Analysis: Home Depot strong on top and bottom lines
When the last quarter's sales results were slower than expected, we noted that the factors driving the deterioration in growth were temporary. This period's figures prove that to have been the case as Home Depot has posted a superb set of numbers.
The 8.4% uplift in sales along with the supporting 8.0% rise in comparables is partly the result of a rebound in seasonal improvement activities after bad weather during the first quarter delayed projects. While we believe that some of the lost sales have now been recaptured, the first half growth figure of 6.6% remains a little below average and suggests that some impulse based trade was lost.
The boost to trade from delayed projects was also aided by a larger number of householders spending more on their homes. Much of this is down to more robust consumer finances and increased levels of consumer confidence, both of which have stimulated spending on a variety of improvement projects from complete refurbishments to small decorative tasks. This broad upswing in activity has been helpful to the home sector as a whole, but we believe that Home Depot's strong brand presence and its good marketing mean it has captured the lion's share of the growth in the DIY category.
Despite the strong economy, one area that did not play ball over the period was the housing market. While growth in home prices has been reasonable, they have slowed over recent months. And while demand remains strong, affordability issues, especially in some key urban markets, means that transaction numbers have dropped back. It is too early to say whether this will turn into a broader slowdown across the whole sector, but we believe it is a red flag that could act as a moderate dampener on demand for home improvement over the next six to nine months.
Despite the above, it is important to note that while the housing market is a key driver of growth, it is not the only one. There are a number of more helpful tailwinds on the horizon that could help boost Home Depot. Foremost among these is the rebuilding that will need to take place after a particularly bad season of wild-fires across some Western states, including California. As we have seen before, these tragic events are helpful to the home improvement sector, with Home Depot being the major beneficiary. We are also seeing signs of more younger consumers starting to engage with DIY, which is helping to enlarge Home Depot's customer base. Both of these things should help take the edge off any slowdown in the housing market.
In addition to some helpful trends aiding its core categories, we also believe that Home Depot's push into home decor is a sensible strategy. At present this seems to be confined to online but, as Wayfair has proved, there is a big opportunity to sell home furnishings online, and we believe Home Depot can capture a larger slice of this softer part of the market.
Overall, we remain confident about Home Depot. Its management is strong, it is navigating both the digital and physical landscapes well, and it remains a go-to destination in the minds of consumers. The comparative for the next quarter is tough, but thereafter things become slightly easier. As such, we expect this year as a whole to be a strong one for both the top and bottom lines.
The 8.4% uplift in sales along with the supporting 8.0% rise in comparables is partly the result of a rebound in seasonal improvement activities after bad weather during the first quarter delayed projects. While we believe that some of the lost sales have now been recaptured, the first half growth figure of 6.6% remains a little below average and suggests that some impulse based trade was lost.
The boost to trade from delayed projects was also aided by a larger number of householders spending more on their homes. Much of this is down to more robust consumer finances and increased levels of consumer confidence, both of which have stimulated spending on a variety of improvement projects from complete refurbishments to small decorative tasks. This broad upswing in activity has been helpful to the home sector as a whole, but we believe that Home Depot's strong brand presence and its good marketing mean it has captured the lion's share of the growth in the DIY category.
Despite the strong economy, one area that did not play ball over the period was the housing market. While growth in home prices has been reasonable, they have slowed over recent months. And while demand remains strong, affordability issues, especially in some key urban markets, means that transaction numbers have dropped back. It is too early to say whether this will turn into a broader slowdown across the whole sector, but we believe it is a red flag that could act as a moderate dampener on demand for home improvement over the next six to nine months.
Despite the above, it is important to note that while the housing market is a key driver of growth, it is not the only one. There are a number of more helpful tailwinds on the horizon that could help boost Home Depot. Foremost among these is the rebuilding that will need to take place after a particularly bad season of wild-fires across some Western states, including California. As we have seen before, these tragic events are helpful to the home improvement sector, with Home Depot being the major beneficiary. We are also seeing signs of more younger consumers starting to engage with DIY, which is helping to enlarge Home Depot's customer base. Both of these things should help take the edge off any slowdown in the housing market.
In addition to some helpful trends aiding its core categories, we also believe that Home Depot's push into home decor is a sensible strategy. At present this seems to be confined to online but, as Wayfair has proved, there is a big opportunity to sell home furnishings online, and we believe Home Depot can capture a larger slice of this softer part of the market.
Overall, we remain confident about Home Depot. Its management is strong, it is navigating both the digital and physical landscapes well, and it remains a go-to destination in the minds of consumers. The comparative for the next quarter is tough, but thereafter things become slightly easier. As such, we expect this year as a whole to be a strong one for both the top and bottom lines.