The job market is improving in the U.S. This has helped people  spend on renovations of their homes. In fact, home sales have also been on an uptrend. The existing home sales were 5.07 million in 2013. It has now reached a high of 5.17 million in September this year, which shows strength in the home improvement category also. New home sales have also risen to 467,000 in September, the highest in the last 12 months.
Therefore, home improvement industry too is going to benefit. There has been an increase in demand for home improvement products also. Home Depot (HD, Financial) is the largest player in this industry and has been enjoying the benefits of improving demand. It reported its third quarter numbers recently, which were ahead of Street's estimates. This helped in the share prices to increase.
Deeper insights
Revenue for the quarter surged 5.4% to $20.5 billion, over last year. Sales were higher than the analysts' estimate of 20 billion. The retailer witnessed same store sales growth of 5.2% and the U.S. comp sales were even higher at 5.8%. This was mainly because of 3% growth in the number of transactions as loyal customers continue to spend at Home Depot. Also, there was an increase of 2.3% in the average customer ticket. This was accompanied with aggressive promotions by the company.
Home Depot registered growth across all the segments, including professional category which was a major point of focus. But sales to customers make only 3% of the total client base of the company. The home improvement retailer expanded its assortments of appliances, which attracted customers. This move helped the company gain market share from peer Sears Holdings.
Earnings rose 21% to $1.15 per share, as compared to the last year. This was higher than the analysts' estimate of $1.13 per share. This was indeed remarkable since the company reported gains in the bottom line despite costs related to the data breach.
The problem of data breach
The retailer reported a data breach which resulted in the leakage of customer payment data of 50 million customers. Also, 53 million email addresses are also stolen by the hackers. This affected sales to some extent as some shoppers kept themselves away from Home Depot stores. However, loyal customers continued to shop with the retailer.
Steps taken
The home improvement retailer has taken certain steps to overcome the problem. It has installed new security protection lock system on payment card data, wherein payment data will be encrypted, which will be visually useless for the hackers. Also, it has implemented credit monitoring and ID theft protection to the customers who got affected by the breach.
Another point of focus is online sales, which grew by a whopping 40% during the quarter. Online sales make % of the total revenue and is growing at a fast pace.
Final thoughts
Home Depot overcame the data breach problem pretty well. Also, it managed to register strong gains despite huge costs related to the theft. Further, it reaffirmed its outlook for the year and continues to expect growth of 4.8% in revenue and 21% in earnings per share. Moreover, it repurchased shares, which made investors happy. Overall, this company is sure to strengthen your portfolio.
