By Håkon Helgesen
After a solid first quarter, Home Depot has posted an even stronger set of second quarter figures. Total sales rose by 6.2% with underlying comparables up by 6.3% overall and by 6.6% in North America. Given the long run of big uplifts in same-store numbers, this is a very impressive performance.
Home Depot has made excellent inroads with the pro consumer. Initiatives like introducing Interline products to stores and allowing Interline accounts to make payment in stores have increased the number of pros using Home Depot’s shops.
In our view, some beneficial factors are underpinning Home Depot’s growth. When combined with the company’s operational excellence and the sound strategic decisions it has made, these are driving exceptional performance. In a sense, everything is perfectly aligned for growth.
Regarding the tailwinds, foremost among these is the housing market which, for most of the quarter, remained robust in terms of both transactions and prices. Movers are highly beneficial for the home improvement market: our figures show that, on average, movers spend 68% more on DIY than other consumers. The vast majority of movers – some 84% – say that Home Depot is one of the stores they will use most for their home improvement activities. In essence, Home Depot has been the main beneficiary of a strong housing market.
As positive as the housing market has been, there is a risk that activity will wane. Indeed, the latest numbers suggest that transactions are down slightly — not because demand has dropped off, but because there is a shortage of housing. This both reduces options for those wanting to move and also pushes up prices which restrict the number of first-time buyers. Looking ahead it is likely that supply will pick up and that prices will drop back a little; in our view, the underlying fundamentals of the market do not suggest the sort of bubble we saw before the financial crash.
All that noted, even if housing transactions do soften, the impact on Home Depot will not be immediate. Our data show that home improvement spending remains elevated for up to 3 years after the initial move. As such, even if there is a bottoming out of housing demand, it will be a soft rather than a hard landing for the DIY sector.
Another tailwind is the difficulties of other retailers, especially in categories like appliances. Although this accounts for a much smaller slice of Home Depot’s success, we nevertheless see the market share gains across these areas as a sign that Home Depot is advancing in segments that sit slightly outside of the traditional home improvement space. Notably, the number of women considering Home Depot for these categories has increased considerably over the past year.
Alongside consumer market, Home Depot has also made excellent inroads with the pro consumer. The integration of Interline — the commercially focused repair and maintenance products business Home Depot acquired in 2015 — has been beneficial. Initiatives like introducing Interline products to stores and allowing Interline accounts to make payment in stores have increased the number of pros using Home Depot’s shops.
For both pro and DIY shoppers, Home Depot continues to pull out all the stops in terms of range. We, once again, note the company’s flexibility in quickly changing displays and assortments in line with the weather, events, or other factors that shift the pattern of demand. We also applaud product innovations such as the new PPG woodcare range introduced this quarter, the new security products, and the new lithium-ion battery technology in outdoor power tools. These things provide reasons to buy and upgrade.
Away from stores, we are very encouraged by progress in the online part of the business. Better and faster online checkout along with more personalization, especially on mobile, are both helping to drive numbers. Although online demand for home improvement is more subdued than for other sectors, it is nevertheless growing, and Home Depot is advancing its share in the digital space.
Overall, we remain confident about the future outlook for Home Depot. There are some small clouds on the housing front, but even if these do grow, they are not yet close enough to affect performance over the remainder of this year.
Håkon Helgesen is an analyst at GlobalData Retail.