Home Depot (HD) Guidance Likely Conservative - Jefferies

Jefferies analyst, Daniel Binderm published commentary after Home Depot's (NYSE; HD) analyst day describing the levels of expense growth and the initiatives to accelerate revenue growth by building up the Pro business and continuing to optimize the supply chain.

The company had previously targeted expense growth at about 35% of the rate of sales growth and now expects this to accelerate to about 50%, reflecting people costs (medical and presumably wages), higher variable costs in the Interline business, which is expected to grow faster than the total company, and continued investment in interconnected retail. As a result, the company’s calendar 2018 EBIT margin expectation is 14.5% versus the Street’s 15.4%.

The company’s $101 bn sales goal for CY2018 is slightly below the Street’s expectation $101.7 bn, but mgmt’s forecast is not building in share gains, which it has steadily achieved in recent years.

Big areas of focus going forward include Pro business development, growing omni-channel retail, and leveraging big data to create more rational product assortments by store, more efficient marketing and a more efficient supply chain. Management aims to create a Pro offering that is difficult for competitors to replicate.

No change to Buy rating or $145 PT.

For an analyst ratings summary and ratings history on Home Depot click here. For more ratings news on Home Depot click here.

Shares of Home Depot closed at $133.84 yesterday.

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