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Home Depot Earnings Preview: Improve This Home Improver

HOME DEPOT (HD)

Largest home improvement retailer in the world. Dow component.

Reports Q1 earnings Tuesday 5/20 at approx. 6a ET. Conference call at 9a ET.

Home Depot Shopper
Home Depot Shopper

WHAT WILL MOVE THE STOCK:

REPLAY OF LOWE'S RESULTS? - On Monday, Lowe's reported earnings that were slightly above expectations. However, investors focused on the lowered guidance the retailer gave for the rest of this year. Will Home Depot follow Lowe's lead? Unfortunately for Home Depot, that's what the Street was expecting... and is probably the main reason Home Depot shares are falling on Monday while the rest of the market is on the rise.

BEATING EXPECTATIONS - OK, it's always about beating expectations, but Home Depot gives us lots of numbers to track. What is the company telling us that investors didn't know a few minutes ago? Are profit margins expanding or shrinking? Have growth plans (store openings and renovations) changed? See Factoids for the full list.

THE ECONOMY - What is Home Depot's view of the U.S. economy? Some analysts were hoping Home Depot, Target and Lowe's would display signs of strength that would bolster the argument for a market bottom and a continued rise in stock prices. Since Lowe's didn't deliver, expectations for Home Depot are weakening.

COST CONTROLS - What is Home Depot doing to mitigate rising costs for goods, transportation etc.? On May 1, Home Depot announced plans to improve cash flow. The company said it will close 15 underperforming stores in the U.S. and trim 50 American stores from its development pipeline.

ESTIMATES:

Q1 EPS down 23% to $0.37, revenues down 18% to $17.606 billion

Q2 EPS down 15% to $0.66, revenues down 6% to $20.876 billion

FY 08 EPS down 22% to $1.76, revenues down 6% to $72.683 billion

Source: Thomson Reuters

Year-ago actuals: Q1 EPS $0.48, Rev. $21.585 billion

*All estimates are current as of 5/19 and subject to change.*

FACTOIDS:

IT COULD BE A LOT WORSE - Home Depot is up about 8% (from $26.94) this year, while the Dow Industrials are down 1.8%.

... BUT IT AIN'T PRETTY EITHER - On January 9th, Home Depot shares hit a five-year low of $23.77. Last July, Home Depot traded briefly above $40. Over the last year, the stock is down 26% (from $38.88). By comparison, Wal-Mart is up 18% in 2008 and up 19% over the last year.

THE PREVIOUS GUIDANCE - On May 1st, Home Depot lowered guidance for FY 2008 EPS to $1.72 - $1.84 from $1.80 - $1.92. The retailer says total sales for the year are expected to drop 4% - 5% which translates to a range of $73.5 billion - $74.3 billion. It's worth noting that analysts' consensus forecast is now well below Home Depot's guidance.

OTHER NUMBERS - Here's the rest of the 2008 guidance Home Depot gave in its last quarterly report on February 26th:

-- Negative comps (comparative store sales growth) in the mid to high single digit range

-- Flat to slightly positive gross margin expansion

-- Operating margin decline of 170 to 210 basis points

-- Depreciation and amortization expense of approximately $1.9 billion

-- Income tax rate of 37.2%

-- Capital expenditures of $2.3 billion

-- 55 new store openings with 5 store relocations

ANNUAL MEETING - Home Depot's annual meeting is this Thursday in Atlanta, Georgia.

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