Home Depot Casts Doubt on Further Room for Improvement After Blow-Out 2020

Home Depot
FILE PHOTO: The logo of Home Depot is seen in Encinitas, California April 4, 2016. REUTERS/Mike Blake/File Photo

Home Depot Inc said on Tuesday pandemic-related uncertainties made it difficult to predict if its sales dream run from last year will continue into 2021, even as its quarterly sales handily beat analysts’ estimates.

The home improvement chain’s shares fell 5%, despite a 24.5% jump in fourth-quarter comparable sales, above analysts’ estimates of an 18.9% increase.

Stuck-at-home Americans have been snapping up tools, paint and building materials all through the COVID-19 health crisis, but the roll out of vaccines and the hopes for a normal life have led many to believe that sales growth in 2021 will fade. 

“Significant uncertainty remains with respect to the course of the pandemic, the distribution of vaccines and short-term fiscal policy… Given these uncertainties, we are limited in our ability to forecast demand for the year,” Home Depot Chief Financial Officer Richard McPhail said. 

Home Depot said if the demand environment during the back half of fiscal 2020 persists through the current year, it would imply flat to slightly positive comparable sales growth and roughly flat operating margins of 14%.

“Home Depot’s scenario is a bit vague, likely weighing on the stock, while a lack of margin improvement imbedded in that outlook is disappointing as well,” Wedbush analyst Seth Basham said.

Home Depot’s flat margin expectations also indicate its plans to keep spending in areas such as its online business to gain market share, Basham added. 

Analysts said those figures raise sales growth expectations for smaller rival Lowe’s Cos Inc, which reports results on Wednesday. 

Home Depot’s net sales for the quarter rose 25.1% to $32.3 billion, beating estimates of $30.73 billion, according to IBES data from Refinitiv. Full-year sales rose by nearly $22 billion. 

It earned $2.65 per share, above expectations of $2.62 per share, and raised its quarterly dividend by 10%.

Reporting by Uday Sampath in Bengaluru; Editing by Shinjini Ganguli; Reuters

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