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How The Home Depot Inc. Outperformed Retailers Today

Retailers are having a hard time today: Staples, Dick's Sporting Goods, Urban Outfitters, and TJX all reported weak earnings, and their stocks are dropping as a result. That's pulling down stocks that aren't even related to retail, leaving the Dow Jones Industrial Average (DJINDICES: ^DJI  )  0.8% lower for the day.

The one bright spot on the Dow happens to be a retail stock as well. Home Depot  (NYSE: HD  )  was up 1.8% in late trading after its own disappointing earnings report, but there's a good reason why.

Why Home Depot is up today
The home improvement retailer's first-quarter revenue was up just 3.1% to $19.69 billion, below the $19.95 billion Wall Street analysts were looking for. Earnings of $0.96 per share, after adjusting for one-time items, were also below expectations.  

Home Depot stores have remained busy in 2014 even if other retailers are struggling.

But Home Depot didn't change its outlook for full-year revenue to rise 4.8% to roughly $82.6 billion, giving investors confidence that the disappointing sales figure was just seasonal. Management said regions of the country hit with bad weather in the first quarter saw lower sales than those with milder weather, so the expectation is that sales will catch up later in the year.

If we step back even further, Home Depot is outperforming many other retailers because its products are less susceptible to e-commerce competition. Lumber, flowers, paint, and other home improvement goods aren't as easily transferred to online sales as clothing or office supplies. Long term, this gives the company a durable advantage in the retail space.

Home Depot's stock isn't cheap at 15 times forward earnings, but it's one of the only companies that is still growing in retail right now. It also has a competitive advantage based on the products it sells. If you are going to be in retail stocks this is one of the best companies to buy, because online retailers can't overtake it. These days, that's about all retail investors can hope for.

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Travis Hoium

Travis Hoium has been writing for since July 2010 and covers the solar industry, renewable energy, and gaming stocks among other things.

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9/2/2015 12:46 PM
^DJI $16230.27 Up +171.92 +1.07%
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Home Depot CAPS Rating: ****