"I guess when you're stuck in your home for 11 or 12 weeks, you see all the things that need to be fixed..."
That was the message from Home Depot (NYSE: HD) CEO Craig Menear at the annual Bernstein Strategic Decisions Conference in May.
With people stuck at home under lockdown orders, there was no better time to finish odd jobs around the house. This started the boom in the home-improvement industry...
E-commerce site Rakuten said that online spending on tools and other home-improvement products surged 60% in the period from March to mid-April. And Google search data also indicated that interest in home-improvement projects was spiking.
But this trend has continued even after states reopened...
Earlier this month, Houzz, a platform that connects homeowners with home design and remodeling professionals, reported a 58% jump in leads in June. This means that more people are still looking for contractors and other home-improvement professionals to complete jobs around the house.
That's good for today's company...
Home Depot is the largest home-improvement retailer in the U.S. It has nearly 2,300 warehouse-like stores across the U.S., Mexico, and Canada.
Home Depot also boasts a market cap of $305 billion and has posted sales of $119 billion in the past 12 months. That dwarfs the $122 billion market cap and $80 billion annual sales of its closest competitor, Lowe's (LOW).
Home Depot is a one-stop shop for home-improvement needs. It sells cabinets, faucets, lumber, and even gardening equipment. And the company has gotten a huge boost from the coronavirus...
According to Unacast, which tracks cellphone location data, foot traffic at Home Depot stores has jumped 35% from 2019 levels every day since April. In May, the company saw foot traffic double in 26 states. It peaked in many states toward the tail end of the mandated stay-at-home orders (which excepted "essential" businesses like Home Depot), but the stores remain busy today.
And this has translated into strong sales for Home Depot in the first half of the year.
The company reported that comparable-store sales grew 6.4% in the first quarter of this year, above the estimate of 4.4% growth.
Home Depot's average ticket (total sales divided by the number of customers) rose 11% in the first quarter, despite fewer customer trips because of the COVID-19 lockdowns. So when customers did come to the store, they spent more heavily than before.
Meanwhile, online sales – both for delivery and for pickup in the store – surged 80% in the first quarter.
And the strong sales trends continued gaining steam...
In the most recent quarter, Home Depot reported that comparable-store sales surged 23.4% from the year before. And total sales were the highest in the company's history in the quarter. Home Depot saw more customer transactions than last year along with higher value per ticket.
The surge in demand is unlikely to end here. CEO Craig Menear has said that he expects that the home-improvement boom is here to stay. This should provide further tailwinds for Home Depot's sales.
The company is taking steps to meet this high demand...
It announced that it would open three new distribution centers in Georgia to "support the growing demand for flexible delivery and pickup options." The largest of the centers will focus on replenishing inventory at stores in the southeastern U.S.
This is the latest move from Home Depot to take advantage of the changing retail landscape. In 2015, it began building Rapid Deployment Centers – warehouses that receive goods from their manufacturers, so they don't ship directly to each individual Home Depot store.
By doing this, the company can better forecast what each store needs... and when. That means there's less general "stuff" sitting around on the shelves, allowing for only the "right stuff" that customers want.
These changes help Home Depot meet a retail landscape in which customers purchase more things online and expect immediate results. In fact, Menear cited the company's investments in its supply chain and other areas of its business as a key driver of the strong quarter.
The strong home-improvement tailwinds, coupled with Home Depot's strong business, have sent HD shares soaring. Since bottoming on March 20, HD is up more than 86%. That's well above the 52% recovery for the S&P 500. And the stock recently hit a fresh all-time high.
Home improvement is booming during the coronavirus pandemic. And thanks to its world-class business, more people are turning to Home Depot for their home-improvement needs. That should push shares even higher.
Sometimes investing is simple.
Our colleague Dan Ferris recommended Home Depot to his Extreme Value subscribers in July 2019. Investors who followed his advice are sitting on gains of 35% in just over a year. If you'd like to learn more about Extreme Value, click here.