The home improvement retailer reported impressive quarterly results that edged past Wall Street's earnings and revenue projections, driven by double-digit growth in customer transactions, average ticket size and sales per retail square foot during the peak of the Covid-19 pandemic.
Overview of the quarter
Home Depot reported earnings per share of $3.18 in the third quarter, up 25.7% on a year-over-year basis. Analysts had anticipated EPS of $3.06. Revenue of $33.54 billion jumped 23.2% from the same period last year. This was also more than the forecasted $32.04 billion.
Comparable store sales surged 24.1% versus the anticipated growth of 14.5% as the stay-at-home mandates and mounting house prices enticed customers to spend on their home repair projects. U.S. comps were up 24.6%, aided by a 10% increase in average purchases.
Reflecting on the company's performance, Chairman and CEO Craig Menear said:
"The third quarter was another exceptional quarter for The Home Depot as we saw the continuation of outsized demand for home improvement projects, which has led to sales growth of more than $15 billion through the first nine months of the year. Our ability to effectively adapt to this high-demand environment is a testament to both the investments we have made in the business as well as our associates' focus on customers. We continue to lean into these investments because we believe they are critical in enabling market share growth in any economic environment."
Over the course of the pandemic, the hardware store chain has expanded paid leave for both hourly and non-hourly workers. Moreover, the company reported it provided hazard incentives in the form of doubled overtime pay and weekly bonuses to keep workers from quitting. The company announced it will spend roughly $1 billion towards frontline and hourly associates' bonuses and compensation on an annualized basis.
Home Depot to acquire HD Supply
Home Depot on Monday announced it will purchase its former unit and industrial wholesale giant HD Supply Holdings (HDS, Financial) in a deal valued at about $8 billion. The transaction is expected to close in the fourth quarter of Home Depot's fiscal year ended Jan. 31. Back in 2007, the company spun off HD Supply to a group of private equity firms comprising Carlyle Group, Bain Capital and Clayton, Dubilier & Rice.
By virtue of this acquisition, Home Depot would look to magnify its footing in the $55 billion marketplace for MRO (maintenance, repair and operations) products. The company said it would use the combination of cash on hand and debt to finance the purchase of HD Supply.
Going forward, the company says that customers are expected to take up indoor as well as outdoor projects in the near term, which could be beneficial for the business.
The Atlanta-based retailer did not provide an outlook for the remainder of fiscal 2020, citing the global uncertainty caused by the pandemic.
Disclosure: I do not hold any positions in the stocks mentioned.
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