Home Depot Q1 sales rise but COVID-19 related costs cut into earnings

Home Depot reported better than expected first-quarter sales as home improvement projects surged amid the COVID-19 pandemic. But costs related to the crisis cut into the chain’s earnings.

The home improvement giant’s net income fell 10.7% to $2.25 billion, or $2.08 per share, in the quarter ended May 3, compared with $2.51 billion, or $2.27 per share, in the year-ago period. Analysts expected $2.27 per share.

Revenue rose 7.1% to $28.26 billion, topping analysts’ expectations of $27.54 billion. Same-store sales in the U.S. increased 7.5%, also beating expectations.

“The biggest benefit to Home Depot was the upswing in the number of people undertaking improvement projects at home,” commented Neil Saunders, managing director, GlobalData Retail. “In our surveys, 68% of consumers said that they have engaged in at least one garden or home enhancement initiative over the past couple of months. This figure is far higher than the average of 47% of consumers who undertook projects over the same period last year. While not all of these consumers bought home improvement products for their tasks, among those that did, Home Depot was the main destination.”

Home Depot has boosted wages, provided bonuses, expanded benefits and implemented new measures to help ensure the safety of employees and customers during the pandemic. The company said that, in total, the measures cost it approximately $640 million after tax, or about 60 cents a share. 

“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,” Craig Menear, CEO, stated. “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. Even with these actions, the robust and flexible interconnected infrastructure that we have invested in for over a decade allowed us to quickly adapt to changing customer preferences and achieve strong sales performance in the quarter."

Home Depot said that sales trends were strong at the end of the first quarter and into the first two weeks of the second quarter. However, similar to many other retailers, it is suspending its previous fiscal 2020 guidance due to the uncertainty related to the duration of COVID-19 and its impact on the broader economy.