Home Depot beats estimates as sales rise 25%, but stocks fall on concerns that pandemic profits won’t last

Home Depot’s fourth quarter earnings exceeded investor expectations as consumers poured more money into home improvement due to the pandemic and strength of the property market.

Shares fell more than 4% early Tuesday after the company failed to provide an outlook for the year in its earnings report.

CFO Richard McPhail said the retailer is unsure how long the pandemic will last and how it could affect consumer spending. He said if demand continues from the second half of last year, it would translate into slightly positive revenue growth in the same business and an operating margin of at least 14% this year.

The company reported for the fiscal quarter ended January 31, versus Wall Street’s expectations, based on an analyst survey by Refinitiv:

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

Home Depot net income rose to $ 2.86 billion, or $ 2.65 per share, from $ 2.48 billion, or $ 2.28 per share last year. Analysts polled by Refinitiv expect earnings per share of $ 2.62.

Net sales increased 25% from $ 25.78 billion a year ago to $ 32.26 billion, beating estimates of $ 30.73 billion.

Sales in the same store in the US increased 25%. According to a StreetAccount survey, total revenue in the same store rose 24.5%, above the 19.2% growth forecast by analysts. The growth is in line with what Home Depot reported in the second and third quarters as it benefited from keeping its doors open as a major retailer.

Customers spent more when they visited the store. According to Home Depot, the value of a customer’s average purchase price increased nearly 11% year over year to $ 75.69. Revenue per square foot increased 24% to $ 528.01.

Home Depot faces difficult comparisons in the coming quarters due to the huge numbers it put up during the pandemic. It may also have to work harder for wallet sharing as consumers get Covid-19 vaccines and spend the weekends for dinner or vacation instead of painting or doing repair projects.

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

About 45% of Home Depot’s sales come from professionals such as plumbers, electricians, and contractors, with the remainder from home improvement customers. That’s a higher percentage of rivals Lowe’s, who get 20% to 25% of their sales from professionals.

Home Depot would like to expand this advantage with HD Supply. The company acquired the company’s former entity and large industrial product distributor valued at $ 8 billion.

Fourth quarter results were impacted by pre-tax charges of $ 110 million, or 9 cents per share, tied to the deal.

At the close of trading on Monday, Home Depot shares were up more than 12% year over year. The company’s market value is $ 296.98 billion.

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

Read the full press release here.

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