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Is Home Depot (HD) Benefiting From the Stay-at-Home Trend?

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The Home Depot Inc. (HD - Free Report) , which is a leading home-improvement retailer in the United States, is one of the prime beneficiaries of the coronavirus pandemic-induced a stay-at-home trend across all regions. This trend has proved to be a blessing for the home improvement industry. Notably, there has been a marked increase in repairs and home-remodeling projects in the past few months, as people are spending more time at home due to the increased work-from-home situation.

The company noted that accelerated customer engagement for home improvement in the second quarter of fiscal 2020 led to strong growth in its Pro and DIY customer categories. Notably, it witnessed strong demand for exterior and interior projects like deck building, painting projects, landscape work and home repairs due to increase wear and tear. As a result, DIY sales outpaced Pro sales growth in the fiscal second quarter.

Further, its Pro customers’ sales accelerated significantly on a sequential basis and grew year over year in double-digits in the fiscal second quarter. The company witnessed notable strength in smaller pro customers despite market closures due to the pandemic. Going forward, it expects an increase in demand for all Pro customer associates as markets reopen.

Additionally, the company remains on track with its strategic investments to build a Pro ecosystem that includes professional-grade products, exclusive brands, enhanced delivery, credit, digital capabilities, field sales support, HD rental and more. It expects its differentiated Pro ecosystem to aid deeper engagement with Pro customers in the long term.

Other Growth Drivers

Home Depot is witnessing significant benefits from the execution of its “One Home Depot” investment plan. Amid the pandemic, customers have been blending the physical and digital elements of the shopping experience more than ever, before making the company’s interconnected One Home Depot strategy the most relevant. Its interconnected retail strategy and underlying technology infrastructure have helped to consistently boost web traffic in the past several months.

Sales, leveraging the digital platforms, rose 100% in the fiscal second quarter, and more than 60% for instances where customers opted to pick up their orders at a store.

Another key component of delivering an interconnected experience is enhanced delivery and fulfillment options. Over the years, the company has created the fastest, most efficient delivery network in home improvement. It has enabled multiple fulfillment options, including buy online pick up in store (BOPUS) with convenient pickup lockers, buy online deliver from store with express car and van delivery, and most recently, the curbside pickup option. The company witnessed increased usage of these fulfillment options as customers have been increasingly adopting the interconnected shopping experience. During the second quarter, the company delivered triple-digit growth across all these platforms.

Driven by these, Home Depot, which shares space with Lowe’s Companies Inc. (LOW - Free Report) , RH (RH - Free Report) and Lumber Liquidators Holdings Inc. (LL - Free Report) , posted earnings and sales beat in second-quarter fiscal 2020. Moreover, earnings growth of 26.8% year over year was driven by a 23.4% increase in sales as well as margin expansion.

The company's overall comps grew 23.4%, with a 25% improvement in the United States. Comps benefited from broad-based strength across stores and geographies. It witnessed double-digit comps in 13 of the 14 merchandising departments, led by lumber. Meanwhile, its kitchen and bath department posted high-single-digit comps. Additionally, ticket and transactions improved in double-digits in the second quarter on an increase in basket size and customers trading up to new and innovative items.

Going forward, it expects momentum in its One Home Depot investment strategy to help navigate through the current situation and position it for long-term growth.

Pandemic-Related Cost Headwinds

Meanwhile, increased costs related to the pandemic continue to hurt the company’s results to some extent. Home Depot is providing enhanced payments to hourly associates, including expanded paid time-off, additional paid time-off for older associates who are at high risk, weekly bonuses for store and distribution center workers, doubled overtime pay, and extended dependent care benefits. These led to expense deleverage during the fiscal second quarter. The company incurred an additional $480 million in the fiscal second quarter.

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