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Home Depot (HD) stock price fell as the company reported poor earnings due to extra costs related to the coronavirus pandemic. However, sales were stronger than expected.
Home Depot Inc (NYSE: HD) didn’t succeed to reach expected numbers for its quarterly profit on Tuesday, as the home improvement chain spent approximately $850 million only on benefits for its workers keeping its stores and warehouses running in spite of the coronavirus outbreak. Home Depot (HD) stock, which rose 12.4% this year, fell by 2.46% at the time of writing, as the company also managed to discard its full-year outlook, due to changeableness coming from COVID-19 pandemic. At the current moment, Home Depot stock is trading at $239.31 after disappointing earnings results.
Home Depot, which is severely dependent on a solid housing market to boost sales, now found itself at risk of a possible fall in home improvement spending this year mostly because of the lockdown measures introduced in order to control the spread of the COVID-19 pandemic damage the economy.
Poor Home Depot Earnings Result as Homebuilding Is the Lowest in 36 Years
Homebuilding activity crashed in March at a speed not seen in 36 years. And not just that. In April,privately-owned housing starts fell more than expected and reached 891,000.
However, shelter-in-place limiting and government stimulus checks had the main benefit on Home Depot’s sales because people began spending more on tools for do-it-yourself house projects, such as small repairs, painting or even gardening.
The company also saw an increase in demand for cleaning supplies but had to slash its operating hours and cut the number of customers that could come in stores in order to prevail in social distancing measures given by the law.
The risks put to employees who were working all throughout the crisis, made the company obliged to provide some extra bonuses, double pay for working overtime and add more hours of paid time off.
Focusing on Two Key Priorities
Home Depot said earnings for the three months ending in on May 3 were pegged at $2.08 per share, down 8.4% from the same period last year, and well below Wall Street forecast of $2.27 per share. Group revenues, Home Depot said, rose 7.3% from last year to $28.3 billion, topping analysts’ forecasts of $27.53 billion tally.
Home Depot also suspended its full-year 2020 profit guidance, which had forecast comparable sales rising between 3.5% and 4.% and earnings of $10.45 per share.
CEO Craig Menear stated:
“As the COVID-19 pandemic evolved, we anchored to the core values of our Company by focusing on two key priorities: working to ensure the safety and well-being of our associates and customers, and providing our customers and communities with essential products. We took early and decisive action to intentionally limit customer traffic in our stores which we believe had a significant impact to sales in many markets.”
Senior equity research analyst at Oppenheimer Brian Nagel stated that the investment in retaining employees with added benefits and boosted wages will prove to be a smart long-term decision.
The company also revealed it has canceled major spring season promotions that drive foot traffic to stores, such as Black Friday-like events.