Home Depot (NYSE: HD) executives were thrilled with the third-quarter performance they recently announced, and not just because natural disasters pushed sales growth to its highest rate in years. The retailer's core business also logged healthy customer traffic trends. Profits are rising, too, and the home improvement giant sees growing opportunities ahead for increasing overall shareholder returns.
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Below are the key highlights from the conference call discussion CEO Craig Menear and his executive team had with Wall Street analysts following its quarterly earnings announcement.
Both tickets and transactions grew in the quarter as we saw growth not only in storm related product categories but in core categories as well. We saw a healthy balance of growth from both our Pro and [Do It Yourself] categories, with Pro sales once again outpacing DIY sales in the quarter. -- Menear
Home Depot's comparable-store sales jumped 7.9% to mark a sharp improvement over the prior quarter's 6.4% gain. The comps growth came from the combination of a 2.5% customer traffic boost and a 5.1% spike in average spending. That traffic figure held steady as compared to the prior quarter, which suggests rival Lowe's (NYSE: LOW) didn't make much headway in its plan to grab market share from the industry leader.
Impact of the storms
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While our year-over-year sales growth was positively impacted by the hurricanes, our operating profit was negatively impacted by $51 million. -- Chief Financial Officer Carl Tome
The hurricanes had mixed results on the business. First, they lifted demand as customers prepared for the events. Then, because they forced the closure of over 200 stores, the storms pinched sales for a short period of time. Finally, they produced higher traffic and spending in the following weeks during the rebuilding efforts.
These hurricane-related sales increased comps but brought profitability down because they were focused on lower-margin categories like generators and plywood.
Our interconnected strategy continues to drive sales both in stores and online, as online sales grew approximately 19% in the quarter, now representing approximately 6.2% of our total sales. -- Menear
Home Depot's healthy e-commerce growth isn't reducing the relevance of its physical store footprint. In fact, just under half of its online orders involved a trip to one of its retailing locations.
The digital strategy is also delivering solid results compared to peers. At over 6% of the business, Home Depot's e-commerce channel beats Target's 4.3% and Costco's 3.5%.
More share repurchases
We are now targeting share repurchases of $8 billion of which $2.1 billion will occur in the fourth quarter. -- Tome
Home Depot spent $7 billion in each of the past two fiscal years on stock repurchases, and in light of its increased dividend commitment, the company started 2017 by targeting a more modest $5 billion this year.
But management changed their minds, in part because interest rates are so low. Home Depot took out an additional $1 billion in debt this quarter that will help it fund a $3 billion increase in its annual stock buyback spending in 2017.
The macro environment remains supportive and we believe housing is a tailwind for our business. In addition, we expect the hurricane recovery efforts to continue across a number of our markets. -- Tome
Executives believe the hurricane rebuilding efforts will lift results in the fourth quarter and through at least the first half of 2018. That's the main reason they hiked their 2017 outlook and now see comps jumping by 6.5% rather than the 5.5% they had predicted three months ago.
Looking further out, Home Depot's reading on the housing market is bullish. Supportive trends on the age of housing stock, household formation rates, and home prices all imply the next slowdown could be years away, perhaps beyond 2020. In the meantime, the company is set to push past the $100 billion annual sales mark soon while increasing profitability to over 15% of sales.
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Demitrios Kalogeropoulos owns shares of Costco Wholesale and Home Depot. The Motley Fool has the following options: short January 2018 $170 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Costco Wholesale, Home Depot, and Lowe's. The Motley Fool has a disclosure policy.