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Home Depot: Philly's 'flippers' and high-end contractors boost orders

Housing market's uneven recovery

Erik Dardas, Home Depot's chief contractor-watcher in the Philadelphia area and nearby markets, tells me that sales are up in the past year at the high end and the lower end of the home-contractor market -- "from both our house-flippers and real estate investor-customers."

It's slower for middle-income and do-it-yourself homeowners. Home depot sales under $50 were up just 3%, while sales over $900 were up 10%, with more contractors buying appliances and kitchens, writes analyst David Strasser in a report to clients of Janney Capital Markets in Philadelphia. Strasser ranks the stock only "Neutral:" he expects the housing market to slow, and Home Depot sales, too, as interest rates rise.

Meantime, high-end business is up: House flippers -- people investing in rentals who hope to unload them quick when prices rise -- are paying for  "super cost-efficient" upgrades to cut operating costs, while investors in bigger-ticket homes are paying for "high-end improvements for the investors trying to increase property value," according to Dardas." Both are buying en bloc for portfolios of properties, which has juiced bulk sales as well as Home Depot's regional competitive price-match program.

In the middle of the market, nationally, "we've seen 10 consecutive quarters of growth in the size of our tickets (suggesting purchases for larger home improvement projects)," Dardas adds. In the past three months, also, "we saw strength in large purchases including appliances, countertops and projects such as tile and vanities." Contractor sales are still growing "slightly faster" than consumer sales. More contractors are using Pro App to buy by smartphone.

Contractor sales at Home Depot "grew at a faster rate than consumer," notes analyst Strasser.

Sales totalled $19.5 billion, a quarterly record; same-store U.S. sales were up 8.2% over last year's quarter. Profits up, too: Earnings rose to $1.4 billion from $847 million. Home Depot is bracing for a potentially slower fourth quarter, however.