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The Home Depot Inc HD

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Stay-at-Home Spending Momentum Continues to Benefit Wide-Moat Home Depot; Modestly Lifting FVE

Jaime M. Katz, CFA Senior Equity Analyst

Analyst Note

| Jaime M. Katz, CFA |

Home improvement companies continue to take share of wallet, as evidenced by Home Depot’s robust third-quarter growth. Same-store sales rose 24.1% and revenue increased 23.2% to $33.5 billion in the quarter, ahead of our midteens forecast for both metrics. And an operating margin of 14.5% was 40 basis points better than we anticipated, as selling, general, and administrative costs were about 40 basis points lower than our forecast, coming in at 18.1%. However, SG&A costs are set to rise as Home Depot makes some of its temporary compensation programs permanent for front-line workers, leading to $1 billion in higher compensation annually. While this pressures operating margin performance, we ultimately think it benefits the durability of Home Depot’s wide moat, keeping the brand elevated by employing dedicated, long-term, knowledgeable workers.

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Company Profile

Business Description

Home Depot is the world's largest home improvement specialty retailer, operating nearly 2,300 warehouse-format stores offering more than 30,000 products in store and 1 million products online in the United States, Canada, and Mexico. Its stores offer numerous building materials, home improvement products, lawn and garden products, and decor products and provide various services, including home improvement installation services and tool and equipment rentals. The acquisition of distributor Interline Brands in 2015 allowed Home Depot to enter the maintenance, repair, and operations business, which is expected to expand with the pending acquisition of HD Supply. The tie-up with Company Store also brought textile exposure to Home Depot's lineup.

2455 Paces Ferry Road
Atlanta, GA, 30339
T +1 770 433-8211
Sector Consumer Cyclical
Industry Home Improvement Retail
Most Recent Earnings Oct 31, 2020
Fiscal Year End Feb 2, 2021
Stock Type High Yield
Employees 415,700