Home Depot - Home is where the heart (and money) is

January 2024

Home Depot (HD) is the world’s largest home improvement retailer offering a range of building materials, home improvement products, garden products and services including installation and tool/equipment rental. The company generates annual revenue of $130bn from its 2,000 stores with 93% of its revenue generated in the US.

HD was purchased by Dundas Global Investors in July 2015 following a review which highlighted the ongoing strength in the US housing, improvement and construction markets. This was underpinned by increasing household formations and the ageing stock of US housing. More recently, the pandemic has prompted a fundamental shift in attitudes towards how the home is utilised. HD has a straightforward, but highly effective strategy which aims to create the most frictionless customer experience, be the lowest cost provider, take as much market share as possible and be the most capital efficient company.

The graphic above showcases HD’s interconnected digital offering, 'One Home Depot', which focuses on its ability to serve customers’ needs both online and in stores. HD recognises that e-commerce is not a distinct channel but instead is fully integrated into the business. This is borne out by the fact that over 50% of all online orders are picked up in store and the average online ticket is a multiple of the instore ticket. Additionally, when customers order big items online and collect in-store, they tend to buy lots of additional small items to help with the project.

HD has invested significantly in both its store estate and digital offering in recent years which proved well timed ahead of the pandemic. Online sales have grown significantly and represent around a fifth of total sales. Around two thirds of these orders were fulfilled through a store. HD’s success with its interconnected model has resulted in it being the fifth largest e-commerce company in the USA with online sales of $19bn. Over the past five years, HD has grown its dividend by 15% per annum. The pay-out ratio has averaged 40% giving HD ample scope to reinvest in the business and return incremental cash to shareholders through share buybacks.

Drivers for future growth:

• Household formation increasing - Millennials are forming households and engaging in DIY.

• Home office - the future of remote working is transforming the function of homes.

• Home 'groan' - ageing US housing stocks, median age now at all-time high.

• Same-store sales growth - being the lowest cost provider continues to attract customers.

• E-commerce expansion - online sales account around one fifth of sales today but this is increasing rapidly.


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David Keir