Home Depot Profit Gains In Good Omen for Retail -- WSJ
February 26 2020 - 3:02AM
Dow Jones News
By Dave Sebastian
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 26, 2020).
Home Depot Inc. posted higher profit for its latest quarter, a
sign of health for the U.S. economy following lackluster sales
reports from other retailers in recent weeks.
Its finance chief also said the company is adequately stocked
for the current period despite the effect the coronavirus epidemic
is having on global supply chains
"We feel good about where we stand with respect to product for
the first quarter," Richard McPhail said in an interview.
He said Home Depot sources 30% of its products from other
countries, mostly from China, but that it is still too early to
determine whether supply-chain disruptions would materially affect
the company's financial performance.
The home-improvement retailer on Tuesday reported net income of
$2.48 billion, or $2.28 a share, for its fiscal fourth quarter,
which ended Feb. 2. Analysts polled by FactSet had expected $2.10 a
share. Profit in the year-earlier period was $2.34 billion, or
$2.09 a share.
Home Depot said sales for the latest period declined 2.7% to
$25.78 billion, roughly in line with analysts' expectations. The
Atlanta-based company said the extra week of operations in the
year-earlier period contributed about $1.7 billion in sales.
Sales at physical and online outlets that had been open for more
than a year rose 5.2% for the period, ahead of the 4.7% rise
analysts were expecting. The company had missed same-store-sales
expectations for the previous four quarters, according to
FactSet.
On one less week, the number of customer transactions fell 6.4%
from a year earlier, but the average amount each customer spent
rose 4.1% and sales per retail square foot rose 2.8%. Operating
expenses fell 5.6% to $5.33 billion for the quarter.
Home Depot shares, which have risen about 24% in the past year,
were off less than 1% Tuesday, while the Dow Jones Industrial
Average slumped for a second day in a row on mounting fears over
the epidemic's spread outside of China.
Home Depot's domestic business remains resilient to risks such
as coronavirus and the trade war, and customers in coming months
could shift their discretionary spending to home improvement from
travel plans, especially outside the U.S., CFRA Research analyst
Kenneth Leon said in a note to clients.
During its latest quarter, Home Depot saw some benefit from
refunds on tariffs imposed on certain Chinese goods that were
subsequently exempted, Ted Decker, the executive vice president of
merchandising, said on a call with analysts. He said luxury vinyl
plank flooring was a major Home Depot category that had been
subject to tariffs.
Home Depot affirmed its financial outlook for the current fiscal
year. It expects per-share earnings to grow about 2% to $10.45 on
same-store-sales growth of about 3.5% to 4%. It also raised its
quarterly dividend by 10% to $1.50 a share.
The company, which operates about 2,300 stores, expects to open
six new stores during the year.
Mr. McPhail said on the analyst call that the guidance assumes
the U.S. economy will grow slightly less than 2% this year and a
boost to demand from rising home prices and housing turnover.
"The economy is strong, and the U.S. consumer is healthy," Mr.
McPhail said.
Average home prices in major U.S. metropolitan areas rose 3.8%
in 2019, accelerating from an annualized increase of 3.5% the prior
month and 3.3% in October, according to the S&P CoreLogic
Case-Shiller National Home Price Index. The pace marks a full eight
years of price increases in homes for sale.
"Home-improvement sales will benefit from low rates on mortgages
and home-equity loans, rising home prices, and a growing market in
2020 home sales," Mr. Leon said.
Write to Dave Sebastian at dave.sebastian@wsj.com
(END) Dow Jones Newswires
February 26, 2020 02:47 ET (07:47 GMT)
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