Home Depot's earnings rise, but its stock price falls

Home Depot's fourth-quarter earnings beat investor expectations as consumers poured more money into home improvements amid a strong housing market during the pandemic . The company closed down 3.12% at $267.24 on Tuesday after it did not provide an outlook for the year in its earnings report.

Chief Financial Officer Richard McPhail said the retailer was unsure how long the pandemic would last and how it would affect consumer spending. If demand in the second half of last year persisted, it would result in flat to slightly positive same-store sales growth and an operating margin of at least 14% this year, he said.

Home Depot net sales rose 25% to $32.26 billion from $25.78 billion a year ago , beating expectations for $30.73 billion.

About a year into the pandemic, Americans are still investing heavily in their homes, the company said. Customers bought supplies for do-it-yourself projects, turned to new products such as cordless tools and kept outdoor furniture and grills longer in the fourth quarter, Home Depot Chief Operating Officer Ted Decker said on a call with analysts and investors. Consumers also shopped early and spent more on holiday decor as they sought some degree of normalcy, he said.

Customers spent more when they visited the company’s stores or website. Home Depot said the average customer purchase value rose nearly 11% from a year ago to $75.69. Sales per square foot rose 24% to $528.01.

Many people bought big-ticket items such as appliances, vanities and vinyl flooring, said Decker, who said transactions of more than $1,000 were up about 23% year-over-year.

“We continue to benefit from engagement from both new and existing customers. As our customers continue to spend more time at home, they tell us their project lists are growing. After completing a project, we are seeing many of our DIY customers taking on more and often more complex projects with new confidence,” he said.

Home Depot CEO Craig Menear said digital sales were up about 83% in the fourth quarter from a year ago. They are up about 86% for the full year compared with the same period last year, with about 60% of online orders being fulfilled through stores, he said.

Home Depot faces tough comparisons in the coming quarters as it posts big numbers during the pandemic. It may also have to work harder to gain share of wallet as consumers buy COVID-19 vaccines and spend their weekends heading out for dinner or vacations instead of painting or doing repair projects.

Decker said larger professional customers are telling Home Depot their business is picking up and they have a backlog of work.

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

Home Depot is looking to capitalize on that with HD Supply, which it acquired for $8 billion for the former division of the company and the large industrial products distributor.

Menear said Home Depot will continue to invest to integrate its e-commerce and brick-and-mortar businesses, with a capital expenditure target of 2% of sales for the coming year . By continuing to invest, the company has been able to attract new customers and win more business, especially millennials who are buying and renovating homes.

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