Home Depot (NYSE: HD) recently announced second-quarter earnings results that were marked by accelerating sales growth and double-digit profit gains during the key spring selling season.
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Here are a few highlights from the quarterly conference call that CEO Craig Menear and his executive team held with Wall Street analysts.
1. Setting records
We had a strong quarter, achieving a milestone of the highest quarterly sales and net earnings results in the company history.
Executives described broad-based growth that was powered by a mix of higher average spending and increased customer traffic. Shoppers spent 3.6% more per trip, a number that was temporarily inflated by spiking lumber prices.
Even better news for the business is the fact that traffic jumped 2.8% to mark a solid acceleration over the prior quarter's 1.2% uptick. Overall, comparable-store sales improved by 6.6% in the core U.S. market.
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2. The professional customer is key
We believe that the work that we're doing to enhance the service capabilities for the unique needs of our Pro customers continues to resonate.
Home Depot's pro-heavy product categories, like flooring and electrical supplies, outgrew the rest of the business. Its big-ticket sales, meanwhile, jumped 12% to help pull overall sales growth higher. These results suggest the retailer is gaining traction in its goal of winning the loyalty of professional contractors. It aims to push that advantage in the quarters ahead by deeper integration of recent maintenance, repair, and equipment rental acquisitions including Interline Brands and Compact Power Equipment.
3. Online retailing is an asset
Our online business continued its momentum as online sales grew approximately 23% versus last year.
-- Executive Vice President Ted Decker
Home Depot's interconnected retailing strategy, through which most online shoppers pick their products up at their local Home Depot store while many online sales occur at kiosks within a Home Depot warehouse, paid big dividends this quarter. The e-commerce channel's 23% spike helped it climb to 6.4% of the total business. Executives highlighted the fact that investments they're making in both areas have led to rising customer satisfaction scores for digital and physical shoppers.
4. We're not afraid of debt
During the quarter, we took advantage of an attractive interest rate environment and raised $2 billion of incremental long-term debt. We will use the proceeds of this debt issuance to repurchase outstanding shares.
-- Chief Financial Officer Carol Tome
Home Depot returned to the debt market just six months after it took out its last big loan. Like the issuance it held in the third quarter of 2016, this loan is for $2 billion and is slated to push the retailer's annual share repurchase spending up to $7 billion -- up from its initial target of $5 billion. Home Depot's aggressive use of debt over the last few years has added stress to its balance sheet, but it has also helped power big improvements to its return on invested capital metric.
5. There's room for growth ahead
We expect to see continued growth in the repair and remodel market as the U.S. has experienced solid wage growth, faster home price appreciation and the reemergence of first-time home buyers.
Home Depot executives raised their top- and bottom-line forecasts and now see sales growth continuing last year's healthy pace at roughly 5.5% while earnings spike higher by 13% to $7.29 per share in 2017.
When asked by an analyst whether the long-running rebound in the home-improvement market might be close to exhausting itself, Tome cited aging housing stock and a below-average rate of home investment spending as reasons why management believes there's room for more growth. Putting it in baseball terms, the industry is sitting at "about the sixth inning" in terms of reaching the prior peak it set in 2006, Tome explained.
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