Same-store sales analysis for The Home Depot
The Home Depot (HD) reported sales of $24.8 billion in 2Q16, a growth rate of 4.3% year-over-year. Sales growth was in line with the company’s earlier projections for full-year revenue growth of 4.2%–4.8%. Sales growth for 2Q16 was higher in the United States, with store (XRT) comps (comparables) rising 5.7%. Overall comps, including results for Mexico and Canada, were up by 4.2%.
HD’s number of transactions rose 2.6% to a record 420.4 million in 2Q16. The average ticket size was also up by 1.7% to $59.42, the highest since 2006, according to Craig Menear, CEO (chief executive officer), president, and chairman of the board for The Home Depot. However, the adverse impact of commodity deflation reduced ticket size growth by 0.19%, according to Edward P. Decker, executive vice president of merchandising.
Customer spending on big-ticket items came in above company growth rates. Average expenditure on tickets over $900 rose 6.3% in 2Q16. This made up ~20% of HD’s sales and boosted store productivity metrics. The average sales per square foot rose 4.1% to $420.37 in the quarter, according to Menear.
However, transaction growth for tickets averaging less than $50 didn’t see much growth upside. The company attributes the below-par performance to poor weather in the quarter, which affected sales of some outdoor products.
Peer group performance
Higher spending by wealthier individuals, particularly on big-ticket items, was featured in recent results posted by peer Lowe’s (LOW). Lowe’s average ticket size for transactions over $500 increased 9.3% in 2Q16.
The higher-income US consumer has exhibited more comfort spending on discretionary items like home improvement supplies. The middle and lower income end of the market appears to be more intent on paying down debt and increasing savings in the aftermath of the credit crisis.
This trend has benefited HD’s results and those of its rivals that cater to the premium end of the market such as Williams-Sonoma (WSM) and Restoration Hardware (RH). Both companies have posted strong same-store sales growth at 4.6% and 15%, respectively, in their last quarters.
As a mega cap, HD constitutes ~1.3% of the portfolio holdings of the iShares S&P 100 ETF (OEF). As one of the largest consumer discretionary stocks, HD makes up 6.3% of the holdings of the Consumer Discretionary Select Sector SPDR Fund (XLY) and 0.5% of the First Trust Consumer Discretionary AlphaDEX Fund (FXD).