Home Depot says higher investments may weigh on earnings in 2020

By: Michael Harris
Michael Harris
Specialising in economics by academia, with a passion for financial trading, Michael Harris has been a regular contributor to Invezz. His… read more.
on Feb 26, 2020
Updated: Mar 11, 2020
  • Home Depot says higher investments may weigh on earnings in 2020.
  • Home Depot posts $25.78 billion in revenue in the fourth quarter versus $25.76 billion expected.
  • Home Depot makes $2.28 of earnings per share in the fourth quarter versus $2.10 expected.

In its fourth-quarter earnings report on Tuesday, Home Depot declared above-average sales in its appliances unit while the largest home improvement retailer in the U.S also beat Wall Street’s estimate for earnings. The company attributed the upbeat performance with strong business in the holiday season.

The retailer previously launched an investment program worth $11 billion that spanned over three years and was directed at integrating its online business with the brick and mortar stores. CEO Craig Minear of Home Depot commented on the Q4 earnings report on Tuesday and expressed confidence that the company’s investments are starting to pay off. He further added that the integration helped since more than 50% of the home retailer’s customers preferred to shop online but pick up their orders in person at Home Depot’s stores.

Home Depot’s Quarterly Performance Versus Analysts’ Estimates

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According to Refinitiv, analysts were expecting the company to print $25.76 billion in revenue in the fourth quarter. On the earnings front, their estimate was capped at $2.10 per share. Experts had also forecast a 4.8% increase in Home Depot’s same-store sales in the recent quarter.

In its report on Tuesday, the retailer announced to have generated a slightly higher $25.78 billion in revenue (2.7% lower YoY) in the fourth quarter while its earnings were noted significantly higher than the analysts’ estimate at $2.28 per share. In terms of same-store sales, the company recorded a 5.2% increase in the recent quarter that also came higher than the analysts’ expectations.

Home Depot also accentuated on Tuesday that it wishes to expand its investments to $3.9 billion in 2020 from $3.6 billion last year. Owing to the investments, the company said, its sales and margins are likely to be constrained this year. The aforementioned announcement fueled a sell-off in Home Depot’s stock.

Home Depot Has Gained 25% In The Stock Market In The Past 12 Months

The drop in share prices, however, was unsustainable with the Home Depot quickly recovering to trade over 1% higher on Tuesday. The retailer’s gain in the stock market was reported at around 25% in the past twelve months. Home Depot is currently valued at $261.5 billion.

Home Depot also accentuated a 5.8% increase in its net income on Tuesday to $2.48 billion in the fourth quarter versus $2.34 billion recorded in the same quarter last year. In fiscal 2020, the company now expects a 3.5% to 4% increase in total sales as well as in same-store sales. Home Depot announced a 10% increase in its dividend in 2020 and said it plans on launching 6 new stores this year.

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