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Home Depot quarterly earnings beat estimates, shares rise in pre-market trading

Brian Sozzi

Finally, a good earnings report by a retailer from the just completed holiday quarter. Indeed, what home improvement retailer Home Depot (HD) had to say Tuesday is a breath of fresh air following disastrous news from Macy’s (sweeping store closures and an ugly holiday season), bad news from Target (lackluster holidays) and Walmart (so-so holidays and mixed investor day).

  • 4Q Sales: $25.8 billion vs. estimates for $25.75 billion

  • 4Q EPS: $2.28 vs. estimates for $2.10 a share

  • 4Q U.S. same-store sales: +5.3% vs. estimates for +4.9%

  • Full Year EPS guidance: $10.45 vs. estimates for $10.08 a share

Thank you, housing market

Home Depot needed this big quarterly earnings beat and upbeat guidance. The stock has climbed back to record highs following several squishy quarters in 2019, plagued by accelerated investment spending online and in stores. While analysts have praised Home Depot’s outsized spending as it will likely widen its lead over rival Lowe’s, it has created greater than normal volatility in recent quarterly earnings. Execution on the investments has been mixed by Home Depot’s own admission.

In this Monday, Sept. 23, 2019 photo people depart a Home Depot store location, in Boston. (AP Photo/Steven Senne)

The quarter and outlook go a long way in supporting the view Home Depot stands to benefit from strong home remodeling trends in the U.S. this year. Thank you low interest rates from the Federal Reserve, but also rising home values that is spurring investment in one’s home.

“We would characterize Home Depot’s results as solid, particularly on the comp line, which came in better than expected. Margins were down but not more than anticipated and, in fact, slightly better. The big EPS beat mostly came below the line. Sales and margin guidance were reiterated and a relatively low tax rate helps next year’s EPS. Valuation is at the high end of its historical range after outperforming this year. However, with solid results and an improving housing market, fundamentals seem to support higher multiples for both HD and LOW,” said Instinet analyst Michael Baker.

All in all, a comeback quarter for the usual steady Eddie Home Depot. An added gold star: Home Depot’s outlook was perhaps a bit stronger than analysts were looking for in the wake of a key investor day back in December.

Home Depot shares rose slightly in pre-market trading.

The December BuildFax Housing Health Report found existing housing remodel volume increased 4.6% year-over-year and spending on remodeling was up nearly 11%.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Watch The First Trade each day here at 9:00 a.m. ET or on Verizon FIOS channel 604. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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