Home Depot (NYSE:HD) reported results for the first quarter of fiscal 2021 a few weeks ago, and the numbers were outstanding, easily beating Wall Street analysts’ estimates.
Momentum from the pandemic-fueled boost is still strong as revenue and net income soared 32.7% and 84.6% year over year, respectively. A robust housing market, in which the average selling price for homes continues rising at an impressive rate, provides Home Depot with a rosy economic environment to thrive in.
Amidst all of the positive metrics, though, one number really stood out. Read on to find out how this data point helps explain Home Depot’s success.
Efficiency and productivity
Sales per square foot, one of the most important performance indicators for any retail business, increased 29.8% in the quarter for the largest home improvement chain.
This was a substantial acceleration from the previous quarter (up 24.0%) as well as the last few fiscal years. And it exemplifies Home Depot’s efficiency and productivity.
A decade ago, the business had 2,248 locations. Fast forward to today, and there are 2,298 stores, which means the company has only expanded its footprint slightly over that 10-year stretch. This is absolutely remarkable, because during that same period, sales nearly doubled from $68.0 billion in fiscal 2010 to $132.1 billion in fiscal 2020, while net income surged from $3.3 billion to $12.9 billion.
Home Depot has figured out how to get more volume out of each of its stores, and this is paramount to both its past success and its future prospects. In the most recent quarter, revenue per store was approximately $16.3 million, and the company’s return on invested capital (ROIC) now sits at 45.1%. Lowe‘s, on the other hand, generated only around $12.4 million per store during its latest quarter.
The One Home Depot initiative, an $11 billion multi-year investment launched in late 2017, has positioned the business to continue delivering exceptional service and product assortment for its customers. The goal was to bolster omnichannel capabilities, and if the company’s performance over the past 12 months is any indication, it’s working.
Digital sales grew by more than 80% in each of the last three quarters of fiscal 2020, before decelerating to 27% growth in the most recent quarter (still up 100% on a two-year stacked basis). Furthermore, over half of all online orders are fulfilled through a store. Selling more expensive products helps as well. Big-ticket purchases, those over $1,000, jumped 50% compared to the prior-year period.
Home Depot’s ability to service its customers in ways that are most convenient to them is the reason why its store productivity keeps rising. The company is a key supplier for its professional (or Pro) customers, who view Home Depot as an important partner for their project-based needs. This valuable customer segment spends more and visits stores more often than the do-it-yourself (DIY) customers, supporting double-digit gains in average ticket size and transaction counts in the fiscal first quarter.
COO Ted Decker highlighted the strength of the Pro customer segment on the earnings call, saying that “sales to our Pro customers continued to strengthen, posting the fourth consecutive quarter of accelerating growth and the best quarterly rate on record. Pros continue to tell us that project demand is strong, and their backlogs are growing.”
Home Depot is firing on all cylinders, and its most recent results demonstrate just what an efficient retail machine the company has become. This results in phenomenal sales-per-square-foot numbers. Expect more of the same going forward.
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