Home Depot Inc. HD, -3.12% says it’s prepared for what will be the hot trend for spring: cordless power tools.
The home-improvement retailer is prepared to launch a new lineup of tools, including trimmers and blowers, from Ryobi, which it calls the top outdoor cordless power brand. Other brands including DeWalt and Makita will also be in stock.
“Cordless tools are easier to use, more environmentally friendly, and have the power and run-time to get most jobs done,” said Ted Decker, Home Depot’s chief operating officer, on the company’s earnings call, according to FactSet.
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After a year in which sales rocketed as consumers spent more time at home and improving their indoor and outdoor living spaces, Home Depot is forecasting that activity will continue, at least in the short term.
The company did not provide fiscal 2021 guidance due to the continuing uncertainty caused by the coronavirus pandemic.
“We were pleased with our record financial performance in fiscal 2020. As we look ahead to fiscal 2021, while we are not able to predict how consumer spending will evolve, if the demand environment during the back half of fiscal 2020 were to persist through fiscal 2021, it would imply flat to slightly positive comparable sales growth and operating margin of at least 14 percent,” said Richard McPhail, Home Depot’s chief financial officer, in an earnings statement.
Still, the company does expect the home projects to continue.
“As our customers continue to spend more time at home, they’re telling us that project lists are growing,” Decker said on the call. “After completing the project, we see many of our DIY customers take on additional and oftentimes more complex projects with a renewed sense of confidence.”
Home Depot beat earnings, sales and same-store sales expectations for the fourth quarter. Still, shares tumbled nearly 3% in Tuesday trading.
“While Home Depot’s Q4 print was impressive and nicely exceeded our model, we anticipate pressure on shares this morning considering heightened investor expectations, lack of FY21 guidance, and a continued pivot away from ‘stay-at-home winners,’” wrote Wells Fargo in a note shortly after the earnings were announced.
Wells Fargo rates Home Depot stock a buy with a $310 price target.
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While Home Depot didn’t offer profit and sales guidance, the company did take a look ahead during its earnings call.
“As we transition from 2020 into 2021, our operating expenses will reflect a move away from temporary COVID-related pay and benefits to permanent wage investments, the continuation of strategic investments in the business, and the impact of lapping areas of underspend such as understaffed stores that we realized last year,” McPhail said on the call.
The company spent $2 billion on enhanced pay and benefits for associates during fiscal 2020, and $240 million on primarily on personal protective equipment (PPE) and enhanced cleaning measures.
“[I]f the demand environment during the back half of fiscal 2020 were to persist through fiscal 2021, it would imply flat-to-slightly positive comparable sales growth,” McPhail said. “We calculate this by assuming the sales dollar level of demand that we saw in the fourth quarter continues throughout 2021, adjusting for historical seasonality.
“In this demand environment, we calculate our fiscal 2021 operating margin would be at least 14%.”
UBS analysts said this is likely a conservative call.
“Home Depot is sending the message that it’s focused on the long-run and is
not going pull levers to drive a short-run outcome,” analysts said.
UBS rates Home Depot stock a buy with a $315 price target.
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Nick Shields, senior analyst at Third Bridge, said the company hinted on its call that there will be a pullback in spending from the category at some point in 2021, as consumers switch focus back to travel and leisure activities.
“Nonetheless, seasonal spending will likely elevate the company through Q1 and at least part of Q2 this year. The spring season is traditionally the strongest of the year as consumers purchase new goods and equipment for the outdoor season beginning in April but continuing through late May,” he wrote.
Home Depot stock has gained 9.1% over the past year while the Dow Jones Industrial Average DJIA, +0.05% is up 8.9% for the period.
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