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