Home Depot is retail's bright spot as it courts younger shoppers who prefer DIY

Key Points
  • Home Depot cited growth among its professional customers, but it's also calling out bright spots with younger shoppers who prefer DIY.
  • The home improvement retailer says it has also seen an increase in sales from shoppers spending less than $50.
  • And Home Depot added that November has started on a "very strong" note.
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As millennials step into becoming homeowners, Home Depot sees them ringing up more do-it-yourself projects at its stores.

The retailer on Tuesday reported an impressive increase in same-store sales, fueled by more shoppers spending on items such as tools, lumber, garden accessories and flooring. Hurricanes Harvey and Irma, along with some U.S. wildfires, also boosted sales of recovery materials.

Home Depot cited growth among its professional customers, but it's also calling out bright spots with younger shoppers who prefer DIY. To be sure, winning millennials over the competition will be key to Home Depot's future, since those shoppers represent a larger proportion of the U.S. population.

And when millennials become homeowners, they're spending more for renovations than baby boomers, according to an annual survey from Houzz & Home. The study found that the 25-to-34-year-old age group spent an average $26,200 in 2016 on home upgrades, up 7 percent year-over-year.

"We've seen a sequential improvement in the small ticket quarter-over-quarter ... tickets below $50, which have a tendency to lean more towards the DIY," Edward Decker, Home Depot's executive vice president of merchandising, said on a call with analysts and investors.

During the fiscal third quarter, Home Depot's average shopper spent $62.84, up from $59.78 a year ago. Transactions under $50, which make up 16 percent of Home Depot's total sales, were up 2 percent. Transactions over $900, which account for 22 percent of sales, climbed 12 percent.

"The types of projects that [millennials are] going to engage in are very similar to any new homeowner, and in research we see that the millennial is showing an interest to be DIYers," said Bill Lennie, executive vice president of Home Depot's outside sales and service division.

Despite some analysts' fears, the housing market's multiyear recovery doesn't look to be slowing down anytime soon, especially with millennials on board.

Home Depot's Q3 beat, TJX revenues fall

"A shortage of housing in many US markets is keeping prices inflated and activity levels high," GlobalData Retail Managing Director Neil Saunders wrote in a note to clients.

"This will fuel both the need and willingness of consumers to make home improvement related purchases," Saunders added. "In our view, Home Depot will be the primary beneficiary of this growth."

Looking ahead to its fiscal fourth quarter and the holiday season, Chief Financial Officer Carol Tome said on the analyst call: "We plan to comp last year's results, and we're going to do that. And maybe we have a conservative forecast, so maybe even a bit better."

"As we think about housing broadly and fears of slowdown, we don't see that for 2018, 2019 and 2020," Tome added, calling out a surplus inventory older homes. The CFO also said Home Depot has kicked off the first two weeks of November on a "very strong" note.

Lowe's, Home Depot's closest rival, has also been implementing technology upgrades that resonate with younger shoppers.

Ahead of the holidays, Lowe's is rolling out "smart home" centers in its stores, which will feature products sold from brands such as Google, Sonos, Nest, Samsung and Ring. And earlier this year Lowe's rolled out a virtual realty experience inside its so-called Holoroom, also launching two new augmented reality apps.

Lowe's reports quarterly earnings next Tuesday.

Home Depot shares rose 1 percent Tuesday and have climbed more than 23 percent this year, while Lowe's stock is up roughly 10 percent during the period. That compares with the S&P 500 Retail ETF (XRT), which has fallen more than 10 percent in 2017.

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