The Home Depot effect

A rise in the retailer's earnings lifts many boats.

By Jonathan Berr Feb 21, 2012 12:19PM
Home Depot's (HD) better-than-expected quarterly earnings are another sign that the economic recovery is taking hold. 

Net income at the Atlanta retailer was $774 million, or 50 cents a share, up 32% from $587 million, or 36 cents a share, a year ago. Revenue rose 5.9% to $16 billion, fueled by a 5.7% increase in same-store sales and an unusually mild winter. The results topped Wall Street expectations for 42 cents a share.

Post continues below.
Shares of the largest home improvement chain are up more than 13% this year. Wall Street analysts have a one-year price target of $46.13 on the stock -- below where it trades now. Nonetheless, the shares have more room to run. Indeed, who would have thought Home Depot would post such a strong quarter in the dead of winter? Imagine how well the chain might do once the spring remodeling season starts.
 
Confidence among U.S. homebuilders, some of which are Home Depot customers, is the highest it's been since 2007. Construction employment has risen by 52,000 since January, while nonresidential specialty trade contractors added 30,000 jobs. There are even signs that the housing market is rebounding.

If consumer confidence continues to rise, Americans will open their checkbooks to fund do-it-yourself maintenance projects they delayed when they were less sure of their finances. People will also dust off projects such as deck additions and fund maintenance chores like roof repairs that were delayed because people were less sure of their financial futures.

This is good news for the small contractors who buy their supplies at Home Depot. Ditto for the construction workers who have borne the brunt of the worst economic slowdown since the Great Depression. Once these workers get some extra money in their pockets, they will make some discretionary purchases. And while many remain leery about spending too much too fast because they got burned during the slowdown by taking on more debt than they could afford, spending is bound to improve.

When Home Depot wins, so do lots of people who don't know one end of a hammer from another.

Jonathan Berr does not own shares of the companies listed here.

Related reading:
Tags: HD
35Comments
Feb 21, 2012 2:18PM
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Good thing we are applauding Home Depot when locally owned and operated hardware, paint, lumber yards, & flooring stores are going out of businsess.  Shop local, the profits stay in your community and you are not just another customer.
Feb 21, 2012 3:12PM
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If gas goes to $5 by summer as predicted all of this will stop. Oil production 9.637 million barrels per day produced by the United States in 1970. Oil production 5.512 million barrels per day produced by the United States in 2010. What are we doing?
Feb 21, 2012 2:00PM
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We don't shop Home Depot, we can not get any help in that store.  In fact, we cancelled our account with them because of their poor service.
Feb 21, 2012 3:23PM
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This is ALL total and complete GARBAGE.  Everyone is broke or in debt, and cost of living is exceeding any pay increases. The FED only cares about "inflation" if it mean rising wages. No rising wages= "no inflation".  All the gains you are seeing are just simply inflation. Period. Even DOG FOOD is going up. But still...."no inflation".  I don't know who is worse: Wall street for being thieves, D.C. politicians for being liars, or the media for covering for both of them and perpetuating the scams when they are supposed to do the exact opposite.
Feb 21, 2012 2:45PM
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Or...is everyone spending their tax return (if they got one) at places like Home Depot and Lowe's fixing things themselves instead of hiring someone?  I know that's what I had to do.  :(
Feb 21, 2012 2:53PM
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Could it have something to do with the winter being 10 degrees warmer this year than the last three or four years?  Makes it easier to build when the ground isn't frozen.  I know there are some major construction projects around here that seem to be moving really fast for the winter.

 

Feb 21, 2012 3:43PM
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I WORK FOR AN INDEPENDENT LUMBER COMPANY IN R.I.

THAT HAS BEEN IN AROUND FOR 100-YRS (1911-2011)!.  WE HAVE FELT THE SOME AFFECT OF "HOME DEPT."  OVER THE PAST SEVERAL YEARS AND GLAD THAT THEY

ONLY BRING IN MATERIAL THAT "REAL" CONTRACTOR'S WON'T USE DO

TO QUALITY AND SERV.  IT'S ALWAYS NICE WHEN THE PEOPLE AT "HD"

DON'T KNOW THE BUILDING CODES OR WIND-ZONES THAT ARE REQ.

