5-Star Home Depot posts strong 3Q20 earnings as Digital Transformation initiatives continue to bear fruit

Summary

Home Depot (HD) 3Q20 results beat expectations with sales increasing 23% year-on-year to $33.54b and net income rising 24% to $3.43b as the consequences of the pandemic continued to be positive for the home improvement giant. Work from home and lockdowns translated into a big increase in demand for many HD products, including DIY related projects, home offices, and garden and outdoor goods.

Digital sales increased 80% year-over-year, with 60% of those orders being picked up by customers in the stores. HD shares are up 28% year to date, vs 12% for the S&P500.

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Analysis

As early as March and again last month we have written about how Home Depot’s Digital Transformation strategy put the company in position to take full advantage of the COVID-19 driven demand spike. Its 3Q numbers continue to bear this out. Especially notable is the huge 80% increase in digital sales, which would almost certainly not have been possible without the investment in IT that HD made pre-pandemic to prepare for its digital future. This enabled its systems to handle the increased data volumes experienced since the lockdowns began.

While the pandemic driven home improvements demand surge is likely to cool over the medium to long term as COVID-19 comes under control, HD’s successful Digital Transformation initiatives will very likely continue to deliver margin improvements and allow it to more quickly respond to changes in market demand. As we argued in our March ‘Spotlight’ report on HD, its top Cyberhedge 5-star rating pointed towards the likelihood of increased separation from its lower ranked peers, and continued market outperformance.

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Denis Bolshakov

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