Home Depot tops estimates as sales surge 25%, but shares fall on worries pandemic gains won’t last

FAN Editor

People wear protective face masks outside Home Depot in the Flatiron district as the city continues Phase 4 of re-opening following restrictions imposed to slow the spread of coronavirus on August 8, 2020 in New York City.

Noam Galai | Getty Images

Home Depot‘s fourth-quarter earnings surged past investors’ expectations on Tuesday, as consumers continued to invest in their homes due to the pandemic and strength of the real estate market.

Shares are down nearly 3% in premarket trading, after the company did not provide an outlook for the year.

Home Depot Chief Financial Officer Richard McPhail said the retailer is not sure how long the pandemic will last and how that may influence consumer spending. He said if demand from the second half of last year continues, it would lead to slightly positive same-store sales growth and an operating margin of at least 14% this year.

Here’s what the company reported for the quarter ended Jan. 31 compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: $2.65 vs. $2.62 expected
  • Revenue: $32.26 billion vs. $30.73 billion expected

Home Depot’s net income rose to $2.86 billion, or $2.65 per share, up from $2.48 billion, or $2.28 per share, a year earlier. Analysts surveyed by Refinitiv expected earnings per share of $2.62.

Net sales rose 25% to $32.26 billion from $25.78 billion a year ago, and outpacing estimates of $30.73 billion.

Its U.S. same-store sales jumped by 25%. Its overall same-store sales grew by 24.5%, higher than the 19.2% growth that analysts expected, according to a StreetAccount survey. The growth is in line with what Home Depot reported during the second and third quarter, when it benefited from keeping doors open as an essential retailer.

Customers were spending more when they visited the store. Home Depot said the value of a customer’s average purchase rose nearly 11% to $75.69, from the same time last year. Sales per square foot jumped 24% to $528.01.

Home Depot faces tough comparisons in the coming quarters because of the big numbers it put up during the pandemic. It may have to work harder for wallet share, too, as consumers get Covid-19 vaccines and spend weekends out to dinner or on vacation instead of painting or doing repair projects.

One bright spot, however, could be a potential resurgence of home professionals’ businesses, as consumers feel more comfortable inviting people into their houses and paying for projects they put off or couldn’t tackle on their own.

About 45% of Home Depot’s sales come from pros, such as plumbers, electricians and contractors, with the rest coming from do-it-yourself customers. That’s a higher percentage from rival Lowe’s, which gets 20% to 25% of its sales from pros.

Home Depot is looking to build on that advantage with HD Supply. It acquired the former unit of the company and large industrial products distributor in a deal valued at $8 billion.

It said its fourth-quarter results were hurt by pretax expenses of $110 million, or 9 cents per share, tied to the deal.

As of Monday’s close, Home Depot’s shares are up more than 12% from a year ago. The company’s market value is $296.98 billion.

Home Depot also announced Tuesday that its board approved a 10% increase in its quarterly dividend to $1.65 per share.

Read the complete press release here.

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