Home Depot (HD) Earnings Preview Q2 2013: 20% EPS Jump As US Housing Recovery Boosts Same-Store Sales, More Efficient Supply Chain Trims Costs

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    A customer wheels a cart through a Home Depot store in the U.S.
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    Shoppers evaluate big-ticket appliances at a Home Depot store in New York.
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The Home Depot, Inc. (NYSE:HD), the world’s biggest home materials retailer, is expected to report a nearly 20 percent increase in second-quarter earnings per share as the U.S. housing recovery and ongoing work from Hurricane Sandy boosts domestic sales and supply chain improvements cut costs.

The firm, which is headquartered in Atlanta, will report second-quarter earnings on Tuesday morning, before the market opens.

Analysts polled by Thomson Reuters forecast profits of $1.77 billion, with earnings per share (EPS) of $1.21 per share, a more than 19 percent increase over the same period last year. Quarterly revenue is expected to reach $21.8 billion, up 6 percent from last year.

In a research note last week, Barclays PLC (LON:BARC) analysts wrote that sales for the retailer are likely to grow by 5.5 percent, up from a 2.1 percent growth rate last year.

“We are still confident that the ongoing housing recovery, and to a lesser extent, Hurricane Sandy related-activity, likely provided support to same-store sales,” the note said.

Even mortgage interest rates, which have risen in recent weeks and topped 4.5 percent for 30-year fixed rates, have failed to dampen Home Depot’s continued growth, said the analysts.  

The company is closely monitoring the U.S. housing recovery and how that is boosting the size of its domestic market. In a July investor trip to Canada, the company noted in presentation materials that about 970,000 households were formed in the United States in 2012, versus an average of 700,000 annually from 2008 to 2011.

Besides stronger same-store sales from the housing recovery, the company is benefitting from efficiency gains. Morningstar (Nasdaq:MORN) analyst R.J. Hottovy said in his latest note that an ongoing overhaul of Home Depot’s supply chain will also make the firm more competitive, especially if the broader economy settles down in coming years.

“Home Depot’s reworked supply chain is still relatively new yet has shown early wins,” wrote Hottovy.

Home Depot announced few major initiatives in the second quarter and focused instead on improving its existing operations. Part of Home Depot’s continued restructuring, wrote Hottovy, involves catching up to rival Lowe’s Companies, Inc. (NYSE:LOW) strong distribution networks, supply chains and info tech infrastructure.

Recently, Home Depot said it was focusing on "optimizing our supply chain" with a "continued focus on disciplined capital allocation and expense control."

During 2012, the company grew its earnings per share by 21.5 percent. In the first quarter of this year Home Depot hiked its full-year 2013 sales and earnings guidance, and notched a strong quarterly EPS gain of 22 percent.

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