This Home-Improvement Giant Remains Unfazed by COVID-19

The pandemic has accelerated many trends in our daily lives...

Take remote work, e-commerce, and telehealth.

These trends were already in place before the pandemic, but they have really taken off during the past 20 months. They have become part of our "new normal."

Home improvement is another pandemic trend that has continued to soar. While under lockdown orders, people began sprucing up things around the house. As one industry executive put it, "I guess when you're stuck in your home for 11 or 12 weeks, you see all the things that need to be fixed."

This kicked off a home-improvement boom. And like telecommuting, online shopping, and virtual doctor appointments, this trend has shown no signs of fading as the economy gets back to normal. And that's a huge tailwind for today's company...

Home Depot (NYSE: HD) is a $431 billion home-improvement giant. It sells anything consumers may need to revamp their homes, including gardening supplies, lumber, faucets, and much more. It's far and away the leader in home improvement, dwarfing the annual sales of its nearest competitor – Lowe's (LOW).

Home Depot is also a perfect example of what we like to call "World Dominator" companies.

These are businesses that dominate their industries. They have the best brand names and the biggest competitive advantages. These companies can raise prices to stay ahead of inflation, or use their enormous sizes to keep costs lower than everyone else in the industry.

On the financial side, World Dominators also have consistently strong profit margins, gush free cash flow, and possess rock-solid balance sheets.

All of this makes Home Depot a great company during "normal" periods. But thanks to the home-improvement boom, Home Depot has performed even better...

In its 2020 fiscal year, which ended on January 31, Home Depot saw a massive spike in demand. As a result, it reported staggering 19.9% sales growth. During the previous five years, Home Depot had "only" grown sales at an annual rate of about 5%.

Home Depot quickly adapted to meet the high demand sparked by the pandemic. Its resilient supply chain and new digital initiatives are the keys to its success...

In 2015, the company began building rapid deployment centers – warehouses that receive goods from their manufacturers. Instead of shipping directly to individual Home Depot stores, the company uses those warehouses to better forecast what each store needs... and when.

But it didn't stop there. Throughout the pandemic, Home Depot has built out more distribution centers to make sure that its stores remain stocked. This helps the company deal with high demand both in stores and online.

And online demand is surging...

In 2020, Home Depot reported that online orders increased 86%, compared with 2019. That year, it also ranked second (behind Amazon) among online stores in the furniture and appliances market. So, its e-commerce segment will continue to be a huge part of the company's future.

Home Depot also plans to offer same-day or one-day shipping to 90% of the U.S. population. To make that happen, Home Depot has partnered with Walmart's GoLocal, which launched in August 2021. This nationwide service delivers merchandise for a variety of companies, both large and small. The joint venture has enhanced Home Depot's delivery network, which helps ship products – like tools, fasteners, and paint – to customers more quickly.

It's clear that Home Depot adapted well to high product demand while people were stuck at home. And according to company CEO Craig Menear, demand has remained strong. Home Depot is still growing, even after the intense growth it experienced in 2020...

Last week, Home Depot reported its third-quarter results for fiscal year 2021. Earnings came in ahead of estimates, while revenue hit $36.82 billion, beating the expectation of $34.85 billion. That represents 9.8% growth, compared with the same quarter last year. Also, Home Depot's comparable-store sales rose 6.1%, beating the estimate of 2.2% growth.

And although Home Depot's rate of growth has slowed in 2021, it's important to recognize that 2020 is not a fair baseline for comparison. When compared with the normal standard of 2019, Home Depot's third-quarter sales are up more than 35%. And its sales are still growing beyond that already-high level. That's a good sign for the company's health.

Home Depot has proven that a strong, adaptable business model can boost profits... even with rising input costs and logistics challenges.

And there's no indication that consumer demand will fade anytime soon. The pandemic kickstarted a multiyear home-improvement boom. And as the leader in this retail industry, Home Depot is perfectly positioned to continue soaring.

Sometimes investing is simple.