Home Depot Surprises Traders with Booming Earnings Report
The home improvement giant Home Depot shocked investors and traders with higher-than-expected growth in their fourth-quarter earnings report. Although the increase in transactions dipped slightly (3% growth versus 4% last year), overall it still out-performed its rival, Lowes, growing 5.6% compared to their 4.1%. And that number is attributable not to home owners redoing their kitchens or patios: the real increase came in the professional segment.
“Large transactions,” which are defined as transactions over $900 and usually assumed to be purchased by professionals, were up a whopping 12%. This growth came particularly in categories like fencing, industrial lighting, and electrical wiring.
Online sales also were booming, seeing a 19% increase over the fourth quarter of 2015. Perhaps more importantly, the online sales are not hurting profits. Other big-box stores, like Target, have seen their online purchases increase, but it has hurt their bottom line, as profit margins online are significantly smaller than in-store purchases. Home Depot has managed to flourish despite their online growth, as nearly half of internet purchases involve a trip to a brick-and-mortar store. Online purchasing is not cannibalizing in-store purchases to the detriment of the physical location.
One thing that is helping both Home Depot and their competitors, like Lowes and Ace Hardware, is that the home improvement industry is recovering from its low of $400 billion in 2011, and reaching back toward pre-recession numbers like 2006’s $900 billion. And Home Depot.
Forecasts predict Home Depot’s growth will dip slightly, to 4.6%, but that still puts them ahead of Lowes’s forecast of 4.1%.