On Tuesday, Goldman Sachs (NYSE:GS) confirmed its Buy rating on Home Depot (NYSE:HD) with a steady price target of $388.00. Home Depot's first-quarter earnings for 2024 came in at $3.63 per share, which fell short of Goldman Sachs' forecast of $3.70 but surpassed the consensus estimate of $3.60 from Refinitiv.
The company saw a year-over-year net sales drop of 2.3%, totaling $36.4 billion, which did not meet the $37.0 billion Goldman Sachs and $36.7 billion consensus projections.
Home Depot reported a 2.8% year-over-year decline in comparable sales, which was more significant than the anticipated 1.2% decrease by Goldman Sachs and the 2.1% consensus estimate. The retailer experienced a decrease in both the average ticket, which was down by 1.3% from the previous year, and the number of transactions, which saw a 1.0% decline. Notably, comparable sales in the U.S. fell by 3.2%.
The operating margin for Home Depot contracted to 13.9%, a decrease of 95 basis points from the previous year, and fell below both the Goldman Sachs and consensus estimates of 14.2% and 14.1%, respectively. This was despite a gross margin increase of 44 basis points year-over-year to 34.1%.
The total operating expenses as a percentage of sales rose by 139 basis points year-over-year to 20.2%. A lower-than-expected effective tax rate of 22.6%, compared to the forecasted 24.5% for fiscal year 2024, positively impacted earnings per share by $0.09.
Looking ahead, Home Depot's management has reaffirmed its fiscal year 2024 guidance. The company forecasts a sales growth of 1.0%, which is slightly below the consensus of 1.1%. They also predict a comparable sales decrease of 1.0%, compared to the consensus of a 0.8% drop, and an operating margin of 14.1%, which is just shy of the 14.2% market consensus.
Earnings per share growth is expected to be 1.0%, which is below the consensus estimate of 1.4%. It is important to note that the fiscal year 2024 guidance does not include any potential impacts from the pending acquisition of SRS Distribution Inc.
InvestingPro Insights
As Home Depot navigates through its fiscal challenges, key financial metrics from InvestingPro paint a broader picture of the company's current market standing. Home Depot's market cap stands strong at $333.56 billion, reflecting its significant presence in the retail industry. Despite the reported decline in net sales and comparable sales, the company's P/E ratio remains at a robust 22.51, indicating investor confidence in its earnings potential.
Moreover, Home Depot's long-standing commitment to shareholder returns is evident through its impressive track record of raising dividends for 14 consecutive years, coupled with a current dividend yield of 2.64%. These InvestingPro Tips highlight Home Depot's stability and its status as a prominent player in the Specialty Retail industry, with a moderate level of debt and a consistent dividend payment history spanning 38 years.
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