Home Depot (HD) says home-improvement spending is hot and will continue to drive sales growth in 2017, shrugging off the impact that rising mortgage rates could have on the housing market.
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Homeowners are pouring money into do-it-yourself projects, and construction activity showed strong gains through the end of last year. Home Depot has reaped the benefits. The retailer reported higher fourth-quarter earnings and revenue than Wall Street expected, driven by sales to both consumers and contractors.
Sales momentum will continue into 2017, Home Depot projected. Carol Tome, the company’s chief financial officer, said there’s a “long way to go” before higher mortgage rates cause any concern.
“Overall GDP growth and the strength in the U.S. housing market should continue to support growth in our business,” CEO Craig Menear said Tuesday during a conference call with analysts.
Home Depot’s outlook calls for a 4.6% increase in both same-store sales and overall sales in 2017. Tome noted that early comparable sales in February were positive compared to last year.
Even if mortgage rates continue to rise, they will likely remain below historical norms and continue to provide a catalyst for housing activity, Tome added.
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Interest rates for a 30-year fixed mortgage jumped after President Donald Trump’s win in November. The average 30-year rate was 4.18% as of Friday, compared to a 52-week low of 3.34%, according to Mortgage News Daily.
Homebuilding moved at a fast pace in December, when U.S. housing starts, a sign of future activity, grew 11.3%. Meanwhile, sales of existing homes hit their highest level since 2006 last year, and new home sales rose to their best mark since 2007.
Even so, a severe shortage of homes on the market has prevented sales from taking off. The National Association of Realtors said the supply of previously owned homes for sale fell to a 17-year low in December. Homebuilders say a lack of skilled workers has curbed the construction of new dwellings.
Strong Appliance, Tool Sales
Menear noted growth in the do-it-yourself market, which has grown significantly in recent years as higher home values encourage homeowners to spend on upgrades.
However, Pro sales grew at a faster rate. Fencing, decking, electrical wiring and interior doors were among the most popular purchases for Home Depot’s Pro customers in the fourth quarter. The retailer also saw robust consumer demand for laminate flooring and storage, while power tools and appliances were hot items during the holiday season. Home Depot said its Black Friday and Cyber Week results hit new records.
Customer transactions over $900, which account for roughly 20% of Home Depot’s sales, surged 11.6%.
Home Depot is gearing up for the busy spring season with plans to offer specials on outdoor power equipment for its “Spring Black Friday” promotion. The retailer also began offering customizable patio sets. Before the spring, Home Depot has hired about 80,000 workers in each of the last four years.
Home Depot reported a fourth-quarter profit of $1.74 billion, or $1.44 per share, up from $1.47 billion in the same period a year earlier. Sales climbed 5.8% to $22.21 billion.
In the wake of a strong 2016, Home Depot announced a $15 billion stock buyback and lifted its dividend by 29% to 89 cents per share.
The Atlanta-based retailer also expects to invest approximately $2 billion in its stores, customer experience and other strategic plans.