5 Things Home Depot Wants You to Know

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Home Depot (NYSE: HD) recently wrapped up a record fiscal year that pushed the home improvement giant past the $100 billion annual sales mark. Following those results, executives held a conference call with Wall Street analysts to put the numbers in context. CEO Craig Menear and his team also outlined why they see more significant growth coming in 2018.

Here are some highlights from the call.

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Breaking down the growth

The retailer outperformed management's fourth-quarter sales targets, which had crept higher throughout 2017. Beginning with a full-year comps forecast of 4.6%, that number was 6.5% as of mid-November. Home Depot credited a mix of increased customer traffic and higher average spending with pushing the actual figure to 6.8% for 2017 to mark an acceleration over the prior year's 4.6% in comparable-sales growth.

Online sales

The e-commerce segment sped up, too, with sales rising 21.5% for the year compared to a 19% gain in 2016. As a result, digital sales now account for 6.7% of the business versus 5.9% a year ago. Home Depot sees this channel as being complementary to its traditional retailing channel, especially since it drives traffic to its stores without sacrificing overall profitability.

Steady profit margin

Hurricane rebuilding activities lifted sales growth by just under 2 percentage points, management estimated. But these sales also boosted expenses and tilted toward lower-margin products like generators and wet/dry vacs.

The shift reduced gross profitability slightly, but the full-year figure still met expectations at a healthy 34% of sales. Thanks to discipline on expenses, operating margin was 14.6% -- just ahead of Home Depot's target.

Capital returns

Management had nearly $16 billion of cash to work with last year, split between $12.3 billion of operating cash and $3.3 billion of debt. Its biggest spending priority was stock repurchases, which weighed in at $8 billion. After that came dividends of $4.2 billion, followed by capital investments and acquisitions of just over $2 billion.

Optimistic guidance

Home Depot is calling for comps to rise by about 5% in 2018 while operating and gross profit margins both hold steady. That, plus a lower tax rate, should translate into a 28% earnings spike as per-share profit reaches $9.31.

Meanwhile, its capital priorities are shifting away from stock buybacks and toward more aggressive spending on the business. These strategies will mean less direct cash returns for shareholders, but they should support Home Depot's goal of reaching between $115 billion and $120 billion in annual revenue by 2020.

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Demitrios Kalogeropoulos owns shares of Home Depot. The Motley Fool has the following options: short May 2018 $175 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy.