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Factors Aiding Home Depot in a Competitive Retail Landscape

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We have read much about the transition in the retail space, where companies, adhering to the new norms of omni-channel trade, are likely to play the winning stroke. Customer shopping patterns have undergone drastic changes as they now prefer to shop from the comfort of their homes and have the product delivered to the doorsteps instead of hopping from store to store. To counter this change, retailers are finding new ways to market their products, to which The Home Depot Inc. (HD - Free Report) is no exception.

In fact, Home Depot is among the few retailers that have mostly succeeded in its initiatives. The company is gaining from its relentless focus on affording innovative products, boosting interconnected customer experience and driving productivity. This has helped Home Depot to tackle competition from e-commerce giant Amazon (AMZN - Free Report) after the latter expanded into the company’s core gardening business.

Home Depot Sharpening the Edge

Building Interconnected Capabilities

In response to the evolving retail environment, where digital and physical stores operate together, Home Depot has been building its interconnected capabilities. The company is making great strides by enhancing its digital assets for a more seamless experience for the customers. It implemented a new e-commerce platform, enhanced search and mobile functionalities, speedy checkout and expanded chat functionality to improve customer engagement.

The company’s investments in interconnected shopping experience are paying off, which is evident from improved customer satisfaction scores, better conversion and increased sales. Notably, online sales grew nearly 20% in first-quarter fiscal 2018, driven by improved online traffic. This reflects that the company’s interconnected retail strategy is well received by customers.

Pro Customer Sales Outpacing DIY Sales

Home Depot has been gaining from its focus on Professional Customers or Pro Customers. The company has undertaken several strides, including the acquisition of Compact Power Equipment, which significantly improved portfolio service offerings for its Pro customers. Additionally, the company invested in Interline Brands, and maintenance, repair and operations (MRO) products, which are generating impressive results.

Notably, investments that are meant to extend relationships with Pro customers are resulting in increased engagement, which is translating to higher spend by customers. Further, the combination of enhanced associate tools in the store and expanded delivery capabilities are gaining traction with the Pros. For instance, the company’s new two-hour and four-hour delivery window options, with same-day car and van delivery in select markets, have been extremely successful. This aided the company to witness double-digit delivered sales growth in the fiscal first quarter.

Wrapping Up

A reflection of the company’s endeavors was quite visible in its solid past performances. The company has been reporting strong financial figures since 2008, with steady improvement in revenues and earnings per share. Incidentally, both top and bottom lines grew year over year in first-quarter fiscal 2018. Though a slow start to spring led to lower-than-expected sales, the company retained its five-year-long trend of positive earnings surprises.

The company continues to witness strength in all lines of business in the first few weeks of May. Consequently, the company provided an optimistic view for fiscal 2018. It expects sales growth of nearly 6.7%, accompanied by 5% increase in comps. Further, the company estimates earnings per share to be up nearly 28% to $9.31.

Further, the company is on track to reach its long-term financial targets in fiscal 2020. The company anticipates total sales of $115-$120 billion, with compounded annual sales growth of nearly 4.5-6%. Operating margin is expected to be 14.4-15, with annual average capital spending of about 2.5% of sales. The company expects a return on invested capital to be more than 40%. Alongside achieving these targets, the company plans to accelerate investments in the next three years to enhance customer experience and shareholder value.

These factors have collectively helped this Zacks Rank #3 (Hold) company to surge 21.5% in the past year, outperforming the industry’s 19.3% growth.



Do Retail-Wholesale Stocks Grab Your Attention? Check These

Investors interested in the retail sector may consider Urban Outfitters Inc. (URBN - Free Report) and The Buckle Inc. (BKE - Free Report) . While Urban Outfitters sports a Zacks Rank #1 (Strong Buy), Buckle carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Urban Outfitters has delivered a positive earnings surprise of nearly 19.8% in the trailing four quarters and has long-term growth rate of 12%.

Buckle has surged 22% in the last three months and posted positive earnings surprise of 9.7% in the trailing four quarters.

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