World’s largest home improvement retailer Home Depot Inc. (HD | charts | news | PowerRating) revealed Wednesday, before the bell, that the company sees a 4%-9% drop in fiscal year 2007 earnings per share, while sales are estimated to rise up to 2%, and retail comps are estimated in the negative mid-single-digit area. Meanwhile, including the impact of a 53rd week, full year earnings per share are estimated to be down 3%- 8%, while sales are anticipated to rise 1%-2%. The company further provided its forecasts for the future years. Atlanta, Georgia-based Home Depot also outlined five key priorities, with total investments in fiscal 2007 to be about $2.2 billion. Home Depot reported its fiscal year 2007 financial outlook and key priorities for driving retail growth in 2007 and beyond at its Annual Investor and Analyst Conference.
The company noted that its full year outlook is based on the view that it does not anticipate improvement in residential construction and the housing market until late in the second half of 2007 or early 2008, together with its customer priorities and strategic investments.
Commenting on the forecasts, Frank Blake, chairman & CEO, said, “We are first and foremost a retail business, and our 2007 plans reflect that commitment. While the current home improvement market remains challenging, the long-term fundamentals of our company are strong, and we believe we can improve our performance and grow at, or faster than, the market beyond 2007. That’s why we are making significant investments in our associates and our stores.”
2007 Forecasts
Looking ahead for the fiscal year 2007, Home Depot anticipates earnings per share to decline 4%-9% from last year. The company forecasts total sales growth of 0%-2%, with HD Supply growing to about 15% of total sales by the end of the year from 13% of total sales in 2006. The company sees full year retail comps in the negative mid-single-digit area.
According to the company, full year 2006 outlook reflects 52 weeks, however, the company will have 53 weeks of operating results in its fiscal 2007 financial results. Including the impact of the 53rd week, full year earnings per share are expected to decline 3%- 8%, while consolidated sales are anticipated to increase 1%-2% from 2006.
For the year 2006, Home Depot’s earnings per share were $2.79, a 2.6% increase from last year, while excluding executive severance expense, the company’s full-year earnings per share were $2.83, up 4%. Home Depot’s net sales in 2006 were $90.8 billion, a growth of 11.4% from last year.
On average, 24 analysts polled by First Call/Thomson Financial estimate full year 2007 earnings of $2.78 per share, with expectations ranging from $2.58 to $3.00 per share, while 17 analysts forecast revenues of $93.80 billion.
Carol Tome, CFO & executive vice president - Corporate Services, commented, “Our 2007 sales and earnings per share targets reflect the reality of the home improvement market and our commitment to invest for the long-term health of our business.”
Further, Home Depot intends to open about 115 new store openings in 2007, with 4.6% square footage growth. Capital expenditures are estimated to increase 29% from last year to $4.5 billion, focused on new stores and retail reinvestment.
While providing its full year 2006 results on February 20, Craig Menear, senior vice president, Merchandising, commented about 2007 that despite the slowing home improvement market, the company is encouraged as it head into spring with an expanded assortment in outdoor power equipment, landscape products, and a new patio and grill line-up. He added that the company will focus on product excitement and creating a compelling value proposition in stores in 2007.
Beyond 2007
Home Depot further said it expects annual earnings growth of greater than 5% and earnings per share growth of more than 10%, and sales growth of about 5%, beyond 2007. The company noted that investments made in its retail business are believed to allow sales in the retail business to return to above market growth rates. In addition, the company estimates its investments to drive productivity, which will cause earnings to grow faster than sales.
Key Priorities
Home Depot also outlined five key priorities on Wednesday, and said the total investments in these priorities in fiscal 2007 are estimated to be about $2.2 billion, comprising $1.6 billion in capital spending and $600 million in expense. The company’s various priorities for 2007 include Associate Engagement, Product Excitement, Product Availability, shopping environment, and pro customers.
Under its ‘Associate Engagement’ priority, Home Depot aims to provide a unique warehouse shopping experience characterized by available, helpful and knowledgeable associates. During 2007, the company anticipates investments in associate engagement to total $360 million, including recruitment of master trade specialists, and redesigned compensation and reward plans.
The company’s ‘Product Excitement’ priority calls for driving its merchandising initiatives in 2007 with product innovation, more focused promotions and everyday low pricing. The company projects to invest $260 million in 2007 on merchandising resets, product innovation, pricing strategies and sourcing initiatives.
With its priority for ‘Product Availability’ for 2007 and beyond, the company intends to keep the right quantities of merchandise on the store shelves. With an investment of $275 million, the company targets to focus on improving it’s in- stock position by investing in its logistics capabilities, including demand forecasting and distribution.
Further, Home Depot plans to invest total $865 million in 2007 to support the customers’ shopping experience, including sustained maintenance and merchandising reset programs.
Home Depot added that its goal is to be the number one destination for pro customers, primarily repair and remodel professionals. For the year 2007, the company projects to spend $415 million on programs, including loyalty programs, a pro bid room to handle large customer orders with volume discounts, direct ship programs, credit programs, and other specialty sales initiatives.
Capital Allocation Outlook
Home Depot further said it intends to use available cash after investing to deliver a predictable dividend payout targeting about 30%, to generate value-creating share repurchases and to maintain a high return on invested capital.
According to Blake, “Speed, flexibility and entrepreneurial spirit are hallmarks of The Home Depot and will guide our decision making in 2007. We have aligned our leaders and resources around our five key priorities, and we believe this strategy will deliver the most value for our customers, associates and shareholders.”
Home Depot, the world’s largest home improvement specialty retailer, currently has more than 2,163 retail stores.
Others in the Field
Mooresville, North Carolina-based home improvement retailer Lowe’s Companies, Inc. (LOW | charts | news | PowerRating) expects fiscal 2007 earnings per share to be between $2.02 and $2.09. Lowe’s also forecasts about 10% rise in full-year sales, with comparable store sales growth in the range of flat - 2%. The company intends to open 150 to 160 stores in 2007, which represents total square footage growth of about 11%. The analysts are of the view that the company would earn $2.03 per share for the year 2007, on revenues of $50.62 billion.
In the year 2006, the Lowe’s’ earnings per share rose 15% to $1.99, while sales reached $46.93 billion. The company also reported flat comparable store sales for the year 2006.
Stock Quote
HD closed Tuesday’s regular trading session at $39.82, down $0.97, on a volume of 23.48 million shares. In the pre-market activity, shares went down $0.32 or 0.80% to $39.50. For the past 52 weeks, shares traded in a range of $32.85-$43.95.
In a February 27 research note, Prudential Financial reiterated Home Depot shares at ‘Underweight’ rating, with a price target of $31.
Copyright(c) 2007 RealTimeTraders.com, Inc. All Rights Reserved
« Eastern Financial Florida Credit Union Selects Independent Financial to Expand Investment Products and Services | Could giving a child a credit card prepare them for financial responsibility? »