Home Depot Misses on Flat Sales, Raises Dividend

The Home Depot (HD) reported fourth quarter 2009 results with earnings of 24 cents per share. However, earnings were below the Zacks Consensus Estimate of 36 cents, though they were up 26.3% year-over-year.

Total sales for the quarter were almost flat year-over-year, declining marginally by 0.3% to $14.6 billion. Total same-store sales grew 1.2%, while comparable same-store sales for U.S. stores declined 1.1%. Sales were primarily driven by gains in kitchen and bath, paint, flooring and plumbing and international business, which were offset by weak market fundamentals.

Gross margin for the quarter expanded 45 basis points (bps) to 34.4% versus 34.0% in the prior-year quarter. The operating margin for the quarter expanded 317 bps to 5.0% from 1.8% in the year-ago period.

The company had cash and short-term investments of $1.4 million and a debt-to-capitalization ratio of 31%.

Concurrent with the earnings release, the Board of Directors declared a 5% increase in the quarterly dividend to 23.6 cents per share. Since 2006, this is the first time the Board has increased the dividend. The dividend is payable on March 25, 2010 to shareholders on record as of March 11, 2010.

Based on the performance in the fourth quarter, management provided an outlook for fiscal 2010. The company expects sales growth and overall comparable store sales growth of 2.5%. For fiscal 2010, the company expects to open 6 new stores. Moreover, Home Depot expects modest expansion in its gross margin for the year, while operating margin is expected to expand by approximately 8%.

Annual earnings from continued operations are expected to increase by approximately 15.5% to $1.79. Capital expenditures are expected at $1.75 billion, while cash flow of approximately $5.4 billion is expected.