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Home Depot (HD) earnings Q4 2020 top estimates

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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 was 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 flat to 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 conducted 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 surveyed by Refinitiv expect earnings per share of $ 2.62.

Net sales rose 25% to $ 32.26 billion from $ 25.78 billion a year ago, 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.

According to McPhail, the company had Covid-related operating costs of approximately $ 240 million in fiscal 2020. As long as the pandemic continues, Home Depot expects Covid-related operating costs of around $ 250 million annually to cover, for example, personal protective equipment for employees, extra cleaning and paid vacation for sick employees.

DIY trends continue

About a year after the pandemic began, Americans are still investing heavily in their homes, the company said. Customers bought supplies for home improvement projects, got excited about new products like cordless tools, and extended the fourth quarter outdoor season with patio furniture and grills, said Ted Decker, chief operating officer of Home Depot, in a conversation with analysts and investors. He said consumers also shopped early and spent more on Christmas decorations as they wanted some level of normalcy.

Customers spent more visiting the company’s stores or website. 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.

Many bought big-ticket items like appliances, vanity tops, and vinyl plank floors, Decker said. He said transactions over $ 1,000 were up about 23% year over year.

“We continue to benefit from increased engagement from both new and existing customers,” he said. “As our customers spend more and more time at home, they tell us the project lists are growing. After the project is over, we see that many of our DIY customers take on additional and often more complex projects with a new sense of trust.”

Home Depot CEO Craig Menear said fourth-quarter digital revenue increased 83% year over year. They grew 86% year over year for the full year, with roughly 60% of those online orders being handled through the store.

He said that by adding online workshops, Home Depot expanded its audience and engaged customers more. Before the pandemic, there were an average of five workshops per month. Now, he said, there are about 40 online live streaming workshops a month.

Hard comparisons ahead

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 ray of hope, 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.

According to Decker, larger professional customers have told Home Depot that their business is picking up and they have a backlog.

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 than Lowe’s rival, who generate 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 adversely affected by pre-tax charges of $ 110 million, or 9 cents per share, tied to the deal.

Home Depot will continue to invest in integrating its e-commerce and brick and mortar business, according to Menear. Investments are expected to account for around 2% of sales in the coming year.

By continuing to invest, the company has managed to attract new customers and gain more of their business, especially millennials who buy and repair their homes.

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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Robert Dunfee