Home Depot: Four Factors To Watch Out For In 2015

Home Depot (NYSE:HD) holds the dominant position in the U.S. home improvement industry, accounting for approximately 60% of all revenues. Since the recession, Home Depot has grown continuously, with the stock price registering a 40% increase in the last 52 weeks alone. While we expect continued optimism in the U.S. economy, specifically in the housing markets, to aid further growth for the home improvement names, a number of other factors for Home Depot  could ensure continued performance for the stock going forward. ^[1]

We have a price estimate of $100 for Home Depot’s stock, which is slightly below the current market price.

Our complete analysis for Home Depot’s stock

Firstly, Home Depot recently appointed its existing Chief Executive Officer (CEO) and President, Craig Menear, as Chairman, following the retirement of Frank Blake. Blake took the company to new heights with the share price increasing by almost 175% since the time of his appointment. ^[2] Furthermore, he was instrumental in seeing the company through the recession by ensuring a higher focus on propelling existing store sales rather than new store sales. Menear, with seventeen years of experience to his name, across the company’s supply-chain networks, private brand operations, marketing, online businesses, and international sourcing, is expected to carry Blake’s legacy forward and attempt to see the share price touch new heights. A measure of the optimism from the news of his appointment, the shares rose almost 3% on January 16. ((Home Depot Appoints Existing CEO and President as Chairman))

Secondly, Home Depot is set to install an in-store mobile technology called the FIRST phone. These devices will help associates in conducting faster checkouts through “line busting,” locating products, checking inventory, and explaining product features. ^[3] Having deployed almost forty thousand FIRST phones already, the company is expected to improve the shopping experience for its customers by increasing in-store efficiency to put the home improvement giant in even better stead going forward.

Furthermore, late last year, Home Depot declared the launch of “Home Depot Delivers” in select stores, which will allow same-day shipping for all online orders placed before 5 p.m. ^[4] In this respect, they opened three new distribution fulfillment centers in California, Georgia, and Ohio, which would be ready for operations this year. According to the Integrated Solutions For Retailers, each center will hold more than 100,000 stock keeping units, approximately 70,000 more than the average store. Through a network of 2,000 stores, Home Depot will ship goods straight from the inventory to customers on the same day. ^[5] This move is expected to drastically improve customers’ shopping experience by reducing the time lag between ordering a product and its delivery. The Integrated Solutions For Retailers suggests that contractors currently account  for only 3% of Home Depot’s customer base and 35% of total sales. This move could potentially increase contractor and homeowner traffic along with strengthening ties with existing customers, by meeting current demand more effectively.

In other news, with improving economic prospects in the U.S. and an anticipated increase in customer traffic in the spring season, Home Depot is set to hire an additional 80,000 workers. They have also been working to reduce swipe fees on card payments, which currently hovers at about $0.21 to $0.24 per transaction, up from its previous amount of $ 0.12. ((NRF SAYS SUPREME COURT RULING ON SWIPE FEES LEAVES MERCHANTS AND CONSUMERS PAYING BILLIONS TOO MUCH)) Although the appeal has currently been put on hold by the Supreme Court, we can expect further growth, in case the appeal is put through in the future. All in all, these strategic moves could give Home Depot a competitive edge to aid further growth for the business in the coming year.

However, a caveat to this would be the tough weather conditions in the U.S. so far this year, which are expected to negatively impact Home Depot’s business in the first quarter of the coming fiscal. Approximately 35% of Home Depot’s stores in the U.S. are in the eastern part of the country, which has been severely hit by snow. This is bound to have an impact on the number of customer transactions for the home improvement retailer, consequently impacting sales in the early part of 2015, as customers might hold-off on carrying out home improvement projects during the early part of the year, or be unable to travel to reach the stores to shop.  However, as was the case last year, pent-up demand and retrofitting and repair projects could boost sales with the commencement of spring, especially in the outdoor equipment categories. While the extreme winter is expected to be a downer for Home Depot and its peers in the early part of this year, as the housing industry strengthens and economic activity in general picks-up later in the year, we expect the company to be in good shape to grow its sales.

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1. Key Trends In Housing Impacting The Home Improvement Market [↩]
2. Home Depot Is The King Of Retailers [↩]
3. Home Depot Rolls Out New “Line-Busting” Technology For Spring [↩]
4. Home Depot tests delivery-from-store expansion [↩]
5. Home Depot Launches “Home Depot Delivers” To Fulfil Same-Day Shipping [↩]