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Home Depot Inc. Management Talks Online Sales Growth, Pro Customers, and More

Daniel Sparks, The Motley Fool

Investor expectations were high going into Home Depot's (NYSE: HD) fourth-quarter earnings report, and the home improvement company delivered. Revenue climbed 8% year over year, ahead of analyst expectations for 7% growth. The growth was driven primarily by a strong 7.5% increase in comparable store sales. Accompanying a great finish to its fiscal 2017, the company announced a 15.7% dividend increase.

But there was more to like about the quarter than what was featured in Home Depot's fourth-quarter earnings release. Here are some of the most insightful takeaways from management's conference call with analysts after the earnings report was released.

An aisle in a Home Depot store

Image source: Home Depot.

Strong online sales growth

Though Hope Depot seems mostly immune to the negative impact of e-commerce on brick-and-mortar businesses as it consistently reports strong comparable store sales growth, this doesn't mean the home improvement retailer isn't benefiting from the rise of online shopping.

Thanks to its e-commerce efforts, including a new e-commerce platform, enhanced search and mobile functionality, faster online checkout, and improved chat functionality, online sales in Home Depot's fourth quarter and fiscal 2017 were up 21% and 21.5% year over year, respectively, Home Depot said.

Online sales represented 6.7% of total sales in fiscal 2017.

Looking ahead, Home Depot chief market officer Kevin Hofmann said he expects similar growth for Home Depot's online business in 2018. "We have a consistent track record of over $1 billion of growth in each of the last few years in our online property. We'll look to do that again in '18."

Home Depot's interconnected retail strategy

Knowing that many of the items at Home Depot stores are unlikely to become staple items for home delivery, management has focused on what it calls an "interconnected retail strategy," or the merging of online shopping and in-store experience.

This strategy is working.

"While we're seeing significant growth in our online sales," Home Depot CEO Craig Menear explained, "these online shoppers see the relevance of our stores as approximately 46% of our online US orders are picked up in our stores, a testament to the power of our interconnected retail strategy."

Strong growth in Pro sales

One of the things Home Depot has executed best on recently is its ability to attract what it calls "Pro" customers, or customers such general contractors, handymen, specialty tradesmen, etc. These customers typically spend far more than do-it-yourself (DIY) homeowners.

Lumber in a Home Depot store

Image source: Home Depot.

Fortunately for Home Depot shareholders, the company continued to deliver strong results in Q4 when it came to its Pro customers. "Pro sales, once again, outpaced DIY sales in the quarter as the work that we're doing to enhance service capabilities for our pros continue to resonate," said Home Depot CEO Craig Menear.

Importantly, Home Depot management also noted that the revenue growth Home Depot is seeing from its "high spend" pro customers is equal to the rate it's seeing from its "low spend" pro customers. "That's where we are in terms of recovery," said Home Depot chief financial officer Carol Tome. "They are busy, which is good news."

Combining its momentum online with the company's consistent ability to attract business from pro customers, Home Depot is positioned for more strong growth in 2018. No wonder management guided for fiscal 2018 revenue to climb 6.5% year over year.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool has the following options: short May 2018 $175 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot. The Motley Fool has a disclosure policy.