Highlights From HD's Q1 Conference Call: Saw Improvement Throughout Quarter, Reaffirms FY09 Guidance


More News related to HD

More News related to HD

More News related to LOW

More News related to LOW

More News related to Corporate News

More News related to Corporate News
May 19, 2009 4:03 PM EDT

Home Depot (NYSE: HD) reports Q1 earnings of $0.30 per share, or $0.35 adjusted, which is above the consensus of $0.29. Revenues came in at $16.18 billion, versus the consensus of $15.86 billion.

Highlights From HD's Q1 Conference Call:


  • Home Depot reaffirmed its guidance for fiscal 2009 of sales down 9 percent with negative comparable store sales in the high single digit area and earnings per share from continuing operations down 7 percent.
  • (CEO) Q1 sales were $16.2 billion, down 9.7% from last year. Comp sales were negative 10.2%.
  • The external environment remains difficult. Private fixed residential investment as a percent of GDP is now at 2.7%. This is down 40 basis points from Q4 and is well below the 60-year average of 4.8% and also below the previous 60-year low of 3.2%.
  • We had a very soft February in the U.S., with particular weakness in our Western division, but saw improvement through the remainder of the quarter.
  • We are concerned about accelerating rates of foreclosures, particularly in the Western part of the country where there is already a high density of houses in foreclosure. In Q4 of '08, we saw foreclosures decelerate in areas of California and along with that, an improvement in our comps. Those trends reversed this past quarter, which provides a cautionary note on signaling a recovery prematurely. One out of every 54 households in California is in foreclosure.
  • On the positive side, year over year 21 markets out of our top 40 markets are showing a lower rate of decline.
  • In Q1, we gained share in seven of 13 departments, reduced inventory by over $1 billion, and maintained a strong in-stock position in our stores.
  • Also on the international front, our Mexican business again posted positive comps, while our business in China posted low single-digit negative comps, reflecting the decelerating environment.
  • (Executive VP, Merchandising) For the quarter, every merchandising department experienced negative comp sales growth compared to Q1 of 2008. In Q1, departments that outperformed the company's average comp were seasonal, building materials, paint, plumbing, and flooring. Electrical, millwork, lumber, kitchens, and hardware underperformed the company's average comp for the quarter.
  • Seasonal categories related to outdoor projects like landscaping, live goods, fertilizer, and seed showed flat or positive growth in the quarter.
  • Basic repair and maintenance categories remain resilient across the country. Categories like HOC and water heaters and air circulation, fasteners, plumbing repair, and roofing all performed better than the company average.
  • Finally, there is an increase in safety and security products.
  • Average tickets of $900 and above, representing approximately 20% of our US business, sales were down around 15%. In total, average ticket for the first quarter was down 8.2% to $52.67.
  • (CFO) Fluctuating exchange rates negatively impacted our total company comp by approximately 190 basis points. This was offset by a 30 basis point benefit arising from comp sales growth outside of the US. Comps for US stores were negative 8.6% for the quarter, with negative US comps of 11% in February, negative 7.2% in March, and negative 8% in April.
  • For Q1, our financial results were impacted by the closing of the EXPO businesses. Sales from liquidated inventory were $221 million. Gross profit on those sales was $29 million, and the operating expense of the stores including our closing costs was $146 million, for a net reduction in operating profit of $117 million.
  • In the first quarter, our gross margin was 33.7%, a decrease of 22 basis points from last year.
  • We are calling for fiscal 2009 sales down 9% with negative comps in the high single digit area; earnings per share from continuing operations down 7%, and adjusted earnings per share from continuing operations down 26%. We continue to expect the first half to be softer than the back half of the year.
  • (Q&A) The spread between your US comp and Lowe's (NYSE: LOW) comp widened a bit in Q1 compared to where it was in the fourth quarter last year, and that's despite an improvement in some of your customer satisfaction scores. Given that late last year, you had some positive PR from the pricing changes you made and some advertising expenses from this quarter were pushed out, do you think that your share of voice, your marketing message needs to be stronger in order to communicate to consumers that they should come back into the stores, and what's the philosophy there? (A - Frank Blake, CEO): I mean a couple of comments on that; first, it's a fair comment on the advertising weight and share of voice. We did some reprofiling in the quarter and pushed it out later and maybe that's some of the reflection in terms of our February results, so that's a possibility. Again, the other thing I'd comment on is we look at our business in its entirety. We have lots of different competitors. We've gained share overall in our market; and as I said, gained share in a number of our departments, as Craig referenced. And I think while our target is always to beat every competitor, the other thing I'd point out is sequentially quarter over quarter, it's a better performance for us.
  • One quick follow-up question to the comment you made, Frank, about seeing some experience in the Western states, particularly California, slip a little bit and the thought that it's tied to foreclosures, are you seeing anything specifically that would lead you to believe that the moratorium on foreclosures late last year led to some better results there? It would almost suggest that as long as people are staying in their house and not fearful of losing it that they're spending a little bit on the property. (A - Frank Blake, CEO): I don't know on the moratorium. What I can say and it was the reason for the cautionary flag in the comments was California is a hugely important market to us. It's a hugely important market within the country. And what we saw when we had this call in the fourth quarter, we were saying hey, we think California is on an improving trend. That reversed for us in the first quarter of '09. And one of the things we see and it's not unique to California, it's in other states, is where you see this accelerating rate of foreclosures, you see pressure on comp performance. And if you look at California, for a while it was getting better, sort of if you were working through the problem. And now it's regressed; and as I say, we just take that as a cautionary note.
  • The first was if you could quantify the April - March Easter shift impact on the comps. And then the second part of the question was as it pertains to the type of expense leverage that we could expect on credit in Q2 and how much of the expense has shifted out of Q1 into Q2? (A - Carol Tom, CFO): Well let me give you the Easter answer first. Looking at U.S. comps, our reported comp was a negative 7.2 in March, a negative eight in April. Adjusting for Easter, we were negative 8.7 in March, negative 7% in April. Then to answer your question about the benefit from our private label credit card, as I think we've told you before, we expect the year-over-year expense reduction to be about $250 million. We realized about $120 million of that in the first quarter. So hopefully that helps with your model, and I can just
    pick out for you the kind of expense deleverage we experienced last year by quarter, so you can see that it gets progressively easier. We deleveraged expenses in the first quarter last year by 96 basis points because of credit, in the second quarter 73 basis points, in the third quarter 70 basis points, and then in the fourth quarter 28 basis points.