3 Things To Look For In Home Depot Q4 2015 Earnings

  • Analysts expect Home Depot Q4 2015 earnings per share at $1.10.
  • Investors should expect robust traffic and same-store sales increases.
  • Expect Craig Menear, CEO, and his team to discuss Home Depot's navigation through the current retailing landscape on the Q4 2015 earnings call.

On 25 Feb 2016, home improvement retailer Home Depot (NYSE:HD) is scheduled to release its Q4 2015 earnings. Average analyst estimates for Home Depot Q4 2015 earnings stands at $1.10 per share, representing a 10% YoY increase. Driven by a robust housing market, Home Depot shouldn’t have any problems beating these expectations. What should investors watch out for in the upcoming Home Depot Q4 2015 earnings release? Let’s take a look at some important items which will be watched by Home Depot Investors.

Robust Traffic & Sales

Home Depot exhibited no problem in bringing customers back through its doors and to its website in Q3 2015. Indications exist that consumers are still willing to invest and spend money on housing. After a dip in November, existing home sales increased 7.7% YoY in December, according to the National Association of Realtors. Moreover, new residential sales in November and December 2015 expanded 9% and 10% YoY, respectively, according to the United States Census Bureau.

Commentary on strategies

Investors should expect Home Depot CEO Craig Menear and his executives to discuss the retailing landscape as it pertains to home improvement and how Home Depot fits in that arena. When it comes to online shopping, Home Depot maintains the advantage of not having Amazon (NASDAQ: AMZN) as a primary competitor. Amazon’s core competency still focuses on general merchandise such as books, clothing and electronics.

Home Depot understands that more and more people want to shop online. According to Bloomberg, Home Depot responded by lowering its store base. It will focus instead on expanding transactions and sales at existing locations. Home Depot also wants to focus on using its e-commerce platform as a way of enticing customers to purchase products. The company could also use its existing infrastructure as a means of getting merchandise to the customer via in-store pickup or delivery. Home Depot can offer more products via its online conduit than it ever could in its brick and mortar locations.

Home Depot also wants to compete with companies such as ABM Industries (NYSE: ABM) via its newly acquired Interline Brands subsidiary. Like ABM Industries, Interline Brands caters to the facilities maintenance market. This represents a compelling niche that falls within Home Depot’s core competency. Also, Interline Brands could serve as a channel into other Home Depot brands for customers and business clients.

Medium-term future

Look for Home Depot’s management to be “cautiously optimistic” over the next year or so. Low oil prices, potentially rising interest rates, low disposable income among Millennials and tumultuous movement in government policies could certainly undermine any expansion in the housing market. Yahoo! Finance cited data from PricewaterhouseCoopers that the under 35 crowd has the lowest rate of home ownership. Expanding interest rates could hinder housing affordability by increasing mortgage payments. Conversely, a negative interest rate scenario could discourage lending by banks due to lower interest charged on mortgages. All of this could adversely impact Home Depot’s ability to generate cash.

Concluding thoughts

Home Depot shouldn’t face difficulty in meeting current earnings estimates. Home Depot stock price has declined by 5% in the last month meaning that the company should have prudently stepped up its share repurchases, reducing the number of shares outstanding and pushing its earnings per share number higher. More importantly, positive macroeconomic factors should contribute to positive free cash flow growth for 2015 and a subsequent dividend increase. Finally, Home Depot seems to understand that adaptability is essential to thriving, or even surviving, in the challenging retailing landscape. Home Depot deserves a long-term spot in your portfolio.

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