Home Depot Posts Biggest EPS Beat In 16 Quarters As Big Remodeling Projects Sidelined

Shares of Home Depot are up 3.5% in early U.S. trading after the home-improvement retailer reported what Goldman consumer expert Scott Feiler called the “biggest EPS beat in 16 quarters.”

Feiler explained:

We had positioning marked as just a 3 out of 10 in our pre-EPS positioning scorecard. That compared to LOW at a 5. Historically, we rarely have HD below a 5.

A small sales miss was expected and instead, we got a beat. This was also the first time they beat operating margins in the last 5 quarters and led to their biggest EPS beat in 16 quarters. The upside was driven by gross margins, so we will need to hear if that’s sustainable.

Is this a thesis changer? No. However, it removes some of the recent near-term concerns that had begun to be more discussed (margin misses, small top-line miss/negative comps had been expected and no current buyback to support EPS upside).

Fourth quarter details:

4Q EPS of $2.72 vs. Consensus $2.53, with revenues ~30 bps ahead and comp sales of +0.4% vs. Consensus -0.4% (think bogey was -0.5% to -1%). Gross margins beat by 40 bps and SG&A was in line, leading to a nice operating margin beat. The FY guide is exactly in line with what they gave at their analyst day on December 9th, which was expected (EPS 0 to +4% and comps 0 to +2%).

The results suggest that the appetite for home renovation projects is steady despite a frozen housing market and inflation concerns. Home Depot gained market share last quarter and achieved double-digit e-commerce growth for a third straight quarter.

Multiple Wall Street analysts point to better-than-expected gross margin, with RBC analysts citing likely support from lower shrinkage, supply chain efficiencies, and better product mix. 

Here’s more from Wall Street analysts (courtesy of Bloomberg):

RBC (sector perform), Steven Shemesh

“4Q results exceeded fairly muted expectations,” with comp sales growing +0.4% (RBC -0.2%/consensus -0.4%) and adj. EPS coming in ~7% ahead

The beat was driven primarily by stronger-than-anticipated gross margin, which Shemesh expects was supported by lower shrink, supply chain efficiencies and product mix

The annual guidance is in-line with the company’s preliminary guide on 12/9, but on a “higher EPS base implies some upside to current consensus positioning,” according to the analyst

Bloomberg Intelligence, Drew Reading 

“Home Depot’s 4Q same-store sales exceeded expectations, as a higher average ticket offset a drop in transactions, suggesting volumes remain muted by depressed housing turnover and cautious consumers, who continue to delay big-ticket projects,” Reading writes

The reiterated the annual flat to +2% comp. sales growth outlook reflects a “relatively flat home-improvement market”

“Professional and e-commerce investments should drive market- share gains and position Home Depot well for a rebound,” in his view

Stifel (hold), W. Andrew Carter

Carter expects the stock is likely to trade higher on the stronger 4Q performance with reiterated guidance driving positive revisions

“We believe performance validates the lofty valuation,” he adds

Bernstein (market perform), Zhihan Ma

Ticket growth drove comp. sales gain as traffic declined, Ma writes

HD reached an “all-time high” in average ticket ($90.6) for the full year whereas transactions (1,601.5m) remained below pre-Covid levels

“A key question will be how HD manages to drive more traffic into stores and whether this requires more promotions” this year, she says

Sales result came in “largely in line with management expectations, reflecting a lack of hurricane-driven repairs activities and ongoing weakness in housing/home improvement demand,” Ma adds

Overall, she maintains her cautious outlook and expects a “gradual path to a home improvement market rebound”

“Despite near-term catalysts such as tax refunds and potential rate cuts, we still believe that a fundamental inflection point is some ways away,” the analyst says

She is also montioring the tariff situation, which could introduce margin upside should there be a refund and/or some relief in cost pressures

Even with the stronger 4Q performance, CFO Richard McPhail said in a Bloomberg interview that customers “have been on the sidelines” for large remodeling projects “for three years now.”

McPhail added: “The homeowner is one of the healthiest customer cohorts out there, but they tell us that uncertainty is growing, that there’s concern around housing affordability, and around job losses.”

In a separate report, The Wall Street Journal cites The Freedonia Group’s data showing that a frozen housing market has curbed demand for appliances, cabinets, and flooring, among other products.

Here’s the latest read on the 30-year fixed mortgage rate from Bankrate, with rates hovering around 6.15%.

Latest news about the housing market ahead of the spring selling season: 

Despite Rise In December, US Home Prices Saw Weakest Full-Year Gain Since 2011

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Millions of Americans feel trapped in their homes or apartments as the Trump administration tries to thaw the nation’s frozen housing market. The fallout has shown up across the housing ecosystem for the last few years, hitting firms from window manufacturers to retailers like Home Depot.