Home Depot (NYSE: HD) posted quarterly results this week that showed the home improvement giant is staying above the weak retailing industry trends. The company announced broad sales growth and accelerating profit gains over the spring selling season even as customer traffic was stubbornly low.
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More on those shopper trends in a moment. First, here's how the big-picture operating results stacked up against the prior year:
Data source: Home Depot.
Image source: Getty Images.
What happened this quarter?
With help from surging average spending and a fast-growing online business, Home Depot managed another quarter of market-beating sales gains. Its focus on new and innovative products, meanwhile, helped it deliver a further expansion in profitability.
Highlights of the quarter included:
- Comparable-store sales rose 5.5% worldwide and jumped 6% in the core U.S. market.
- Customer traffic growth slowed for the second straight quarter, falling to a 1.6% pace from 2.9%. However, Home Depot offset that decline with a 3.9% spike in average spending per transaction.
- Above-average comps growth categories included appliances, flooring, and roofing.
- Home Depot managed a 16% pop in big-ticket transactions (amounting to more than $900) as it pushed deeper into the professional side of the industry.
- Its e-commerce site, one of the biggest in the industry, posted 23% growth.
- Gross profit margin ticked lower, as expected.
- Because expenses rose at a slower pace than revenue, operating margin improved to 14% of sales from 13.5%.
What management had to say
Executives were happy with the solid start to the fiscal year. "We were pleased with our results as they reflected broad-based growth across our interconnected platform and all geographies," CEO Craig Menear said in a press release.
Management added context in a conference call with investors where they credited their contractor segment with helping deliver the outsized comps gains. "Pro sales once again outpaced DIY sales in the quarter," Menear explained.
Menear and his team still believe they'll grow sales at a 4.6% pace this year to mark a slowdown from last year's 5.6% increase. Rival Lowe's (NYSE: LOW), which is slated to report its first-quarter results on May 24, is targeting a slightly weaker 4.1% comps gain in 2017.
Home Depot didn't boost its expansion outlook this week, but management does see profits rising at a slightly faster pace than originally projected. Earnings should improve by 11%, they said, to $7.15 per share. That's up from February's forecast of $7.13 per share.
The retailer is still on track to pass $100 billion of annual revenue within the next few quarters. It is well on its way to generating $15 billion of operating earnings off that figure, too, as operating margin jumps to 14.5% from 13.3% in fiscal 2015. The steadily improving housing market forms the foundation for those growth forecasts. And at the moment, economic forecasts predict just modest gains for the rest of the year.
On the other hand, Home Depot has demonstrated an ability to outgrow the industry thanks to solid execution around product selection and e-commerce. Its push into major new segments that serve the professional segment also give it an almost $600 billion total addressable market to attack as it eyes expanding past its $100 billion revenue milestone.
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