Home Depot posts gains, reports solid quarter
The Home Depot rebounded from a string of disappointing results with profit in the fourth quarter that topped analysts’ projections as the U.S. housing market heated up. The shares gained the most in six months.
Earnings per share amounted to $2.28 in the period that ended Feb. 2, the company said Tuesday, exceeding the average estimate by 17 cents. The home-improvement retailer also raised its forecast for same-store sales this year — a key measure of performance — to as much as 4% after cutting it to 3.5% three months ago.
“Home Depot’s numbers are important as they, perhaps more than those of other retailers, reflect underlying consumer confidence: the housing market and big-ticket spending are leading indicators of the broader economy,” Neil Saunders, managing director of GlobalData Retail, said in a statement.
For the three months ending Feb. 2, Home Depot Inc. earned $2.48 billion. A year earlier the Atlanta company earned $2.34 billion, or $2.09 per share.
Revenue declined to $25.78 billion from $26.49 billion. The year-ago period included an extra week. The results still topped Wall Street’s forecast of $25.75 billion.
The report brought relief to investors, who sent the stock reeling in November after Home Depot trimmed its outlook. The shortened Christmas season and abnormally high temperatures took a toll on many retailers, and some analysts had expressed concern that the company’s investments in speeding up its supply chain and improving e-commerce would hurt earnings in the near term.
“Home Depot posted a very solid fourth quarter to end what has been an extraordinarily noisy 2019, especially in light of the challenges that have hampered other retailers,” said Scot Ciccarelli, an analyst at RBC Capital Markets. But he said he wasn’t surprised that Home Depot topped estimates in the period after it issued a “fairly conservative” outlook last fall.
The shares fell $2.32, or 1%, to close Tuesday at $237.38. The stock had advanced 9.8% this year through Monday’s close
The chain’s shares have been recovering as the U.S. housing market strengthened, thanks to lower borrowing costs that attracted a flood of buyers. That pushed home prices higher, which is the metric Home Depot cares most about because when homeowners see their property as more of an investment, they increase renovations.
Home prices in 20 U.S. cities advanced in December by the most in nearly a year on the heels of stronger demand and lean inventory.
The S&P CoreLogic CaseShiller index of property values increased 2.9% from the same month the previous year, data released Tuesday showed. That’s the biggest annual advance since January 2019 and matches the median forecast in a Bloomberg survey of economists. Prices were up 0.4% from November.
Ciccarelli, who rates Home Depot shares the equivalent of a buy, said Home Depot will continue to capitalize on the strength in the housing market and its investments in technology and its supply chain.
Same-store sales last quarter jumped 5.2%, also surpassing projections, according to Consensus Metrix. With this quarter’s results, Home Depot hasn’t missed Wall Street’s profit estimates since the first quarter of 2014.