Home Depot (NYSE: HD) recently closed another solid year in which the home improvement leader gained market share, increased profitability and raised nearly $ 15 billion to shareholders in the form of dividends and share buybacks.
The last months of 2018, however, were marked by a rare underperformance in sales growth. President and CEO Craig Menear and his management team explained the reasons for this absence during a conference call with investors. The management team also provided details on their short- and long-term prospects that sales could reach $ 120 billion by 2020.
Here are some highlights of this investor presentation.
The weather is unpredictable
It was cold, there was snow and maybe worse, it was wet. Rainy weather delays projects, as evidenced by our commercial performance during the quarter.
Home Depot sales increased 3.2%, once again allowing the company to outpace its competitor Lowe & # 39; s (NYSE: LOW) during the period. The market leader posted gains of 5.2% for the year, slightly more than the 5% growth he had forecast in early 2018. However, this final result is less than 5.5% planned by management three months ago.
Leaders blamed rainy weather across the country, delaying major outdoor construction projects. The company said sales gains for large deals rose 4.8%, marking a slowdown from the previous quarter. The increase in customer traffic has generally slowed down from 1.2% in the third quarter to 0.9%. "We did not expect such a wet winter," said CFO Carole Tome.
Lay the foundation
As part of our effort to enhance the One Home Depot experience, we are investing heavily in our digital assets to provide a frictionless and interconnected shopping experience.
– Commercial Director, Ted Decker
Leaders were pleased with the progress made in moving Home Depot to a fully multi-channel shopping experience this year. Online sales increased 23% in the fourth quarter, and about half of those orders involved a customer who came to pick up the goods in a physical store. The company has spent $ 700 million on projects to improve this network of interconnected retail, from shipping to redesigning its main website. Investors can expect aggressive spending to continue here for several years. The Home Depot distribution network, for example, is not expected to be fully operational until fiscal year 2022.
Take growth targets with a grain of salt
We use a correct but imperfect model to project the growth of our sales.
— For me
Leaders shared detailed information on the key factors they use to determine their annual growth prospects, which are largely based on the expected strength of the broader economy, as well as on specific indicators describing the sector. dwelling. They warned that housing growth would slow down, but management sees many positive trends offsetting this, including the high level of home equity and aging housing stock.
Overall, this formula suggests that Home Depot will increase its revenue at a rate of about 5% by 2019, or roughly with the results of the past year. The forecast assumes modest growth in the economy and the housing sector, as well as additional benefits from the retailer's strategic initiatives. The operating margin is expected to remain steady at around 14.5% of revenue, which would generate a cash flow of about 14 billion USD on a business turnover. about 112 billion USD.
Assuming the plan is worth about $ 3 billion of this cash, the remaining $ 11 billion will be returned to investors through share buybacks of about $ 5 billion and dividends of $ 6 billion.