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.