posted by mark
on Wed, 08/22/2018 - 10:21
As the song went in the old show The Jeffersons, "moving on up to the sky to the delux appartment in the sky".
OK, I know it's a little over the top, but their earnings came up nicely.
Keep in mind that they recently brought in a new CEO, Marvin Ellison. So, he is working on putting his own ideas to work. In a seasonal business such as home improvement, quarter to quarter (Q to Q) metrics are important. I always ignore non-GAAP numbers. GAAP keeps a level playing field.
As with any investment, there is good and bad. All and all, I think the results were good.
Good
- Sales and earnings increased 7.1% Q to Q. Oddly enough, sales and total earnings moved up almost exactly the same percent.
- New CEO. A fresh look at things is always important in home remodeling. He spent 12 years with Home Depot as an EVP so he knows his competitor's play book.
- Earnings per share increased almost 11% Q to Q. Keep in mind that this was a result of financial engineering (share buybacks)
- Gross Margin increased 25 basis points. More sales revenue to cover cost of goods sold.
- LTD was decreased relative to equity and in absolute amount. At this stage of the economy it is good to reduce leverage.
- Cash Flow from Operations is up 14%. This enables financial flexibility.
- Capital Expenditures were up, but well within their Depreciation and Amortization. While it is important to invest in the business, building cash in the current environment is not a bad idea.
Bad
- Share buybacks increased when the market price of the stock is high. Buy when the "Price is right" is the best plan.
- Selling, General and Administrative expenses went from 20.13% to 22.45% Q to Q. Although, it costs money to make money.
- Currency is a headwind in the current quarter. Something to keep an eye on with all retailers.
- The housing market is still experiencing weakness. This will put a cap on future revenues.
Looks like a good start to me. Keep on keeping on Mr. Ellison!
