Home Depot Integrated Strategy Aids Growth, Stock Up 14% YTD

The Home Depot Inc. HD has been resilient amid the coronavirus pandemic, thanks to continued store operations as well as its ability to deliver interconnected shopping experience by blending its physical and digital platforms. The company’s flexible interconnected infrastructure helped it quickly adapt to the changing customer preferences amid the coronavirus pandemic in late March. Consequently, it delivered top-line growth of 7.1% in first-quarter fiscal 2020, with overall comps increasing 6.4% and comps in the United States up 7.5%.

The first-quarter sales performance was divided into three phases. In phase one (the first seven weeks of the quarter), the company saw strong sales across the stores, with all departments showing mid-single to double-digit comps growth, as customers prepared for shelter-in-place. In phase two (last week of March in the first 2 weeks of April), the implementation of reduced store hours, limited customer traffic in stores and canceled the Spring Black Friday event led to negative comps in most departments. In phase three (last 3 weeks of the quarter), the company witnessed strong comps across most departments as customers focused on a number of home improvement projects.

Backed by the robust top-line performance, the company’s shares have rallied 14.1% year to date compared with the industry’s growth of 12.5%. Moreover, the Zacks Rank #3 (Hold) stock has improved 1.5% since the last earnings report on May 19. In all likelihood, Home Depot, with a long-term earnings growth rate of 11.3% and a VGM Score of A, indicates further growth ahead.

Apart from the top line, the stock is witnessing positive momentum as its interconnected retail strategy and underlying technology infrastructure have been more relevant amid the coronavirus crisis, delivering record web traffic for several weeks without disruption. Sales leveraging the digital platforms rose 80% in the fiscal first quarter, and more than 60% for instances where customers opted to pick up orders at a store. With the rollout of shelter-in-place orders, customers turned online for their shopping needs. Consequently, the company witnessed accelerated digital business growth of nearly 30% in early March, which reached triple-digit growth by the end of April.

Moreover, it was able to extend its in-store capabilities within days to offer curbside pick-up, an additional fulfillment option for customers in the United States and Canada. Clearly, the company’s market-leading digital assets, flexible supply chain, and a world-class merchandising organization allowed it to quickly adapt to shifts in customer needs, preferences and behaviors during the fiscal first quarter. This led to delivering robust top-line growth for the company.

Clearly, the company effectively leveraged its different fulfillment capabilities like “buy online, pickup in store” (BOPUS) as well as enhanced delivery capabilities like flatbed truck, a box truck or car and van service during the fiscal first quarter. Notably, the BOPUS and Deliver from Store fulfillment options saw triple-digit growth in the fiscal first quarter. In fact, the flexibility in its systems allowed to quickly roll-out a fulfillment option for customers, which was the BOPUS capability clubbed with a contactless curbside pickup option.

Additionally, Home Depot implemented several operational changes to prioritize the safety of associates and provide continued services to customers in mid-March. Among these, the company implemented early store closures to ensure the sanitization of stores and replenishment of shelves. Further, it took early steps to limit customer traffic in stores to better maintain physical and social distancing protocols. It also canceled high-traffic annual Spring events like Spring Black Friday to avoid the rush in stores. These aside, the company leveraged its long-standing investments in interconnected One Home Depot strategy to serve customers.

Nonetheless, it incurred about $850 million of pre-tax expenses (or $640 million after-tax) in first-quarter fiscal 2020 related to actions taken to support associates during the pandemic, which impacted the bottom line. These costs resulted in an impact of 60 cents per share on earnings per share during the first quarter of fiscal 2020. Despite the robust top-line trends in the fiscal first quarter and strong initial results in the second quarter, the company suspended its previously outlined guidance for fiscal 2020, citing the unprecedented impacts of the pandemic.

Better-Ranked Retail Stocks to Watch

Fastenal Company FAST currently has a long-term earnings growth rate of 9% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lowes Companies, Inc. LOW has a long-term earnings growth rate of 15.5% and a Zacks Rank #2 at present.

Lumber Liquidators Holdings, Inc LL currently has a long-term earnings growth rate of 27.5% and a Zacks Rank #2.

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