Today marks a weird reversal in the price action of appliance seller stocks, and investors can once again thank Amazon.com, Inc. (NASDAQ:AMZN). Sears Holdings Corp (NASDAQ:SHLD) announced it would start selling Kenmore-branded appliances through Amazon.com, Inc. (NASDAQ:AMZN). The move increases Sears’ distribution in the appliance market. It also potentially cuts into the appliance market shares of Home Depot Inc (NYSE:HD) and Lowe’s Companies, Inc. (NYSE:LOW).
The news has turned Sears, which has been a perennial loser due to bankruptcy concerns, into a big winner today. SHLD stock is up over 11% on the news.
The news has also turned Home Depot and Lowe’s, which have been perennial winners due to their ability to withstand the Amazon retail assault, into big losers today. HD stock is off about 4% on the news. LOW stock is lower by 5%.
But Home Depot investors must ask themselves: how much does this move really change the retail landscape for HD stock?
The answer is simple: not that much. That makes this a great “buy the dip” opportunity into a secular growth name.
Home Depot Is Amazon-Proof, Regardless of Sears
Here’s the thing. Most retail isn’t Amazon-proof because there is no moat in selling clothes and small-ticket items. Home Depot is Amazon-proof because there is a big moat in selling appliances and big-ticket items.
So whenever Home Depot gets thrown in with the “rest of retail” and sells off on Amazon concerns, that is usually a buying opportunity into HD stock.
For example, before Home Depot’s most recent quarterly report, I wrote a piece on why the company was a good buy into that report. Last quarter when the traditional department store quartet reported their earnings, they weren’t all that good. Macy’s Inc (NYSE:M), Kohl’s Corporation (NYSE:KSS), Nordstrom, Inc. (NYSE:JWN) and J C Penney Company Inc (NYSE:JCP) all reported negative comparable same-store sales growth along with disappointing earnings numbers. Consequently, the whole retail sector sold off.
HD stock sold off with the retail sector, but that didn’t make much sense to me. After all, Home Depot was a completely different story than the beleaguered department store story. It had proven time and time again that it can withstand the Amazon retail assault with positive comp growth, margin preservation and strong earnings growth.
HD stock proceeded to report a blowout quarter that featured more of the same stuff investors had grown accustomed to. That included a mid-single-digit rise in comps, gross margin preservation, operating margin expansion and double-digit earnings growth. It consequently rallied.
Today, we have more of the same. Home Depot is getting thrown in with the “rest of retail” as a potential victim of Amazon. But consumers like to buy big-ticket appliances in-store, not online. So no matter how much Sears tries to save its business by selling through Amazon, it’s just not going to work out all that well.
And that means not much has really changed for HD stock. This is the same company whose comp numbers over the past several quarters have been up 5.5%, up 5.8%, up 5.5%, up 4.7%, and up 6.5%. This is the same company that saw gross margins compress only 10 basis points last quarter despite a persistently promotional retail backdrop and an adverse product mix. It’s also the same company that levered SG&A expenses by 50 basis points last quarter. And it’s also the same company that has largely maintained a strong 10%-plus earnings growth rate over the last five years despite big the Amazon retail assault.
In other words, HD has time and time again weathered every storm that Amazon has tried to create in retail. This one is no different.
Bottom Line on HD Stock
Buy the dip. The sell-off is irrational considering how Home Depot has proved itself to be Amazon-proof already. This is simply another obstacle HD will easily maneuver around.
As of this writing, Luke Lango was long HD and AMZN stock.