Home Depot Inc. and Wal-Mart Stores Inc. Stocks Jump as Indexes Stay Flat

By Demitrios KalogeropoulosFool.com

Despite solid gains in the first few hours of trading, stocks ended the day about where they started it. The S&P 500 fell 0.1% and the Dow Jones Industrial Average was flat during this session.

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For a change, the top percentage-gainers list was dominated by retailers today. Dow giants Home Depot and Wal-Mart announced their third-quarter earnings results before the opening bell -- and investors liked what they saw in both cases.

Home Depot rides the housing waveHome Depot's stock jumped 4% higher to push back into record territory on surprisingly strong third-quarter earnings results. The home improvement titan said that sales growth accelerated to a 7.3% pace from the prior quarter's 5.7% gain. Management attributed the boost to higher customer traffic in every store aisle. "We saw broad-based growth across our geographies and product categories, led by growth in transactions from both our [do-it-yourself] and Pro customers" CEO Craig Menear said in a press release.

Home Depot is benefiting from a quickly growing industry: Spending in the home improvement market is running at a $614 billion annual pace, up from $400 billion at the depths of the housing crisis. Yet the market is still far from the $900 billion spending peak it touched just before the 2009 recession:

Annual pace of home improvement spending in the U.S. Source: Federal Reserve Economic Data.

Home Depot's finances improved at an even faster pace than its sales did. Gross and net profit margins both ticked higher. In fact, the retailer's 14% operating margin pushed it into record territory for the company.

Net income rose 12% to $1.7 billion, but a falling share count helped that gain translate into a 17% EPS bounce, up to $1.35 per share. Home Depot executives raised their sales outlook for the third time this year. Growth should be 4.9%, up from the 3.9% that management had forecast at the beginning of 2015.

Wal-Mart cleans up its aisles Wal-Mart's stock rose after the company's third-quarter results showed signs of progress in turning around its struggling U.S. business. Comparable-store sales rose by 1.5% domestically, thanks to 1.7% higher customer traffic. While those aren't big traffic gains, especially compared to Home Depot's 4.4% bounce, at least the metric is pointing in the right direction.

Image source: Wal-Mart.

Wal-Mart has now posted four straight quarters of rising customer traffic, which management attributes to its work to improve the shopping experience through initiatives like extra staffing, investing in stores, and raising employee wages. "Our customers are telling us that our efforts around clean, fast and friendly are resonating," CEO Dough McMillon said in a conference call. McMillon also trumpeted the gains at Wal-Mart's neighborhood market store format, which has posted positive comps for 19 straight quarters including an 8% pop this quarter.

Yet with overall sales hardly rising (up 2.8% on a constant currency basis) as earnings fell by double digits, it's clear the retailer has plenty of work to do before it can say it has turned the corner. Still, the stock was down by 34% year-to-date heading into this announcement. That pessimism has helped push Wal-Mart's dividend yield to its highest level on record, which might be one reason why investors are snapping up this Dow laggard today.

The article Home Depot Inc. and Wal-Mart Stores Inc. Stocks Jump as Indexes Stay Flat originally appeared on Fool.com.

Demitrios Kalogeropoulos owns shares of Home Depot. The Motley Fool recommends Home Depot. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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