Fitch: Renovation Spending Lends a Hand to HD Operating Margin
CHICAGO & NEW YORK -- December 11, 2013
An increase in home renovations, precipitated by a rise in U.S. home prices,
has allowed The Home Depot, Inc. (HD) to adjust its operating margin and
return on capital targets, according to Fitch Ratings.
HD said Wednesday in a press release that it anticipated reaching its
long-term operating margin of 12% and its 24% return on invested capital
targets by the end of fiscal 2014, which is one year earlier than the company
anticipated via an announcement in June 2012. Fitch affirmed its long-term
issuer default rating (IDR) for HD at 'A-' and its short-term IDR at 'F2' on
Nov. 19. The Rating Outlook is Stable.
HD has been able to generate positive operating momentum in the midst of a
home improvement industry that has seen consumers focus on repair and
maintenance projects. HD's comparable store sales have been positive for the
past three and a half years, following four years of negative comparables
(comps). Faster growth of seasonal and big-ticket items helped drive strong
comp store sales growth of 10.7% in the second quarter of 2013 and 7.4% in the
third quarter, and Fitch expects comp store sales to grow in the positive low
to mid-single digits over the next two years.
Fitch forecasts home improvement spending will increase 6% in 2014, following
a projected 5% growth in 2013. The continued improvement in the housing
market, as well as strong home price appreciation seen so far this year, are
likely to drive higher spending on home renovation projects in 2014.
That said, challenges remain for the sector that could derail a sustained
rebound in remodeling spending. Unemployment is still high, consumer credit
standards remain tight and consumer confidence is still weak. Additionally,
rising mortgage rates could slow down cashout refinancing activity, which may
limit homeowners' ability to finance large projects. Spending for big-ticket
remodeling projects will continue to lag the overall growth in the home
improvement sector somewhat, as credit availability remains relatively
constrained and homeowners remain cautious in their spending. However, there
are signs that homeowners are somewhat more willing to undertake larger
discretionary projects and purchases.
Additional information is available on www.fitchratings.com.
The above article originally appeared as a post on the Fitch Wire credit
market commentary page. The original article, which may include hyperlinks to
companies and current ratings, can be accessed at www.fitchratings.com. All
opinions expressed are those of Fitch Ratings.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
PUBLIC WEBSITE WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS
OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN
EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER
ON THE FITCH WEBSITE.
Philip Zahn, CFA, +1 312 606-2336
Senior Director, Corporates
70 W. Madison Street
Robert G. Rulla, CPA, +1 312 606-2311
Kellie Geressy-Nilsen, +1 212 908-9123
1 State Street Plaza
New York, NY
Brian Bertsch, +1 212 908-0549
Press spacebar to pause and continue. Press esc to stop.