Home Depot rising fast on acquisitions

By Staff -- Home Textiles Today, 5/16/2006 1:09:00 PM

Atlanta -- Home Depot Inc. pushed first-quarter profits up by 19.0%, to $1.5 billion from $1.2 billion last year as it layered on results of the recently acquired Hughes Supply, and at the same time bulked up sales, widened margins and hacked away at costs.

Boosted by the Hughes buyout, which added $2.1 billion to the top line in the 30 days since the March 30 acquisition, sales climbed higher by 13.1%, to $21.5 billion from $19.0 billion. Excluding the Hughes buyout, sales in core Home Depot stores rose at a more moderate pace of 5.7%. Same-store sales in Home Depot stores were not reported, and the retailer said it will no longer report them going forward, but will report only total sales growth for both the retail and supply segments of its business.

In addition to the $2.1 billion it brought in sales, Hughes contributed $149 million in operating profit during the opening quarter.

In a further lift to the bottom line, Home Depot continued to whittle down its overhead, reducing costs when measured as a percentage of sales, by 80 basis points, or eight-tenths of a percentage point, to 20.4% from 21.2%. Average gross margin improved by 20 basis points, or two-tenths of a percentage point, to 33.7% from 33.5%.

Home Depot continues to ramp up growth through acquisition, and in addition to the Hughes buyout, which puts the company into the professional contractor market, recently acquired Cox Lumber, a privately owned lumber company in Florida and Home Decorators Collection (HDC), a catalog and internet retailer of home décor.

Since acquiring HDC on May 1, the Home Depot Direct segment is more firmly on the path to becoming a billion-dollar business by the end of this fiscal year, said Home Depot chairman, president and ceo Robert Nardelli during the first-quarter earnings call today. He described HDC as "an ideal and strategic fit for Home Depot Direct, doubling its size and significantly increasing its presence in the affordable home décor category."

HDC’s offerings include a limited amount of textiles, including throws, decorative pillows and rugs – an assortment that includes sisal, shag, flokati, outdoor, braided and cotton varieties. The Home Depot Direct Web site boasts more than 4 million visits per week, Nardelli said.

On the real estate front, during the first quarter Home Depot opened 23 new stores, including four relocations, with four new stores in Canada and two new units in Mexico, bringing the total store count to 2,051. As of the end of the quarter, approximately 10% of the company's store base was in Canada and Mexico. Internationally, China is the company’s area of focus for expansion.