Please ensure Javascript is enabled for purposes of website accessibility

Home Depot Inc. Lifts Its Outlook -- Again -- After Hurricanes Boost Results

By Demitri Kalogeropoulos - Updated Nov 14, 2017 at 9:52AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The home improvement giant's core business continued to strengthen even as natural disasters provided a short-term spike in demand.

Natural disasters depress sales results for most retailers, but they have the opposite impact on Home Depot's (HD 2.75%) operations. That helps explain why the home improvement giant recently posted its best sales growth result in years. Customers flocked to its stores during rebuilding and recovery efforts in the wake of hurricanes, wildfires, and earthquakes that impacted the U.S. and Mexico during the third quarter.

Here's how the big-picture results stacked up against the prior year :


Q3 2017

Q3 2016

Year-Over-Year Change


$25 billion

$23 billion


Net income

$2.2 billion

$2 billion






Data source: Home Depot. EPS = earnings per share.

What happened this quarter?

Sales growth accelerated from an already strong pace thanks to increased demand around disaster recovery efforts in the U.S and Mexico. 

A customer inspects lumber.

Image source: Getty Images.

Highlights of the quarter included:

  • Comparable-store sales gains sped up for the second straight quarter, rising to a 7.9% pace from 6.3% in the second quarter.
  • Customer traffic growth edged down to a 2.5% increase from 2.8% last quarter. Yet Home Depot offset that decline by posting a 5% jump in average spending per visit.
  • Gross profit margin slipped due to the spike in hurricane-related sales that were less profitable than the company's average sales.
  • Operating expenses grew at a slower pace than revenue, leading to an improvement in bottom-line profitability. Operating margin rose to 14.7% from 14.3%.
  • Return on invested capital jumped to 32.5% from 29.1%.
  • Home Depot's 15% EPS improvement was partly thanks to aggressive stock repurchases that reduced the share count by nearly 5 percentage points. The company is now targeting $8 billion in buyback spending this year, compared to $7 billion in each of the last two years.

What management had to say

Executives said the booming results were driven by dramatic weather events that generated elevated demand for home improvement materials. Yet Home Depot's core operations performed well, too. "Though this quarter was marked by an unprecedented number of natural disasters, including multiple hurricanes, wildfires in the West, and earthquakes in Mexico," CEO Craig Menear said in a press release, "the underlying health of our core business remains solid."

The hurricane sales reduced operating profit slightly, management explained, but allowed the retailer to contribute to the recovery efforts. "I am proud of our team and suppliers for their extraordinary efforts to support those in the path of the various natural disasters throughout the quarter," Menear said. "Our support of the impacted communities continues."

Looking forward

Menear and his team raised their full-year growth outlook for the second time this year -- and by a wide margin. They now project comps rising 6.5%, up from the 5.5% they targeted last quarter and the 4.6% gain they had estimated at the beginning of the fiscal year. By comparison, Home Depot's comps were up 5.6% in fiscal 2016. Earnings should improve by 14% rather than the 13% they predicted three months ago, management said, thanks in part to $8 billion of stock buyback spending.

Rival Lowe's (LOW 3.69%) will report its results in a few days, and that announcement should show whether the company has stopped ceding market share to Home Depot. The fact that customer traffic growth slowed this quarter leaves open that possibility, given that Lowe's announced a plan back in August to boost traffic at the expense of operating profit.

Yet, considering Home Depot's healthy sales and profit growth, it's likely that both retailers enjoyed large, but temporary, boosts from natural disasters in the third quarter while their core businesses continued along the same path that's included steady market share gains for the industry leader.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
$283.00 (2.75%) $7.58
Lowe's Companies, Inc. Stock Quote
Lowe's Companies, Inc.
$182.84 (3.69%) $6.51

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.