Both Home Depot and Lowe’s, which reports its results on Wednesday, have been pandemic winners.
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Home Depot stock is falling despite better-than-expected fourth-quarter results and news that the home-improvement retailer is raising its dividend, as investors fret about its post-pandemic future.
Home Depot (HD) said it earned $2.9 billion, or $2.65 a share, compared with $2.28 per share in the year-earlier period. Revenue climbed 25.1% to $32.3 billion. Analysts were looking for EPS of $2.63 and revenue of $30.63 billion.
Comparable sales climbed 24.5%, easily ahead of the 19.2% consensus estimate. Home Depot logged a 12.8% increase in transactions, while the average transaction size grew more than 10%. The company also raised its dividend 10%, to $1.65 a share, or $6.60 annually, payable on March 25.
It didn’t provide financial forecasts for fiscal 2021, citing continuing uncertainty surrounding the Covid-19 pandemic.
Home Depot stock was down 2.3% to $269.50 in early trading. The shares have gained 3.9% year to date, and 15.1% in the past 12 months.
The stock, along with Lowe’s (LOW), which will report earnings on Wednesday, have been major beneficiaries of the Covid crisis. Lockdown orders, making it possible for large numbers of people to work remotely but increasing the amount of time spent at home, meant that more people bought new homes and embarked on improvement projects. That ongoing strength was evident in the fourth quarter.
Like all pandemic winners, Home Depot faces questions about how it will maintain its momentum once the threat of the virus fades with mass vaccination. Plenty of analysts have argued that the home improvement retailer will still be able to do well, thanks to a healthy housing market, the market share it gained in 2020, and government stimulus spending that is giving consumers more flexibility. Bulls will point to the dividend raise, which reflects the company’s confidence in its financial strength, as a comforting signal.
Yet investors may have been looking for more reassurance, specifically in the form of a full-year forecast. While there were other things to nitpick in the report, like a slight decline in margins, the lack of an outlook is likely the main reason that the stock was falling in early trading.
Management did note that if late-2020 trends continue into this year, same-store sales will be flat to slightly positive for 2021. But skeptics aren’t sure that demand will hold up.
While the upbeat fourth quarter itself bodes well for Lowe’s report on Wednesday, it too may raise concerns among investors if it is similarly tight-lipped about the year ahead.
Write to Teresa Rivas at [email protected]
