Home Depot Slides After Pandemic Costs Counter Sales Gains

(Bloomberg) -- Home Depot Inc. fell as the cost of Covid-19 measures offset higher sales, tempering financial gains from renewed consumer interest in home-improvement projects.

A pretax expense of $850 million to support workers reduced diluted earnings by 60 cents a share in the first quarter, Home Depot said Tuesday in a statement. Despite a gain in sales, total profit trailed Wall Street estimates, the chain’s first earnings miss since 2014.

The results underwhelmed as investors anticipated robust growth for the company, whose stores were deemed essential and have stayed open during the pandemic. The stock has soared in recent as quarantined Americans spend more on fixing up their homes.

The company left a lot of sales on the table by cutting back on promotions and operating hours during the quarter. That reduction in discounting showed up in transactions, which fell 3.9%. Still, the size of each purchase rose 11% on average, pushing total sales growth to the highest level in more than a year.

Home Depot fell 1.8% to $241.02 a share at 9:58 a.m. in New York.

Recent Gains

There were promising signs. Same-store sales growth accelerated to a double-digit gain in April and that rate has continued through the first two weeks of its second quarter, the company said. The metric increased 6.4% in the first quarter.

“Early second-quarter sales are strong,” Chief Executive Officer Craig Menear said on a call with analysts. “We see that across geographies. Everything is lifting.”

First-quarter sales rose in 17 of 19 geographic regions, with declines in the New York City and south Florida areas.

Like many companies during the pandemic, Home Depot suspended its full-year forecast due to widespread uncertainty around Covid-19 and its impact on the broader economy.

Home Depot likely saw softness in its pro business, aimed at contractors, due to shelter-in-place rules triggered by the pandemic, according to RBC analyst Scot Ciccarelli. Recent credit-card transaction data pointed to Home Depot’s sales growing more than 10%, but those figures likely don’t capture all of the pro business, Ciccarelli said today in a note to clients.

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