Investors were expecting good news from Home Depot (HD 0.86%) in its second-quarter earnings report. The home improvement giant has benefited from surging demand for DIY project materials as consumers prioritized these categories in the wake of COVID-19. Extra income for shoppers in the form of stimulus payments also helped support near-ideal selling conditions in recent months.
But the chain on Tuesday announced far stronger results than Wall Street expected on both the top and bottom lines as the company added nearly $8 billion of incremental revenue to its sales base.
Double-digit gains
Growth hit a new record in the three months that ended on Aug. 2. Home Depot handled 512 million transactions, which translates into 12.3% higher customer traffic. Shoppers spent an average of 10% more per visit, pushing transaction value up to $74 on each trip.
Together, these metrics pushed comparable-store sales up by a blistering 23%. For context, Home Depot announced a 7.5% increase in the prior quarter and boosted comps by about 4% in fiscal 2019.
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Management credited the gains to its spending on its supply chain and on the multichannel selling platform, which have allowed for quick fulfillment of most online orders directly from local stores. "The investments we have made ... have significantly increased our agility," CEO Craig Menear said in a press release. "This enhanced our team's ability to ... deliver record-breaking sales in the quarter."
Strong profit growth
Home Depot endured extra costs related to staffing and safety during the pandemic. But the additional $480 million it paid in benefits this quarter hardly hurt profitability. Instead, higher gross profit margin offset rising operating expenses to keep operating margin steady at 15.9% of sales. Yet because of the surging sales footprint, there was a huge spike in the absolute profit level. Operating income improved by over $1 billion to $6.1 billion.
Net earnings jumped 24% to $4.3 billion. That figure was amplified by a falling share count, too, with per-share profit rising 27% to $4.04. Investors had been looking for more-modest gains here, with earnings projected to land at $3.71 per share.
Looking forward
Home Depot again declined to issue an updated short-term operating forecast for 2020, which it suspended after COVID-19 disrupted consumer shopping trends starting in late February. As executives look toward the second half of the year, they're likely concerned about collapsing economic growth figures, rising unemployment, and the potential for reduced shopper incomes over the next few months.
On the other hand, home prices are rising in many places around the country, and consumers appear eager to pour resources into their houses right now. As the industry leader, Home Depot is positioned to capture more than its fair share of that growth spike, for as long as it lasts.
These latest results demonstrate that the retailer can handle the quickly changing consumer demand while maintaining its sparkling profit profile. That's good news for shareholders, even though the business is entering a period of unusually high risk caused by additional COVID-19 outbreaks and worsening economic metrics.
