Home Depot Stock Dips Despite Earnings Beat and Dividend Hike

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Home Depot

stock lost steam Tuesday even as the home-improvement retailer reported stronger-than-expected quarterly profits and announced a 15% increase in its dividend.

Home Depot (ticker: HD) reported fourth-quarter net earnings of $3.4 billion on sales of $35.7 billion, delivering earnings per share of $3.21. Profits climbed from $2.9 billion in the same period a year ago, while net sales surged 10.7% year-over-year and same-store sales—a key industry metric—jumped 8.1%.

The results beat Wall Street’s expectations. Analysts were expecting same-store sales growth of 5% and EPS of $3.18, according to those surveyed by FactSet.

Shares in the company rose 0.3% higher in the U.S. premarket, compared with a wider slump in stocks Tuesday amid heightened geopolitical tensions over the Russian-Ukraine conflict. However those gains eroded throughout the morning, and Home Depot was down 7.7% to a recent $320.20.

In its outlook, Home Depot said it expects sales growth to be slightly positive in the year ahead, largely in line with analysts’ guidance estimates, with operating margins flat compared with fiscal year 2021. 

The company also announced a 15% increase in its quarterly dividend to $1.90 per share.

For investors who have been following the stock, it may feel like déjà vu all over again: Home Depot’s shares similarly dropped this time last year despite a better-than-expected fourth-quarter outlook. It also took another leg down in May 2020—the first quarter it reported after the pandemic hit the U.S.—on virus-related costs. Those two declines were followed by big gains for the stock, some comfort for bulls today.

Indeed, Home Depot is an analyst favorite, so it’s not surprising that many are arguing that there’s plenty of conservatism built into the company’s upcoming forecast, which were roughly in-line with expectations. And it’s a step in the right direction that we have guidance at all, given that Home Depot and others didn’t provide full-year outlooks in 2021, citing Covid-related uncertainty.

Still, a measured tone—on top of

Lowe’s

(

LOW

) self-described conservative outlook in December—is likely not the reassurance that investors were hoping for this morning, given that Home Depot faces such difficult comparisons.

Nearly two-years into the pandemic, there are concerns that consumers won’t need to spend much more on their homes, especially as 2021’s last round of government stimulus checks are likely mostly spent, and the enhanced child tax credit has expired. Add to that the company’s prediction that gross margins would be lower for the year, hurt in part by supply chain investments, and that weighed on the shares.

Yet there is some hope that the home-improvement retailers could still see more gains. Housing trends remain strong, and even after so much time spent at home Americans are still spending more than they did pre-pandemic: Home Depot’s comparable sales—which were better than expected—were also up more than 30% on a two-year basis. On its conference call, Home Depot said sales for both professionals and do-it-yourself categories were up double-digits on a two-year basis as well.

That means investors will likely be hoping that Lowe’s own comps will come in ahead of expectations when it reports tomorrow. If it too sees ongoing strength in home improvement demand, that could give investors some confidence that both stocks can still thrive.

Write to Jack Denton at [email protected] and Teresa Rivas at [email protected]