Home Depot's Robust Sales Trend Depends On The Pandemic

The king of do-it-yourself retail reported its latest quarterly figures on Tuesday and investors reacted on earnings beat by trading down the stock. Home Depot HD benefited as the pandemic and a strong real estate market bolstered home improvement sales. But the retailer did not provide an outlook due to the uncertainty revolving around the global health crisis and its implications for consumer spending

Q4 earnings report

The company generated $32.3 billion in sales, marking a 25% improvement over the year-ago quarter as consumers shopped early and spent more on holiday décor in an effort to gain some degree of normalcy. Comparable sales climbed by nearly the same percentage. As for the bottom line, net profit was 16% higher at $2.9 billion, or $2.65 per share. Both headline figures topped analyst estimates of $30.7 billion in sales and a per-share net profit of $2.61. The reported growth is in line with what Home Depot reported during the second and third quarter as it benefited from keeping doors open as an essential retailer.

As for fiscal 2020, $240 million was devoted to Covid-related operational costs and as long as the pandemic lasts, Home Depot expects about $250 million of Covid-such operating expenses on an annual basis to cover personal protective equipment for employees, additional cleaning and paid leave for employees who get ill.

Home Depot did not offer any guidance given the uncertainty related to the duration of the COVID-19 pandemic and its influence on the consumer.

New trends

Customers spent more when they visited the company's stores or its website with the value of a customer's average purchase rising nearly 11% compared to the previous year to $75.69. Sales per square foot jumped 24% to $528.01. Many customers purchased big-ticket items as transactions over $1,000 were up by about 23% on a YoY basis. Digital sales skyrocketed about 83% in the quarter compared to 2019's fourth quarter. As for the year, they grew about 86%, with about 60% of online orders fulfilled through the store. By adding online workshops, Home Depot expanded its audience and boosted the engagement of its existing consumers. Before the pandemic, it had an average of five in-store workshops per month which expanded to 40 online workshops per month that were live-streamed.

Consumers

About 45% of Home Depot's sales come from pros, such as plumbers, electricians and contractors which is a higher percentage than its rival Lowe's LOW which gets up to 25% from that segment. Home Depot is looking to build on that advantage as it acquired HD Supply Holdings at the end of last year in a deal valued at $8 billion.

As during previous quarters, the world's largest home improvement retailer continued to benefit from a DIY customer base that is effectively trapped at home much of the time and eager to make those homes as comfortable as possible or even add features to them. The big retailer became an obvious go-to place for materials, tools, and even furnishings during the pandemic.

Outlook

With the pandemic seemingly receding and consumers being able to return to travel and leisure activities, it's unlikely that the giant will post similarly impressive growth numbers with that pullback in spending. But Home Depot will continue to invest in integrating its e-commerce and brick-and-mortar business, with capital expenditures targeted at about 2% of sales in the undergoing year.

By continuing to invest, the company hopes to attract new customers, especially millennials who are buying and fixing up their homes.

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