After 2020 boom, Home Depot says sales to be flat this year

Atlanta

HOME Depot said demand remains strong almost a year into the Covid-19 pandemic, but its stock fell with investors worried that 2021 will bring difficult comparisons and narrowing profitability from higher costs.

Same-store sales in the US, a key measure in retail performance, rose 25 per cent in the quarter ended Jan 31, better than the estimate of 19.1 per cent from Consensus Metrix.

That kind of growth, triggered by Americans spending on their homes while adhering to social distancing measures during Covid, will come to an end this year.

Revenue by that measure will be "flat to slightly positive" in 2021 as the retailer laps those big gains, the company said.

Investors are also keen to see how the world's largest home improvement retailer hangs on to the customers it won over during the past year when sales boomed 20 per cent.

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Home Depot also declined to offer specific guidance for this year, saying there was still too much uncertainty.

The decline in the stock can be attributed to a "lack of guidance, while other retailers ventured to provide a formal framework," said Jonathan Matuszewski, an analyst at Jefferies, in a note to clients. That overshadowed a "solid quarter".

The shares fell as much as 8.8 per cent on Feb 23, marking the biggest intraday drop since March 19. Home Depot had gained 3.9 per cent this year through Feb 22.

Profit margin will continue to be pressured this year by rising transportation costs, CFO Richard McPhail said on a call with analysts. Increased spending on infrastructure and more shoplifting will also weigh on profitability, according to the company.

Home Depot's results shed light on how American consumer behaviour is changing. Customer transactions fell, but shoppers are spending more on average per transaction.

As Home Depot continued to operate its stores during the pandemic, the cost of sales has been increasing faster than revenue growth as cleaning costs rise.

"It is easy to look at Home Depot's numbers and chalk up its success to the pandemic," Neil Saunders, managing director at GlobalData Retail, said in a statement.

"However, sustaining three quarters of growth above 20 per cent is extremely difficult in terms of the pressure it puts on the whole operation from supply chains to stores. In our view, Home Depot has managed this period in an exemplary fashion." BLOOMBERG