Local ShoppingHome Depot, Lowe’s post strong Q3 results despite inflation

Home Depot, Lowe’s post strong Q3 results despite inflation

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While many in the retail industry have suffered as consumers pull back on spending, the biggest home improvement retailers pushed ahead in the third quarter with sales gains.

The Home Depot on Tuesday reported net sales increased 5.6% year over year to $38.9 billion. Comparable sales increased 4.3%, while U.S. comps grew 4.5%. All 19 of its U.S. regions posted positive comps, as well as its Canada and Mexico units, and excluding appliances, flooring and indoor garden, 11 of its merchandise categories reported positive comps, according to CFO Jeff Kinnaird.

The home improvement retailer’s operating income grew 6.1% from the year-ago period to $6.1 billion, while its net income increased 5.1% to $4.3 billion.

“Being able to make gains during the exceptional period of the pandemic is to be expected. Being able to keep those gains as things normalize is excellent. But being able to extend those gains in the post-Covid period is exceptional. Home Depot has done all three,” GlobalData Retail Managing Director Neil Saunders said in emailed comments.

During the quarter ended Oct. 30, Home Depot saw record Halloween sales both in store and online, according to Kinnaird. The retailer also saw growth from both its Pro and DIY customer segments, with Pro continuing to outpace DIY, executives said on a call Tuesday.

To help solidify its position with contractors and other Pros, the retailer has invested in improving its online Pro loyalty program experience, enhancing fulfillment and providing a more personalized online experience, CEO Ted Decker said.

Its hold on the Pro segment may bode well as demand for DIY projects wanes from the early pandemic and consumers pull back on spending.

Home Depot saw transactions fall 4.3% from last year, while the average ticket increased 8.8% to $89.67, which Kinnaird said was due to inflation as well as demand for new and innovative products.

“Home Depot is not immune to a tightening economy and there have been changes in the underlying pattern of trade,” Saunders said, pointing to a retrenchment of DIY customers taking on projects compared to the height of the pandemic. Last year, 68% of consumers undertook a home or garden project, whereas this year 61% did, according to GlobalData research.

On top of that, the housing market has begun to cool and the number of homes sold has fallen since last year, dealing a blow to the home improvement sector of retail. GlobalData tracked a double-digit year-over-year decline in house sales for September — the worst dip of the year.

“Given that moving is a major driver of home improvement spend, it is perhaps surprising that Home Depot has not seen a sharper deterioration in its numbers,” Saunders said. “That this hasn’t materialized is mainly down to something of an ‘improve not move’ mentality kicking in, a backlog of improvement projects caused by the pandemic, and consumers continuing to see spending on their homes as an investment rather than just an expense.”

Meanwhile, rival Lowe’s on Wednesday reported third quarter net sales were up 2.4% to $22.5 billion. Overall comparable sales were up 2.2% — beating both FactSet (0.8%) and Telsey Advisory Group (1%) estimates. The retailer’s U.S. comps were up 3%, driven by Pro growth of 19% and “improved” DIY sales trends, according to CEO Marvin Ellison.

Lowe’s operating income was down 66.9% to $924 million, while net income fell 91.9% to $154 million, primarily due to a $2.1 billion impairment charge related to the recently announced sale of its Canadian business to Sycamore Partners. Excluding this impairment charge, the retailer’s earnings per share increased by 19.8%.

Lowe’s is also seeing the impacts of inflation on consumers, with transactions falling 5.4%, but average ticket increasing 8.4% to $101.80.

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