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

Home Depot‘s fourth-quarter earnings surged past investors’ expectations as consumers poured more money into home improvement due to the pandemic and strength of the real estate market.

Shares were down more than 6% early Tuesday, after the company did not provide an outlook for the year in its earnings report.

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 flat 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 fiscal 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.

U.S. same-store sales jumped by 25%. 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 a year earlier. Sales per square foot jumped 24% to $528.01.

Home Depot faces tough comparisons in 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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