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Home owners are turning to the professionals to make major upgrades to their living spaces — and Home Depot is reaping the benefits.
On a call with analysts following the company's fiscal second-quarter earnings report, Home Depot CEO Craig Menear said revenue from its so-called Pro customers grew at a faster rate than the company average. This gives him confidence about the second half of the year — even in the face of slower same-store sales growth, tough comparisons and a potential pullback in GDP expansion.
"When you talk to pros they're busier than they were a year ago," Menear said, adding his company is grabbing share from competitors. The integration of Interline, a business Home Depot acquired last year that caters to professional customers, should help the retailer continue to expand its Pro business, management said.
Sales of big-ticket items that cost more than $900 rose 8.1 percent during the quarter, led by strength in heating and air conditioning, appliances, and roofing. Meanwhile, professional customers added more items to their baskets during the quarter, helping drive higher the average amount spent per checkout. Paired with a solid housing backdrop, these trends lifted the company's sales by 6.6 percent during the three-month period, to $26.47 billion.
After reporting record sales and profits during the second quarter, Home Depot reiterated its forecast for revenue to jump 6.3 percent this year, and raised its earnings forecast by 4 cents a share, to $6.31.
But Home Depot's strength wasn't limited to professional customers. The retail chain grew sales in every merchandise division during the quarter, including its less-expensive do-it-yourself categories. After a tough start to the three-month period, which kicked off with a rainy and cool May, sales picked up in June and July. The company is so far "very pleased" with its August results, CFO Carol Tome said.
Yet growth won't be as easy to come by in the second half. Not only did Home Depot's same-store sales growth decelerate from the past few quarters, it will face a tougher comparison in the remainder of the year. The fourth quarter will be particularly challenging for the company, after last year's unseasonably warm winter allowed shoppers to continue working on outdoor projects through the holidays. Meanwhile, forecasts are calling for slower GDP growth.
The company acknowledged that it has a high bar to jump over in the fourth quarter. It will outline how it plans to beat last year's results come November. Management likewise said it sees strength in the housing market continuing regardless of the broader economic picture, thanks to household formation, home value appreciation and a supply of older homes.
"This is a tailwind that we see for the foreseeable future," the company said.
Additionally, Home Depot said sales were helped by changes it made to narrow the delivery window for shipments of online orders.
Analysts agreed that Home Depot should be able to generate full-year comparable sales gains of roughly 5 percent. However, there is potential for the company to fall short depending on the strength of the broader economy and consumer confidence trends, said Neil Saunders, CEO of Conlumino research firm.
"Even so, Home Depot should still come in just about on target," Saunders said.