Home Depot (NYSE:HD) Reports Q3 In Line With Expectations

Anthony Lee /
2023/11/14 6:05 am EST

Home improvement retail giant Home Depot (NYSE:HD) reported results in line with analysts' expectations in Q3 FY2023, with revenue down 3% year on year to $37.71 billion. Turning to EPS, Home Depot made a GAAP profit of $3.81 per share, down from its profit of $4.24 per share in the same quarter last year.

Is now the time to buy Home Depot? Find out in our full research report.

Home Depot (HD) Q3 FY2023 Highlights:

  • Revenue: $37.71 billion vs analyst estimates of $37.63 billion (small beat)
  • EPS: $3.81 vs analyst estimates of $3.76 (1.3% beat)
  • Free Cash Flow of $3.56 billion, up 72.1% from the same quarter last year
  • Gross Margin (GAAP): 33.8%, in line with the same quarter last year
  • Same-Store Sales were down 3.1% year on year
  • Store Locations: 2,333 at quarter end, increasing by 14 over the last 12 months

"Our quarterly performance was in line with our expectations," said Ted Decker, chair, president and CEO.

Founded and headquartered in Atlanta, Georgia, Home Depot (NYSE:HD) is a home improvement retailer that sells everything from tools to building materials to appliances.

Home Improvement Retailer

Home improvement retailers serve the maintenance and repair needs of do-it-yourself homeowners as well as professional contractors. Home is where the heart is, so any homeowner will want to keep that home in good shape by maintaining the yard, fixing leaks, or improving lighting fixtures, for example. Home improvement stores win with depth and breadth of product, in-store consultations for customers who need help, and services that cater to professionals. It is hard for non-focused retailers and e-commerce competitors to match these. However, the research, convenience, and prices of online platforms means they can’t be fully written off, either.

Sales Growth

Home Depot is a behemoth in the consumer retail sector and benefits from economies of scale, an important advantage giving the business an edge in distribution and more negotiating power with suppliers.

As you can see below, the company's annualized revenue growth rate of 8.5% over the last four years (we compare to 2019 to normalize for COVID-19 impacts) was decent despite not opening many new stores, implying that growth was driven by higher sales at existing, established stores.

Home Depot Total Revenue

This quarter, Home Depot reported a rather uninspiring 3% year-on-year revenue decline, in line with Wall Street's estimates.Looking ahead, analysts expect revenue to remain relatively flat over the next 12 months.

Our recent pick has been a big winner, and the stock is up more than 2,000% since the IPO a decade ago. If you didn’t buy then, you have another chance today. The business is much less risky now than it was in the years after going public. The company is a clear market leader in a huge, growing $200 billion market. Its $7 billion of revenue only scratches the surface. Its products are mission critical. Virtually no customers ever left the company. See it here.

Number of Stores

A retailer's store count is a crucial factor influencing how much it can sell, and store growth is a critical driver of how quickly its sales can grow.

When a retailer like Home Depot keeps its store footprint steady, it usually means that demand is stable and it's focused on improving operational efficiency to increase profitability. At the end of this quarter, Home Depot operated 2,333 total retail locations, in line with its store count 12 months ago.

Home Depot Operating Retail Locations

Taking a step back, the company has kept its physical footprint more or less flat over the last two years while other consumer retail businesses have opted for growth. A flat store base means that revenue growth must come from increased e-commerce sales or higher foot traffic and sales per customer at existing stores.

Same-Store Sales

Home Depot's demand within its existing stores has been relatively stable over the last eight quarters but fallen behind the broader consumer retail sector. On average, the company's same-store sales have grown by 1% year on year. Given its flat store count over the same period, this performance stems from increased foot traffic at existing stores or higher e-commerce sales as the company shifts demand from in-store to online.

Home Depot Year On Year Same Store Sales Growth

In the latest quarter, Home Depot's same-store sales fell 3.1% year on year. This decline was a reversal from the 4.3% year-on-year increase it posted 12 months ago. We'll be keeping a close eye on the company to see if this turns into a longer-term trend.

Key Takeaways from Home Depot's Q3 Results

With a market capitalization of $288.1 billion, a $2.06 billion cash balance, and positive free cash flow over the last 12 months, we're confident that Home Depot has the resources needed to pursue a high-growth business strategy.

HD delivered in-line Q3 results and overall a decent quarter, showing that the company is staying on target. The stock is flat after reporting and currently trades at $290.09 per share.

So should you invest in Home Depot right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.

The author has no position in any of the stocks mentioned in this report.