The world's largest home improvement retailer, Home Depot, today reported sales of $22.8 billion for the first quarter of fiscal 2016, a 9% increase from the first quarter of fiscal 2015.
Online sales are also up by more than 20%. Net earnings reached $1.8 billion — a 14% increase from the same time last year.
The CEO attributes some of the success to the slow new-home purchase market.
"Housing data indicates continued tailwinds for our business," said Home Depot CEO Craig Menear, speaking to investors on the earning call earlier this morning.
This comes on the heels of a weak building permits and housing starts report from the department of commerce.
A closer look at those numbers, and Home Depot's, reveal a potential, bold strategy for the renovation retailer.
Building permits in April were at a seasonally adjusted annual rate of 1,116,000. This may 3.6% above the revised March rate of 1,077,000, but is 5.3% below the April 2015 number.
Housing starts in April were at a seasonally adjusted annual rate of 1,172,000. This is 6.6% above the revised March estimate of 1,099,000, but still is 1.7% below the April 2015 rate of 1,192,000.
So year-on-year, housing slowed down.
Some economists remain optimistic. “April’s rise does not alter the fact that housing starts have failed to deliver any sustained growth over the past year,” said Capital Economics in an email to clients. “However, with housing demand rising gradually and builders growing more confident about the sales outlook, we doubt this weak patch will persist.”
Home Depot’s earnings, however, show a belief that people will remain in their current environs at a strong enough rate to build a strong, retail strategy.
Total assets at the company, for the same time period, rose to $44.6 billion from nearly $42 billion. For a home improvement store, this is notable, as it includes merchandise inventory, property and equipment.
In other words, the company is stocking up.
Total liabilities, for the same period, dropped to $15.1 billion from $17 billion. While the company is setting aside money for paying more in salaries, it significantly lowered its payments on long-term debt, from $3 billion to only $44 million.
It may be a bold move by Home Depot, as others follow Capital Economics in viewing the current housing situation as “patchy.”
It’s true, Fannie Mae’s Economic & Strategic Research Group today lowered their full-year economic growth forecast to 1.7%, down from 1.9% growth in the prior forecast and 2.2% at the start of the year. But, they too, say the slowdown is temporary.
“Home sales are expected to pick up heading into the spring season amid the backdrop of declining mortgage rates, rising pending home sales and purchase mortgage applications, and continued easing of lending standards on residential mortgage loans,” said Fannie Mae chief economist Doug Duncan.
“Meanwhile, the homeownership rate showed signs of stabilizing during the first quarter of this year, as the relatively high homeownership rates among Baby Boomers have helped offset low homeownership rates among Millennials,many of whom remain on the sidelines due to ongoing affordability issues,” he added.