Home Depot (HD 0.22%) on Tuesday announced its third-quarter earnings (for the quarter ending Oct. 31), and investors can breathe a sigh of relief. Despite supply chain issues, inflation, and consumer spending shifts into categories like travel and dining out, the home improvement industry is still growing at a solid clip. Elevated demand for its products "has persisted," CEO Craig Menear said in a press release tied to the report's release.
With that bigger picture in mind, let's look at three charts that describe the retailing giant's results and show off the strength of its business today.
Image source: Getty Images.
1. Sales trends
Home Depot announced solid sales gains, with comparable-store sales rising 6%. That boost is more impressive when you consider that revenue soared 24% in the year-ago period. Home Depot's Q3 revenue was $37 billion -- a full $10 billion higher than the comparable period in 2019.
HD Revenue (TTM) data by YCharts
Zoom out a bit, and the picture looks even better for the business. Sales are on pace to reach nearly $150 billion in 2021 just four years after Home Depot logged its first $100 billion year in 2017.
2. Operating income
It wasn't all good news in this report. Home Depot noted a 6% drop in customer traffic across its stores and digital platform compared to a year ago. That decline was offset, though, by big gains in average spending.
And the chain is having no trouble finding ways to limit the impact of rising costs. In fact, selling expenses dove to just 1.5% of sales from 3.9%. Those savings allowed operating income to surge higher, lifting profitability.
HD Operating Margin (TTM) data by YCharts
"Our team continues to do an outstanding job of operating with flexibility and agility," Menear said.
3. Share count
Home Depot continued to flex its financial muscles through late October. Operating cash flow was over $13 billion through the first nine months of the year, which allowed for increasing dividend payments and rising investments in the business.
But the biggest cash outlay this year has been in stock buybacks. Home Depot has spent over $10 billion so far in 2021 on repurchasing its shares.
HD Average Diluted Shares Outstanding (Quarterly) data by YCharts
The declining share count is amplifying investor returns, mainly by boosting per-share earnings. Those profits are up 33% in 2021, to $12.31. Net earnings, meanwhile, are up 31%.
Looking ahead
Customer traffic will be a key trend to watch over the next few quarters to see if it stabilizes in the low single-digit percentage range following the pandemic disruption in 2020 and 2021. And it will be worth following operating margin for any signs that Home Depot is running out of room to cut costs or having trouble passing on rising prices.
But shareholders should be happy with the momentum they're seeing. Home Depot is gaining market share in a growing industry and making efficient use of its growing pile of cash. Those factors don't always result in quick share-price jumps. But they tend to generate massive returns for investors who hold the stock over several years.
