Home improvement products players, like The Home Depot, Inc. HD, are continuing to benefit from consumers’ growing inclination toward home renovation and maintenance projects. The prolonged indoor stint this past year made people realize the importance of homes. Consumers’ spending on homes have continued, even as outdoor movement gathers pace, as interests of keeping houses well maintained are here to stay. Gains from such trends were visible on Home Depot’s second-quarter fiscal 2021 performance. The company’s robust omni-channel offerings are also encouraging.
This Zacks Rank #3 (Buy) company’s shares have gained 25.8% in the past six months compared with the industry’s rise of 23.1%. Let’s take a closer look at the aspects acting as aces in Home Depot’s stack.
Home Improvements Market Looks Strong
Strong demand for home-improvement projects, robust housing market trends and ongoing investments has been acting as upsides for Home Depot’s top line. During the second quarter, the company’s net sales increased 8.1%. The company is effectively adapting to the high-demand environment, driven by investments in its business over the years and the dedication of its associates to serve customers. Management highlighted that consumers are focusing on larger projects, aiding growth in sales from the company’s Pro customers. Growth in Pro customers outpaced DIY customers for the second quarter in a row. On a two-year stack basis, growth in the company’s pro and DIY customers was consistent and strong.
Speaking of the company’s Pro segment, the company is on track with its strategic investments to build a Pro ecosystem that includes professional grade product, exclusive brands, enhanced delivery, field sales support, HD rental and more. The company expects its differentiated Pro ecosystem will aid deeper engagement with Pro customers in the long term. During the second quarter, the company witnessed ticket strength in Pro heavy categories areas like lumber, vinyl plank flooring, gypsum as well as pipe and fittings. The company is also impressed with momentum in its pro extra loyalty program. The company expects continued sales growth from Pro customers as project demand rises.
Image Source: Zacks Investment Research
Solid Online Sales & Other Upsides
During the second quarter, on a two-year stack basis, sales from digital platforms increased nearly 100%. Enhanced delivery and fulfillment options have been boosting the company’s online sales. Over the years, the company has created the fastest, most efficient delivery network in home improvement through options like buy online pickup in store (BOPIS) with convenient pickup lockers, buy online deliver from store with express car and van delivery as well as the curbside pickup.
Home Depot is witnessing significant benefits from the execution of the “One Home Depot” investment plan, which focuses on expanding supply chain facilities, technology investments and enhancement to the digital experience. Amid the pandemic, customers have been increasingly blending the physical and digital elements of shopping. This makes the interconnected One Home Depot strategy most relevant. The interconnected retail strategy and underlying technology infrastructure have helped consistently boost web traffic in the past few quarters. Moreover, it is looking to enhance interconnected facilities in tool rental. This capability is likely to enhance the experience for both Pro and DIY customers.
Although the company is witnessing favorable demand conditions, lapping of last year’s high-growth environment has led to unfavorable year-on-year comparisons, especially in comparable store sales. Also rising expenses stemming from increased penetration of lumber products and transportation costs have been a worry for the company.
Nevertheless, solid execution of growth strategies along with compelling product offering has been helping the company efficiently meet demand conditions. Such upsides along with favorable conditions prevailing in the home improvements market in general, is likely to keep supporting Home Depot’s growth in the forthcoming periods.
3 Picks You Can’t Miss Out On
Tecnoglass Inc. TGLS, flaunting a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 20%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Best Buy Co., Inc. BBY, also with a Zacks Rank #1, has a long-term earnings growth rate of 8.3%.
Bed Bath & Beyond Inc. BBBY, holding a Zacks Rank #2 (Buy), delivered an earnings surprise of 86.2% in the last four quarters, on average.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report