The Home Depot, Inc. (HD): Here’s What to Look For in The Upcoming Earnings Report

Over the past few years, investors looking to capitalize on the housing recovery poured into shares of homebuilder sticks from Hovnanian to Lennar, and into the two retailers that cater directly to the housing industry: The Home Depot, Inc. (NYSE:HD) and Lowe’s Companies, Inc. (NYSE:LOW). But the housing recovery continues to struggle to move into high gear, and investors are constantly being hit with housing reports indicating that sales are moving higher one month, but lower the next. This pattern has increased the importance of why market participants need to focus more of their attention on earnings and understand that it will take time, but eventually the housing market will once again be a strong aspect of the U.S. economy.

Since every industry operates slightly differently, some of the metrics used to understand each industry are somewhat different as well, and unless investors know what to look for, it’s easy to miss a big red flag when reading through an earnings report.

So today let’s take a look at The Home Depot, Inc. (NYSE:HD) and a few key metrics to watch on May 21, when the company reports earnings.

First and foremost, we want to look at and compare current revenue and earnings per share with the prior year’s same-quarter performance, as well as what analysts were expecting. For this coming quarter, analysts expect The Home Depot, Inc. (NYSE:HD) to show revenue of $18.67 billion and earnings per share of $0.76. During the first quarter of 2012, Home Depot posted revenue of $17.8 billion and EPS of $0.68.

Next, since The Home Depot, Inc. (NYSE:HD) is a retailer at heart, we want to look for a few retail specific metrics such as average ticket cost, average sales per square foot, number of transactions, and comparable store sales increases.

For full-year 2012, The Home Depot, Inc. (NYSE:HD) posted an average ticket price of $54.89, higher than 2011’s $53.28. Compared to Lowe’s, Home Depot has some work to do here. In 2012, Lowe’s posted an ATP of $62.82, after hitting $62.00 in 2011.

Home Depot’s 2012 average sales per square foot hit $318.63, which was a strong increase of 6.6% over 2011. The company also saw a 3.5% increase in the number of transactions in 2012, while comparable-store sales rose 4.6%. On the whole, these are very strong results for a retailer of Home Depot’s size.

Finally, we want to see whether The Home Depot, Inc. (NYSE:HD) is giving any indication of opening new stores in the future, or whether it opened any during the current quarter. Store-count increases would cause revenue and the number of transactions to jump on a yearly or even quarterly basis and distort a few metrics, so it’s important to take this into account when comparing against past results, and of course it’s also key when attempting to determine future growth prospects. For retailers, if new stores aren’t being opened or even planned, growth will begin to flatten out, and shares could fall if growth had been built into the price.