IN THE STATE FROM TOWN TO TOWN WHICH COULD LEAD TO ALOT OF $$$$$ WASTED

IN RE-ORDERS. REAL BUILDERS SHOULD STICK WITH REAL LUMBER YARDS

THAT HAVE BEEN AROUND AND NOT JUST TRY TO PUSH OUT THE SMALLER GUY

TO SAVE A BUCK. 

 

Feb 21, 2012 3:11PM
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OMG Home depot is making profits? The world is saved!!!

 

OOORRRRR

 

People can't afford quality materials and or a contactor to put them in.

 

Yeah it's probably the latter.

Feb 21, 2012 3:50PM
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Yea, Depot stock goes up, so we are saved!  When gas approaches $5/gallon this summer, the price of about everything will skyrocket.  There goes our "recovery"1
Feb 21, 2012 2:51PM
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it would be great if home depot would start paying a decent wage for thier workers
Feb 21, 2012 2:08PM
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hard to believe stock keeps going up all they are doing is raising prices, that's why they are making money !

and guess what we the public do have to buy things for our homes, again big business getting us in our pockets.

Feb 21, 2012 4:19PM
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Home Depot is cornering the market on boomerangs.  They sell them as 2 x 4's.
Feb 21, 2012 3:58PM
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Let's short circuit this weak recovery.  Let's jack up oil prices and undermine everything.  Let's keep beating the war drums and talk about whether "we're going to attack Iran", or "when we're going to attack Iran", or whether we tell Israel very gently "oh please don't attack them but here are some bunker busters, fighter jets, and satellite data".  All the oil sanctions and the war talk is driving up oil prices.  And the first bomb that's dropped there, good bye recovery.  $200-300/barrel oil prices and $10/gallon gas.  Hello Great Depression Part II.
Feb 21, 2012 3:27PM
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It's cheaper to update your home than to sell it at a loss so one would expect HD to do well.  They also tried to branch out into services beyond their core some years back, this could also be the result of their "getting back to basics".
Feb 21, 2012 3:34PM
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As far as local business is concerned, more often than not they are ripping of their captive clientele.  Before HD moved into our area, the stores were totally gouging their customers.  After HD came, those same stores dropped their prices in half.  Guess what, they are all still in business.

 

I build much of my retirement home with HD and their 0% interest for a year credit.  Once, when my $3000 whirlpool tub didn't show up after they shipped it, (some trucker got a free upgrade!), they sent me a new one, no questions asked.  You can't beat that!

Feb 21, 2012 3:43PM
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Another msn headline designed to make Obama look good.  People are going to Home Depot because they can't sell their homes or afford to have someone come in and fix it.  Every day msn has some sort of story designed to make things look good for Barack Obama.  Don't believe me? Track it yourself!
Feb 21, 2012 3:32PM
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Homebuilding is apparently the gold standard litmus test for our economy these days? Really?....I'd like to see alot more than just the Homebuilding industry having gains before I'd go on record to say our economy was improving. We do more than just build homes dont we?
Feb 21, 2012 5:29PM
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Not the biggest fans of Home Depot, but when you walk into Lowe's and all the signs are in Spanish...  I don't want to buy a salada or some other gibberish garbage it has to be Home Depot by default.  Hey Lowe's you want my money?  Have all of your signs (and receipts) in English and English only. Anyone who cant read English should go to a country that doesn't speak English.
Feb 21, 2012 5:07PM
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My analysis,

A few years ago you couldn't find an "associate" in an HD store, now, you fart and there is ten of them there to smell it with you. So, give a couple percent of increase due to improved customer service.

As many have pointed out, "pros" really don't use HD for most (not all) products they carry, so my take is that this isn't doing much for building industry recovery, I know I have been in the trade for 30+ years. My guess, home owners and handymen.

Feb 21, 2012 5:01PM
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@norman pugh:  homedeport is owned by the rich.... they came to our town and took out two other lumber yards ,,,screw the rich don.t shop there......

whose role is it to support the local yards?  Should HD not set-up shop to save the local yards, or should the local people do their business locally, regardless of HD's existence? 

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