Two Key Drivers Of Home Depot’s Growth In Future

Home Depot‘s (NYSE:HD) Q2 2016 results indicate that the company is on a path of strong performance.  It reported a nearly 7% year-on-year increase in revenues and almost 5% increase in comp sales (year on year) for the second quarter of 2016. The company also raised its sales guidance for 2016, another indicator that strong performance is expected for the rest of the year.  Home Depot is investing in its online initiatives to meet customer demands more effectively. It is also working on delivering value through its recent acquisitions. Improvement in the macro environment is acting as a tailwind for its business.  As a result, we believe there will be two key drivers of Home Depot’s growth in future:  a more robust e-commerce business and selective acquisitions to fill gaps in the product offering.

See complete analysis for Home Depot’s stock

E-commerce Initiatives

In Q2 2016, Home Depot’s online business saw a 19% year on year growth and represented nearly 6% of its total sales.  The company is working on several initiatives to provide more convenience to customers buying its products online and continues to leverage its merchandize tools to refine product offerings across channels based on customer preferences.  Home Depot recently launched a dynamic ETA (expected time of arrival) for products purchased online which provides a delivery date based on the customer’s location. This tool leads to better estimation of delivery dates and faster delivery leading to higher conversions and customer satisfaction.  Home Depot rolled out a new Customer Order Management System across all of its stores in the U.S. which incorporates the “Buy Online Deliver From Store” feature, integrating multiple sales channels.  As an increasing number of customers prefer mobile devices for online shopping, the company has also enhanced its mobile site features with larger and clearer product images and a simplified check out process.  The company’s “interconnected” strategy – which is merging the online and offline channels, is showing positive results. More than 40% of its online orders are being fulfilled through stores and this strategy effectively leverages the company’s store network.  We believe Home Depot’s online initiatives are critical for its future growth and the company is following the right strategy for this segment.

Delivering Value Through Acquisitions

Last year, Home Depot acquired Interline Brands, a home repair and maintenance products seller, to expand its Pro-division, which caters to professional contractors and builders.  The company is now working towards leveraging Interline’s capabilities to expand its share of wallet with existing customers and gain new customers. Its pilot offering of Interline’s product catalogue to Home Depot Pro users has shown good traction. The acquisition of Interline was strategic as it complimented Home Depot and had a strong offering of repair and maintenance products – an area where Home Depot was relatively weak. The strategy, then, is to strengthen its overall offerings through selective acquisitions that plug gaps large and small.  And it can be a key driver of Home Depot’s future growth.  It also increases the company’s ability to serve customers end to end, thus increasing market share over the long term. The company has a strong cash flow and such strategic acquisitions in future can drive growth for the company.

We believe Home Depot is well poised to capture growth in what we believe is an improving macro-economic environment. Key growth drivers going forward will be: 1) e-commerce initiatives that focus on an “integrated strategy” to better leverage its store network; and, 2) a wider product offering  boosted by strategic acquisitions where possible.

Editor’s Note:  We care deeply about your inputs to make our content even better and more relevant for you. Please let us know if you liked this article or disliked it and why. Drop us a line at content@trefis.com

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research