Home Depot’s sales are up 25% but Wall Street is worried about its post-Covid prospects

A lot of people walked into Home Depot last year.
A lot of people walked into Home Depot last year.
Image: REUTERS/Lawrence Bryant
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Home Depot reported another quarter of higher-than-expected sales and profits, but its lack of guidance for 2021 worried investors. The price of its shares fell during pre-market trading and early this morning after the release at 6am in New York.

For longer-term investors, the drop had little impact. Shares are still up 10.7% in the last 12 months.

Home Depot’s skyrocketing annual revenue

Home Depot continued to benefit from pandemic-related home improvement and decoration, as well as the strength in the residential real estate market. While the retail industry has seen sales decline in the last few months due to Covid-19 restrictions and lower foot traffic, Home Depot’s 2020 revenue grew by nearly $22 billion over the year to $132 billion—a 20% increase. “For context, it took us 19 years as a company to achieve the first $20 billion in total sales, and we outgrew that in this year alone,” Home Depot CEO Craig Menear told analysts during an earnings call shortly after 9am.

Home Depot’s fourth quarter for 2020 was even stronger, rising 25.1%, compared to the year before. The company said longer DIY project lists, ongoing interest in outdoor living, backlogs in professional orders, and transactions totaling over $1,000 were all areas that helped drive sales growth. The company’s incredibly popular 12-foot $300 skeleton, which sold out for Halloween, was also an early predictor of high consumer demand for holiday decorations for the quarter.  “They bought big, and they bought early, and we saw record level of sell-through with our decorative holiday assortment,” Menear said.

Home Depot isn’t projecting how 2021 will pan out because of Covid-19

While Home Depot president Ted Decker expressed excitement about the upcoming quarter and gardening season, the company did not issue specific guidance for the rest of 2021. Chief financial officer Richard McPhail cited uncertainty around the “pandemic, the distribution of vaccines, short-term fiscal policy, and how these developments will impact the broader economy and ultimately consumer spending.”

There has been ongoing concern from investors that companies like Zoom, Peloton, and Etsy, which have seen sales grow significantly during the pandemic, will not be able to keep up that momentum once there is widespread vaccination and people return to offices and traditional gyms.

US home and garden sales continue to rise

Sales of building materials, garden equipment, and supplies in the US has been elevated since April 2020, exceeding $40 billion in January 2021 according the US Census Bureau. That’s a $33.5 billion increase from March 2020. During the same period a year prior sales rose $2.3 billion.