Home Depot To Gain From Omni-Channel & Supply-Chain Actions

Home Depot Inc. (NYSE:HD) has been witnessing robust growth, backed by its integrated retail strategy that connects offline and online channels. The company witnessed improved customer satisfaction scores and conversion rates through investments in interconnected capabilities, which encompass both digital properties and physical store assets.

Consequently, digital sales in third-quarter fiscal 2018 increased about 28%, backed by robust growth in online traffic. Notably, sales for both “buy online ship to store” and “buy online pickup in store” capabilities grew faster than the overall online sales growth rate for the fiscal third quarter.

Apart from enhanced digital portals, the scope of the integrated retail strategy extends to the supply-chain system, and investments for enhancing the delivery and fulfillment options for customers. Home Depot is currently in the early stages of its five-year investment journey under its “One Home Depot Supply Chain” initiative, which targets facilitating the fastest and most efficient delivery network in home improvement.

Through this initiative, the company expects to reach 90% of the U.S. population with same-day or next-day delivery capability, even for big and bulky orders. This will reflect a marked improvement from its current capability of reaching 95% of the U.S. population in two days or less with parcel shipping. As part of this initiative, the company has been piloting fulfillment centers, which are delivering desired results.

Additionally, the company plans to open more of these pilot facilities through the rest of 2018 and in early 2019. Moreover, the company is keen on meeting its customers’ immediate delivery needs, which is clear from the recent rollout of car and van express delivery, which enables same-day delivery of store goods. The rollout of this service to about 40% of the U.S. population resulted in a marked increase in utilization from both Pro and DIY customers.

Driven by these efforts, Home Depot is on track to reach its long-term financial targets for fiscal 2020, which were announced in December 2017. Through fiscal 2020, the company anticipates total sales of $115-$120 billion, with compounded annual sales growth of nearly 4.5-6%. Operating margin is expected to be 14.4-15%. Moreover, the company expects annual average capital spending to be about 2.5% of sales, with return on invested capital of more than 40%, reflecting the impact of the new tax reform. Alongside achieving these targets, it plans to accelerate investments in the next three years to enhance customer experience and shareholder value.

Furthermore, the stock has outperformed the industry in the past three months. Though shares of this Zacks Rank #3 (Hold) company dipped 19.5%, it fared better than the industry’s decline of 20.9%. Additionally, the stock’s long-term earnings growth rate of 12.9% and a Growth Score of B reflect its inherent strength.

Analysts believe that an improving job scenario, gradual recovery in the housing market and merchandising initiatives bode well for the company. Home Depot, which competes with Lowe’s Companies Inc. (NYSE:LOW) , has been reporting strong financial figures since fiscal 2008, with steady improvement in revenues and earnings per share. Incidentally, both top and bottom lines beat estimates in third-quarter fiscal 2018. Notably, the company retained its five-year-long trend of beating earnings estimates. Moreover, it delivered positive sales surprise in eight out of the last nine quarters.

Notably, Home Depot is witnessing strength across store operations while delivering solid digital growth, which reflects persistently strong customer demand in the home improvement markets. Backed by solid year-to-date performance, the company raised its earnings and sales forecast for fiscal 2018.

Home Depot now expects sales growth of nearly 7.2% for fiscal 2018, including the 53rd week. The company earlier anticipated sales growth of 7%. Comps growth is now estimated to be 5.5% (for the comparable 52-week period) versus 5.3% increase stated earlier. Further, the company anticipates earnings per share of $9.75 for fiscal 2018, up nearly 33.8%. Earlier, it projected earnings per share growth of 29.2%.

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