The Year That Was: Home Depot

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Home Depot (NYSE:HD) has had a stellar 2016, beating consensus estimates for both revenue and EPS through the first three quarters of its fiscal 2017 (ending January 2017). Low inventory of homes for sale has prompted home price appreciation and led to bidding wars, causing home owners to add value to their present homes through remodeling and repairs. Low months’ supply of homes has driven home prices up, causing a rise in home renovation in favor of new home construction. Expense for repairs and remodeling is expected to cross $300 billion this year, surpassing the previous high of ~$285 billion in 2007, and grow further in 2017.

An interest rate hike and appreciation in home prices might hit consumer affordability going forward, but Home Depot has looked to be in good stead due to the expansion of its online footprint and growth of its professional (pro) customer base.

  • Strong Online Sales Have Boosted Home Depot’s Results

Online sales formed 5.6% of Home Depot’s top line in Q3 (up from 1% in 2011), growing 17% year-over-year. Last year, online sales grew $1 billion, up 25% year-over-year. The company continues to focus on delivering an integrated experience across all platforms, which also increased the conversion rates on its site. A significant portion of the online growth leverages the physical store assets. Over 40% of Home Depot’s online orders are picked up in stores. This reflects a strong and successful interconnected strategy.

In addition, in order to enhance delivery systems, Home Depot also started the development of three new direct fulfillment centers, the first of which opened in February 2014 near Atlanta, and the second opened in California during Q3 2014. The third center was opened in the second half of fiscal 2015. Each facility is able to hold approximately 100,000 product offerings available to be shipped directly to customers, along with the capability to ship most orders the same day they are received. Home Depot will be able to reach 90% of the U.S. population within 48 hours with parcel delivery. With further expansion of the dot-com business and strengthening of delivery channels, Home Depot could expand its online customer base, going forward.

  • Home Depot’s Focus On Pro Customer Base

The pro segment is estimated at $120 billion a year, nearly as large as the do-it-yourself segment. A breakdown of Home Depot’s comparable sales growth in the last two quarters shows a broader increase in the average ticket size as compared to a customer traffic increase. Transactions of $900 or more have grown by high single-digit or double-digit percentages in the last couple of quarters. Pro sales grew disproportionately faster than Home Depot’s average last quarter, boosting its top line and leading to a market-beating growth in categories such as plywood, fencing, and industrial lighting. [1]

HD Q&A 12

Have more questions on Home Depot? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Home Depot

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Notes:
  1. 3 Signs Home Depot Inc.’s Best Days Are Ahead, fool.com []
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