Home Depot in new buyback program; to accelerate investments
The nation’s largest home improvement retailer on Wednesday authorized a $15 billion share repurchase program and said it would accelerate investments in key areas of its business.
Citing the changing retail landscape, Home Depot said it plans to ramp up investments in such areas as stores, associates, supply chain and delivery capabilities.
“The retail landscape is changing at unprecedented rates and we plan to invest for the future to address the evolving needs of our customers,” said Craig Menear, chairman, CEO and president. “We will accelerate our investments, while continuing to focus on delivering the value our shareholders expect from The Home Depot.”
Home Depot also set fiscal 2020 financial targets that include growing its annual sales from about $114.7 billion to about $119.8 billion, a compounded annual sales growth rate from the end of fiscal 2017 ranging from approximately 4.5% to approximately 6%, and annual capital spending of approximately 2.5% of sales. The company posted sales of $96.4 billion in fiscal 2017.
Home Depot also reaffirmed its forecast for the remainder of fiscal 2017, saying it expects sales to increase approximately 6.3% for the year, with an approximate same-store increase of 6.5%.
Since 2002 and through the third quarter of fiscal 2017, the Atlanta-based home improvement giant has returned approximately $73 billion of cash to shareholders through repurchases, repurchasing approximately 1.3 billion shares, Home Depot said.
Analysis: American Eagle still has work to do; Aerie strong
While today’s results from American Eagle Outfitters are mixed, they point to a company that is holding its own in a challenging market. There are, however, some negative numbers, such as the erosion on the bottom line, that signal the company has much more work to do before it can claim to be back to full health.
American Eagle stores posted a comparable sales increase of 1%. This reverses the declines of the last two quarters and is a step up on preceding periods when growth was present but anemic. As positive as this is, it is not a cause for unbridled celebration. The uplift was delivered against the backdrop of a stronger period for apparel overall. This raises a question as to how much is down to underlying natural demand, and how much is attributable to the improvements American Eagle has made over the past year.
In fairness, we believe that a mix of both delivered the number. Categories like denim are performing well for American Eagle, with new washes and styles helping to drive sales. From our customer data, there is evidence to suggest that those shoppers who visit to buy jeans are now buying more in other categories too – this is particularly true for men.
An increase in cross-category shopping is comforting and partly alleviates our concern that American Eagle was becoming overly reliant on denim. As much as this is currently helping results, it makes the company’s sales growth dependent upon denim remaining in fashion – something that it is unable to control or guarantee. By using denim as a springboard to promote other parts of its offer, we believe American Eagle is on the right track.
Along with a skew in category performance, American Eagle is also showing a disparity in channel results. The growth in stores is poor while growth online is much stronger. Given the interplay between shops and the website, it is arguably the overall numbers that matter. However, the higher costs associated with online fulfillment contributed to a margin decline this quarter. This was further exacerbated by heavy promotional activity, which was necessary to keep pace with the rest of the market. As a consequence, net income fell by 15.9% over the prior year.
Away from American Eagle, Aerie continues to be a reliable source of growth. Its robust comparable sales uplift of 19% this quarter was market-beating and underlines that it is still taking the share of other players. Usually, after such a long run of very high sales increases, we would have concerns about a softening as lapping comparatives become tougher. We don’t yet feel this way about Aerie.
In our view, Aerie has excellent growth potential from two sources. First, the customer base continues to grow as more shoppers discover and migrate over to the brand. Aerie’s positioning and stance remain aligned with consumer attitudes, and this is helping to enlarge its share of shoppers.
Second, the category extensions into products like soft knit tops and leggings are helping to increase average transaction values and are giving Aerie access to a more significant share of its shoppers’ overall spending.
Overall, AEO is in a reasonable position. We believe performance over the holiday quarter will be solid and will mark a good end to a respectable year.
Despite objection, Toys ‘R’ Us bonus plan gets OK from court
The U.S. Bankruptcy Court in Richmond, Virginia has approved the plan to pay top executives at Toys “R” Us up to $21 million in bonuses.
At the hearing, the retailer’s lawyer made the argument that the bonus money would incentivize the executives to boost the retailer’s sales during the holiday shopping season, reported CNBC. The judge approved the plan despite an objection by the U.S. Trustee.
Under the plan, 17 eligible executives would split about $21 million if earnings before interest, depreciation and amortization for this fiscal year reach $641 million, CNBC reported.
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