Home Depot Earnings: Spring's Thaw Builds a New Foundation for Growth

Source: Home Depot.

With rival Lowe's scheduled to report earnings tomorrow, Home Depot's results set the bar high for the home-improvement industry. Moreover, Home Depot's success was far from assured, based on the poor performance of some of its smaller peers so far this earnings season. In particular, specialty flooring retailer Lumber Liquidators stumbled badly in its second quarter, booking a 7.1% drop in comparable-store sales connected to customer counts and average ticket sizes.

Home Depot's success wasn't all about spring

Home Depot executives touted the company's successful bounce-back from a tough winter season. CEO Frank Blake specifically mentioned how "our spring seasonal business rebounded," and given the impact that harsh weather had throughout the economy early in 2014, better conditions definitely played a role in the good results.

But when you compare them with year-ago figures and thereby take away the weather aspect of the results, Home Depot's numbers showed its continued ability to maximize efficiency and productivity in its stores. Traffic rose by 4.2% to nearly 410 million transactions. And even as some complain that the economic recovery hasn't restored purchasing power to the typical American shopper, Home Depot saw average ticket sales climb almost 2% on a year-over-year basis. Sales per square foot of floor space jumped 5.5% to climb above the $400-per-square-foot mark, as Home Depot strives to make the most of all the assets at its disposal.

Home Depot's strength comes even in the face of doubts about the sustainability of the housing market's recovery. Expectations that interest rates will continue to rise have many worried that homes will become less affordable, bringing recent price gains to a halt and potentially stalling building activity. So far, though, Home Depot hasn't seen any sign of sluggishness, and the work being done to bolster its internal efficiency points to a commitment to make the most of whatever environment in the housing industry it has to deal with.

Will the stock keep soaring?

After the earnings announcement, Home Depot shares climbed to their highest level ever, capping a strong advance since winter's discouraging quarterly report. Yet what's most important for long-term investors is that Home Depot's corporate strategy appears to be working, and that could bring much larger gains over the long run to those who are patient enough to stick with the home-improvement retailer's stock.

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The article Home Depot Earnings: Spring's Thaw Builds a New Foundation for Growth originally appeared on

Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Home Depot and Lumber Liquidators. The Motley Fool owns shares of Lumber Liquidators. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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