Wall Street wasn't thrilled with Home Depot's (HD 0.95%) latest earnings report. Investors' snap judgment was to worry over declining customer traffic and what that might mean for the home improvement giant's short-term growth. Shares fell more than 5% immediately following the report.
But Home Depot's business is as strong as it's ever been and showed solid momentum heading into the second half the year. CEO Craig Menear and his team discussed that momentum in a conference call with analysts, and here are a few hidden gems from that presentation.
Still the king
Home Depot's 3.4% comparable-store sales increase in the core U.S. market looked weak compared to last quarter, when sales soared 30%. Yet management said the chain was still winning market share, and that fact was confirmed the next day when Lowe's (LOW 1.38%) announced a 2% comps decline over the same period.
Zooming out, average sales and customer traffic are both much higher today than they were two years ago, before the pandemic struck. Home Depot has tacked on an additional $12 billion in sales so far in 2021, including $3.1 billion just this past quarter. Lowe's has gained roughly $5 billion in extra business in 2021, for context.
"Over the last six quarters, we have grown the business by more than $34 billion, a level unmatched in our market," Menear said.
Winning with pro contractors
The news was uniformly positive in Home Depot's pro contractor niche, which is a big competitive target for all industry players. The chain's big-ticket sales (transactions over $1,000) jumped 24% and helped lift niches like kitchens, tubs, showers, and vanities.
Order backlogs for projects are long and growing, Home Depot said, as illustrated by the new all-time high that was just set in the National Association of Home Builders' remodeling index. "We know our pros are busy, and we are working hard to secure the best products to help our pros get their jobs done," Menear said.
Extending the momentum
Management said there's still too much uncertainty in the market to reliably predict short-term sales trends. Yet the third quarter appears to be running slightly positive despite the surging results from a year ago. That suggests Home Depot might see similar comps gains of about 3% in the second half of 2021.
As for 2022 and beyond, executives are most excited about the major improvements they're making to the selling platform through things like additional fulfilment centers and a more responsive supply chain.
These moves should support customer satisfaction by driving down delivery times, for example, but they're also helping Home Depot keep its price leadership position so it can keep boosting market share through whatever selling environment comes next.
Executives explained their big-picture goals in this context: providing the best customer shopping experience in the industry, extending Home Depot's price leadership ability, and allocating capital in value-generating ways. "If we do these things," CFO Richard McPhail said, "we will continue to grow faster than our market and will deliver exceptional value to our shareholders."