insight into this topic because it measures organic growth for a retailer’s e-commerce platform and brick-and-mortar shops that have existed for at least a year.
Home Depot’s demand has been shrinking over the last two years as its same-store sales have averaged 2.5% annual declines. This performance isn’t ideal, and we’d be concerned if Home Depot starts opening new stores to artificially boost revenue growth.
Home Depot Same-Store Sales Growth
In the latest quarter, Home Depot’s year on year same-store sales were flat. This performance was a well-appreciated turnaround from its historical levels, showing the business is improving.
It was good to see Home Depot narrowly top analysts’ revenue expectations this quarter. Its flat same-store sales is notable because it breaks a streak of multiple quarters of same-store sales declines. EPS also beat. Overall, this was a solid quarter, especially with some large consumer companies like Walmart reporting weaker results, calling into question the health of the consumer. The stock remained flat at $380.80 immediately after reporting.
Is Home Depot an attractive investment opportunity right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.
