Home improvement stores have generally done well throughout the so-called retail apocalypse. That's partly because much of the merchandise sold by The Home Depot (NYSE:HD) and Lowe's (NYSE:LOW) does not lend itself well to delivery, while other items are things consumers want to see before buying. A contractor won't be going to Amazon to buy drywall or 2x4s, and non-professional shoppers likely won't pick a paint color online -- or buy a light fixture or other item that will be installed in their home.
These factors have protected the two major home improvement warehouse chains from digital disruption. That protection, however, is not absolute, and improving delivery options and digital technology could eventually erode these protective walls.
How is Home Depot doing?
Home Depot reported $24.9 billion in first-quarter sales, a 4.4% increase over the same period last year. Comparable store sales rose 4.2% globally and 4.2% in the United States, while net earnings per share came in at $2.08 per share, up from $1.67 in Q1 2017.
Those numbers compared favorably to Lowe's, which saw Q1 sales rise 3.0% to $17.4 billion, with comparable store sales rising by 0.6%. The No. 2 home improvement chain posted EPS of $1.19 for the period, up from an adjusted $1.03 in Q1 2017.
Home Depot CEO Craig Menear was pleased with the results. In his remarks for the Q1 earnings release, he noted that the spring selling season had started slowly, but that the company had recovered.
"Outside of our seasonal business, we had solid results in all markets and categories and are seeing strong momentum in all lines of business during these first few weeks of May," he said. "These trends, as well as a favorable housing and macroeconomic backdrop, give us confidence to reaffirm our sales and earnings guidance for fiscal 2018."
Can Home Depot continue its success?
The home improvement chain has been performing strongly, and there's no reason to believe that will change. Menear has not rested upon his laurels, and he is taking steps to build on the company's winning areas.
"Part of the strength we saw in the business can be attributed to the health of our pro customer, as pro sales once again outpaced DIY sales in the quarter," he said during the Q1 earnings call. "Investments aimed at deepening our relationship with our pro customers are yielding increased engagement which translates to incremental spend."
Home Depot is also working to expand delivery options, including 2-hour and 4-hour options in some markets for professional customers. It has also been developing what it calls its "interconnected retail strategy," an effort to grow its online sales.
"Online traffic growth was healthy and our first quarter online sales grew approximately 20% from the first quarter of 2017," Menear said. "During the quarter, we began to launch the customers' ability to attach install services when they buy certain products online in select markets."
Home Depot is a buy
Menear has been tweaking a winning formula, and Home Depot should be able to continue integrating more digital and delivery options that grow the company's sales.
Home Depot really only has one major competitor in Lowe's. That company is undergoing a bit of a reset: It has changed CEOs, and it's playing catch-up compared to its chief rival, which has chugged along steadily.
It's important that Home Depot continues to evolve. It won't become a digital-first retailer, but it needs to smartly evolve its omnichannel services. Menear has shown that he understands how to serve his customers while also anticipating their future needs. That's a winning formula: one which he should be able to maintain under current and expected future market conditions.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool is short September 2018 $180 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy.