According to the National Association of Home Builders’ survey, U.S. homebuilders are upbeat about market conditions. There is an increase in homebuilding activities which is driving sales in this industry. Also, overall consumer spending has increased in the fourth quarter, over the third quarter of 2014. Further, unemployment rates have reached a low of 5.6% in December. This has made people spend on their existing homes and renovate them. Therefore, home sales reached a high of 5.5 million in October, bringing in higher sales for home improvement retailers.
Home Depot (HD, Financial), one of the largest home improvement retailers, reported a blockbuster fourth quarter. The numbers were ahead of the Street’s estimates, sending its share prices higher.
A closer look at the numbers
Revenue for the quarter rose 8.3% to $19.16 billion, over last year. This was higher than the analysts’ estimate of $18.7 billion and was driven by same store sales growth of 7.9%. Analysts were expecting the metric to be at 5.5%. The comparable store sales growth was helped by an increase of 5.1% in the number of transactions, clocking in at 332.1 million. Also, the average ticket size rose 3% to $57.79 per ticket. Thus, sales per square feet rose 8% to $325 in the quarter. Moreover, the company added two new stores in Mexico and one new store in Canada, which boosted the top line.
The earnings of the retailer jumped to $1.05 per share from $0.73 per share in the previous year. The bottom line too was much higher than the expectations of $0.89 per share. Higher revenue and an improved American job market helped the earnings grow.
As against the peers
Even peers, such as Lowe’s Companies (LOW, Financial), have registered great numbers since people are spending more on renovations. Lowe’s recent quarter was also a great one, wherein the top line surged 7.5% and the bottom line was far ahead of the analysts’ estimates, clocking in at $0.46 per share. Thus, the overall industry is on an uptrend.
The future
Home Depot is therefore trying to make the most of it. It has been strengthening its e-commerce business by promoting and expanding it. Online shopping surged to $1 billion last quarter and 40% of the online orders were picked up in stores. Thus, this category is becoming increasingly popular.
Further, the company plans to hire 80,000 people before spring since it is the busiest season of the industry and most of the people tend to get their homes renovated at this time.
The home improvement retailer provided a decent outlook for the year, wherein it expects earnings to be in the range of $5.11 per share to $5.17 per share. Also, revenue is expected to grow between 3.5% and 4.7%.
The retailer has overcome the problems of data breach last year, which resulted in loss of important information related to customer cards. However, it expects currency fluctuations to affect sales and earnings in 2015.
Bottom line
The home improvement industry is witnessing a great time since the demand for such products continues to rise. Further, Home Depot is the largest player. Hence, it is expected to reap the benefits. Moreover, its efforts to expand its business by focussing on online business and expansion of the workforce, is something to look forward to. Moreover, it increased its dividend to $0.59 per share from $0.47 per share along with the announcement of share buyback program of $18 billion of shares. All these factors make this retailer a rewarding bet.
