5 Reasons Home Depot Is Reporting Record Earnings
Business + Economy

5 Reasons Home Depot Is Reporting Record Earnings

Home Depot made company history in the second quarter, recording its highest sales and earnings ever.

The home improvement retailer posted $26.5 billion in sales, a 6.6 percent increase from last year’s second quarter. It also netted $2.4 billion in earnings, or $1.94 per share, up 13.9 percent from the previous year. Both figures were company records. The company reaffirmed its sales and earnings outlook for the rest of the year.

Unlike some other retailers, Home Depot is clearly enjoying the effects of lower gas prices, low unemployment and rising wages, all of which put more cash in consumer pockets. “We’re fortunate we’re in a space where the customer is willing to spend,” said Craig Menear, the company’s chairman, CEO and president, in Tuesday’s investor conference call.

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Here are five reasons why Home Depot is setting records:

1. Amazon is not an issue. While other retailers like Walmart and Best Buy watch Amazon take away customers, Home Depot is largely immune to the Amazon effect. In fact, on Amazon Prime Day on July 12 this year, Home Depot experienced good traffic on their site largely because the event drew so many shoppers online. The company also recently rolled out its “Buy Online Deliver From Store” option that has shorter delivery times and is popular with professional contractors. For the second quarter, online sales for Home Depot increased 19 percent, representing 5.6 percent of total sales.

2. Renovation projects are up. The company is seeing healthy growth in large-dollar transactions. Typically, those $900-plus transactions included only one or two large items like appliances, but now they include 40 to 70 items, indicating a larger project. Home Depot also says professional business outpaced the do-it-yourself business during the quarter, while the gap between high-spend professionals and low-spend professionals narrowed, another indicator of healthy renovation activity. “The project business is alive and well,” Menear said.

3. Household formation is increasing. Young people may not be buying homes, but they are renting them. The number of renter-occupied housing units jumped by 967,000 in the second quarter from the year before. “We serve owned and rental households,” said Carol Tome, Home Depot’s chief financial officer, in the investor conference call.

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4. Housing turnover is on the rise. Sales of existing homes in June hit the highest level in more than nine years. More turnover spurs remodeling activity as sellers rush to make improvements before putting a home for sale, while buyers renovate what they don’t like in their new houses.

5. Home price appreciation continues. When prices go up, homeowners feel comfortable investing in their homes with improvements and renovations. Home Depot has benefited from the steady rise in housing values, which have increased nearly 35 percent since bottoming in February 2012. Menear noted that industry experts expect that appreciation to keep going for the next couple of years as the number of homes for sale lags the volume of potential buyers. Even in the hottest markets like San Francisco, where prices are skyrocketing, Home Depot is not seeing any signs of a slowdown in its business. “This is a tailwind we see for the foreseeable future,” Menear said.