Perhaps the hottest topic on investors' minds over the past few months has been inflation. Soaring prices across the economy are pinching consumers' pockets and forcing the Federal Reserve to adopt tighter monetary policy. And the situation is spooking investors, with the S&P 500 down 13% in 2022.
While other retailers struggle with inflationary pressures, Home Depot (HD 0.02%) seems to be weathering the storm just fine. Let's take a closer look at how this massive home-improvement chain is performing in the current economic environment.
Still going strong
Home Depot was a major beneficiary of the pandemic, as people who spent more time than ever at home shifted their attention and spending to renovation projects. And even as the business laps a tough comparison from the year-ago period, the momentum hasn't faded. Record first-quarter revenue of $38.9 billion was 3.8% higher than Q1 2021, positively surprising both management and Wall Street.
Easing investor concerns in the latest quarterly release, management cited minimal negative impact from the inflation that is affecting much of the economy. While transaction counts fell 8.2% year-over-year, average ticket sizes more than offset that, growing 11.4%.
And consumers are willing to spend on higher-priced premium products. Ticket sizes over $1,000 increased 12.4% compared to the prior-year period. Pro-heavy merchandise categories, like pipe and fittings, gypsum, and fasteners showed strength, demonstrating the consumer's relentless desire to tackle more complex renovation projects. This ongoing trend bodes well for Home Depot's near-term prospects.
Image source: Getty Images.
"Our customers are resilient," said CEO Ted Decker on the Q1 2022 earnings call, alluding to current demand trends. He continued, "We are not seeing the sensitivity to that level of inflation that we would have initially expected." In the past, management has made it a clear objective to lag competitors on the way up and lead on the way down when it comes to pricing. While Home Depot has implemented price increases to offset rising inventory costs, customers are still finding value by shopping at the retailer.
The leadership team does predict that inflation in its product categories will continue throughout the rest of the year at the same level, roughly "double-digit, low 10-ish percent." But they fully expect to successfully navigate whatever happens in the economy. Consequently, upgraded fiscal 2022 guidance for a 3% revenue increase and mid-single-digit diluted earnings-per-share growth show management's optimism as we look ahead.
From a shareholder's perspective, this is clearly an extremely positive sign because it signals just how resilient Home Depot is. Usually, higher prices discourage consumer purchase behavior as customers try to stretch their budgets and save money. For this business, however, demand remains strong despite the ongoing inflation and elevated uncertainty out there today. As a result, Home Depot is a great foundational stock investors should consider adding to their portfolios.
