Home Depot’s quarterly results are often propelled by two trends: the housing market and the weather. Both helped lift the home-improvement’s sales sharply, ending 2015 on a high note as Home Depot gears for another strong year.
A mild winter – with the warmest December recorded in 121 years – helped boost sales for roofing products, outdoor garden items, lumber, siding and fencing. Americans and professional contractors were more willing to get outside the spruce up homes due to the unseasonably warm weather. Home Depot says favorable weather added $100 million in additional sales for December – though sales for the entire quarter swelled by $1.8 billion.
On Tuesday, Home Depot (HD) reported total sales jumped 9.5% for the fiscal fourth quarter, boosting net income to $1.5 billion from $1.4 billion the prior year. Same-store sales rose 7.1% across the company and jumped 8.9% in the U.S. All of those financial targets exceeded Wall Street’s expectations, sending shares higher on Tuesday.
“Housing continues to improve but the good news it hasn’t fully recovered,” Home Depot Chief Financial Officer Carole Tomé told Coins2Day. She adds that home prices, turnover and household formations all increased for 2015, and she expects those trends will continue this year.
The housing market has enjoyed a strong recovery following a steep decline that fueled the nation’s 2007-2008 financial crisis. Existing home sales data, also released on Tuesday, kicked off 2016 with a strong start as sales for January rose to the strongest pace since July 2015. “Despite the global economic slowdown, the housing sector continues to recover and will likely help the U.S. Economy avoid a recession,” said Lawrence Yun, chief economist of the National Association of Realtors.
The housing sector is entering the spring selling season with some imbalances, however. Housing supply isn’t close to what is needed to accommodate demand. As a result, prices are soaring to levels that the NAR says aren’t healthy, especially considering the fact that household income and wages aren’t increasing by much.
Home price appreciation is good news for Home Depot, Tomé said, “because it means people spend more money on their home because they think of it as an investment.” Tomé says a shortage in supply means new homes will also need to be built, another tailwind for Home Depot.
Another of Tomé‘s favorite stats: research indicating 65% of the housing stock in the U.S. Is older than 30 years. Home Depot estimates that owners of those homes spend 8% more on home improvement than on newer homes.
