Home Depot (HD 0.78%) is still growing its business, even on top of last year's soaring results. The home improvement giant said on Tuesday that revenue and operating earnings in the first quarter (ended May 1) of fiscal 2022 rose despite pressures including rising interest rates and inflation.
Management raised its 2022 forecast to reflect the surprisingly strong results through the end of April. But it was especially impressive to see sales rising despite a huge drop in customer traffic.
The surprising statistic for Home Depot
Home Depot handled 411 million transactions in the first quarter compared to 447 million a year ago, which translates into an 8.2% decline in customer traffic. That kind of slump would normally doom a retailer to a sinking sales base. However, comparable-store sales still rose 2% -- on top of a 31% spike a year ago.
Rising spending made all the difference. Home Depot reported an 11.4% spike in average spending per visit. Shoppers are now spending $92 per trip, up from $82 a year ago and $75 in early 2020. "Fiscal 2022 is off to a strong start," CEO Ted Decker said in a press release.
Sure, rising prices played a big role in that increased spending metric. But Home Depot is also winning more business in the professional contractor space. Those clients tend to spend more than $1,000 per visit, and growth in that niche has been consistently faster than the gains in the do-it-yourself segment.
Margins and cash returns improved
Home Depot's financial wins were just as impressive. Operating profit margin held steady above 15% of sales, suggesting no major supply chain or pricing challenges. Gross profitability declined slightly, but the chain offset those losses with slightly lower operating expenses.
That success gave executives plenty of resources they could invest in the business or return to shareholders. Stock buyback spending was $2.3 billion and dividend payments landed at $2 billion.
Home Depot is raising the bar
Investors were happy to hear that Home Depot no longer expects a slight sales hangover in 2022. Instead, comps are now on target to grow by 3% this year compared to last year's 11% spike. Back in late February, the company had predicted flat to "slightly positive" comps in 2022.
It's impressive that the chain is forecasting growth despite a near double-digit decline in customer traffic compared to last year. While rising prices are part of the explanation, bigger factors include a healthy home improvement industry and market share gains in the pro contractor niche. Continued wins along these lines should support solid returns for investors holding onto this retailer's stock.