Home Depot Continues to Outshine Its Retail Rivals

November 17, 2015, 6:05 PM UTC
Consumer Price Index Rises For First Time Since October
CHICAGO, IL - MARCH 24: Customers shop for light bulbs at a Home Depot store on March 24, 2015 in Chicago, Illinois. The Labor Department reported the consumer-price index rose a seasonally adjusted 0.2% in February from a month earlier, the first rise since October and the largest increase since June. (Photo by Scott Olson/Getty Images)
Photograph by Scott Olson — Getty Images

Home Depot makes retailing look almost too easy.

The home improvement retailer is earning kudos from investors again after it reported a 6.4% jump in fiscal third-quarter sales on Tuesday, totaling $21.8 billion for the period. Same-store sales—a key metric for retailers—jumped by a stronger-than-expected 5.1% and rose 7.3% in the U.S. Sales across every region and merchandising category posted higher same-store sales.

Home Depot (HD) is benefiting from a rise in consumer spending on home improvement, partly due to the appreciation of home prices as the market recovers from the financial crisis. Home Depot shares have jumped by 20% so far this year, easily outperforming the double-digit declines of its retail peers, including Walmart (WMT), Best Buy (BBY), and Macy’s (M).

As Bloomberg points out, the retail industry as a whole must contend with a slowdown in e-commerce sales growth. Online sales helped prop up retail results at a time when traffic was weak at malls and brick-and-mortar locations in general, where many retailers still pull in a bulk of their sales.

Home Depot is not immune to this trend. During the last fiscal year, the company’s online business grew by over $1 billion, or up 36%. This year? Online sales were up 30% in the first quarter and 25% for the second and third quarters. But the home improvement retailer isn’t concerned.

“We don’t see it slowing down. We are very pleased,” Home Depot Chief Financial Officer Carol Tome told Fortune.

Tome said the dollar growth of the company’s online business has been “ahead of our expectations.” And with a bigger base, the percentage growth for e-commerce will naturally slow over time.

Home Depot has made key investments to meet the growing demand for online shopping. It has invested in three distribution facilities for its online business—opening up one facility in California last year and another site in Ohio during the latest quarter. Home Depot says it can now reach 90% of the U.S. population within a two-day period.

“The retail environment has been and is changing,” Home Depot Chief Executive Craig Menear told analysts during a presentation on Tuesday. “Whether they buy products online through a personal computer, a tablet, or their mobile device, we are enabling them to pick up product in our stores or have product shipped to their homes.”

Home Depot has been luckier than most. While sales of books and electronics quickly migrated online, making it tough for retailers to sell those goods at a premium, it has been tougher for online merchants to sell mulch, water heaters, light fixtures, and other hardware you can find at Home Depot’s stores.

“Clearly, if your water heater has gone out, you need to get it replaced,” Tome explained. “There is an urgency for some of the repair products we sell.”

Home Depot continues to invest in its online operations. Though purchases tend to be made on personal computers, more traffic is migrating to mobile so Home Depot has moved to make that experience easier for shoppers. With online sales now representing 5.1% of Home Depot’s overall business and about 42% of all online orders picked up at store locations, the business segment is critical to the company.

“We are investing in making the process easier,” said Menear.

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