Shares of home-improvement giant Home Depot (NYSE:HD) hit an all-time high this week after it posted strong second-quarter earnings results. Sales and profits both beat Wall Street's expectations and management raised its outlook on both measures for the second time this year.
After the announcement, CEO Craig Menear and his executive team held a conference call with analysts to discuss the results. Here are five key points from that chat for investors to keep an eye on.
Party like it's 2006
We are pleased with this quarter's performance. All three of our U.S. divisions exceeded their sales plan with mid to high-single digit [comparable store sales growth] and all of our 19 regions and top 40 markets also posted positive comps in the quarter. We had a record number of transactions this quarter and our highest quarterly average ticket going back to 2006. -- Menear
The strength of the housing market is a key driver of Home Depot's business, and these results show evidence of broad improvement in the industry. Menear's reference to 2006 is also important for two reasons. First, it shows an almost full recovery from the housing crisis since that year marked a peak for the market.
Second, it's impressive that Home Depot is booking 2006-level average spending in its stores even though the market is still $300 billion below the spending peak set that year.
Appliances led the way
We saw continued strength across the store. -- Executive VP Edward Decker
Home Depot's successful Fourth of July and Memorial Day promotional events helped it log 3% higher customer traffic. And those additional shoppers spent heavily on everything from tools to plumbing, interior design, and lighting.
But the category that led them all was appliances: Home Depot's big-ticket purchases, those of $900 or more, jumped by 6.3%. Overall comps growth was 5.7%, below the prior quarter's 7% bounce but still ahead of management's plan.
Strong online growth
During the quarter we improved our mobile experience, invested in content, and made site improvements to take friction out for our customers. -- Menear
Management's investments in the online experience are paying off. E-commerce sales rose 25% and the company posted higher customer satisfaction scores for both its buy-online-pick-up-in-store and buy-online-ship-to-store options.
The digital sales channel represents 5% of Home Depot's business, compared to less than 3% for Target. That percentage should rise as Home Depot opens two massive new online fulfillment centers in the next few months. Once those are running, Home Depot will be able to reach 90% of its U.S. customers within two delivery days or less.
More debt on the way
We raised $2.5 billion of incremental long-term debt and we will use the proceeds from that debt offering to increase our share repurchases to $7 billion for the year. -- CFO Carol Tome
Management took on new debt this quarter so that it could fund a major increase in its stock buyback plans. Investors can expect the debt level to keep growing. The company plans to tap the long-term bond markets again next quarter to support its $1.6 billion acquisition of Interline Brands. Those moves will, at least temporarily, push Home Depot's debt ratio above management's target of two times adjusted annual earnings.
Comps for U.S. stores were positive 5.7% for the quarter, with positive comps of 3.5% in May, 5.1% in June, and 8.2% in July. -- Tome
As impressive as the overall 6% comps number was, investors should be more excited about the accelerating growth trend through the quarter. Home Depot logged 8.2% comps in July, which shows strong momentum heading into the cooler fall months.
That's likely a key reason why management raised its sales and profit outlook for the year. "We continue to see positive signs in the housing market," Tome said. "Home prices continue to appreciate and housing turnover and household formation are now slightly ahead of the assumptions we use to build our [original 2015] plan."