Home Depot earnings top estimates fueled by 9.8% jump in sales as consumers fix up homes

Key Points
  • Home Depot topped Wall Street's estimates for its third-quarter earnings and revenue.
  • Same-store sales climbed 6.1% in the quarter, beating StreetAccount estimates of 2.2%.
  • Consumers were spending more when they visited, raising the average ticket by 12.9% to $82.38.

In this article

Oppenheimer analyst reacts to Home Depot earnings: This is a very solid report
Oppenheimer analyst reacts to Home Depot earnings: This is a very solid report

Home Depot on Tuesday reported third-quarter earnings and revenue that beat analysts' forecasts as customers spent more on home improvement projects. 

Strong demand is carrying over into the next quarter as the retailer readies for the holiday season. Home Depot executives told analysts that same-store sales growth for the first two weeks of the fiscal fourth quarter are slightly higher than third-quarter levels.

The company's shares rose more than 4% in morning trading, setting an all-time high for the stock of $387.76 per share.

Here's what the home improvement retailer reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: $3.92 vs. $3.40 expected
  • Revenue: $36.82 billion vs. $35.01 billion expected

Net income for the fiscal third quarter ended Oct. 31 rose to $4.13 billion, or $3.92 per share, from $3.43 billion, or $3.18 per share, a year earlier. Analysts surveyed by Refinitiv were expecting earnings per share of $3.40.

Net sales rose 9.8% to $36.82 billion, topping expectations of $35.01 billion. Digital sales increased by 8% in the quarter. Executives said sales accelerated in October compared with August and September.

Home Depot's same-store sales climbed 6.1%, beating StreetAccount estimates of 2.2%. The retailer faced tough comparisons with a year ago, when its same-store sales were soaring, thanks to consumers taking on more do-it-yourself projects. Same-store sales of items that cost more than $1,000 surged 18% in the third quarter.

On a two-year basis, all of Home Depot's departments saw same-store sales growth. But its lumber and indoor garden departments fell short compared with a year ago. Facing comparison to same-store sales growth of more than 50%, lumber fell negative this quarter. Indoor garden same-store sales were roughly flat.

A strong housing market has helped Home Depot and rival Lowe's. Consumers have been investing more as home prices climb, increasing nearly 20% compared with a year ago. Demand for materials has been rising from home professionals, helping to offset lower demand from do-it-yourself projects. Home Depot holds a larger share of the professional market, although Lowe's is trying to win more of that business.

Home Depot executives told analysts that professionals are still working through backlogs of projects as consumers feel comfortable having electricians, plumbers and contractors in their homes again. The retailer also recently relaunched its loyalty program for professionals, drawing more traffic to its mobile app in the hopes of convincing them to shop at Home Depot for all of their jobs.

This quarter, Home Depot's customer transactions fell by 5.5% to 428.2 million. But consumers were spending more when they did visit, raising the average ticket by 12.9% to $82.38. Higher prices for copper and building materials helped increase how much customers spent per visit, although lumber prices fell. Even as costs rise, Home Depot said customers are trading up for new products, citing its exclusive Behr Dynasty paint, which costs more than $50 a gallon.

Sales per square foot increased by 6.2% in quarter. In some stores, Home Depot has been testing how to optimize space without sacrificing the shopping experience. After early success, the retailer plans to implement the strategy in 400 locations next year.

The quarter's sales also got a boost from Halloween. Executives said they saw record sales as customers snapped up exclusive products. The company's viral 12-foot skeleton returned this year after selling out the previous year.

Now the company is focusing on the holiday season in the fourth quarter. Similar to last year, Home Depot will focus on offering deals across a longer time period instead of just Black Friday.

CEO Craig Menear told analysts that the company has received most of its goods slated for the fourth quarter. However, roughly 95 ships outside the ports of Los Angeles and Long Beach, California are still waiting to be unloaded. Executives said that they weren't very concerned about the supply chain delays.

Read the full earnings release here.

The DIY boom and the rise of Lowe's
The DIY boom and the rise of Lowe's