The Home Depot said high supply chain costs will continue to weigh on earnings in 2022, after posting lower gross profit margins for the holiday quarter despite higher prices and resilient consumer demand.
The DIY frenzy sparked by the coronavirus pandemic continued, defying expectations that consumers would spend less on home renovations as lockdown restrictions eased. A bubbling housing market has helped spur demand for paint, patio furniture and appliances while supporting a recovery for contractors and builders whose businesses came to a halt early in the pandemic.
At the same time, retailers such as Home Depot are dealing with labor shortages and supply chain bottlenecks that have driven up costs related to wages, shipping and to materials, thereby reducing profits.
The U.S. retailer’s gross profit margin fell 36 basis points to 33.2% in the fiscal fourth quarter, missing Wall Street’s estimate of 33.5%, according to Refinitiv data.
Richard McPhail, chief financial officer of The Home Depot, said investments in building out the company’s supply chain will continue to put pressure on gross margins this year.
Home Depot also expects its growth to slow this year as the pandemic-fueled sales boom begins to level off. The Atlanta-based company expects full-year comparable sales growth to be “mildly positive” after an 11.4% increase in fiscal 2021, with diluted growth in the low-digit earnings per share.
Home Depot shares fell 8.8% on Tuesday.
Still, the retailer posted another year of record sales, which rose 14.4% year-on-year to $151.2 billion, and announced a 15% increase in its quarterly dividend.
Home Depot revenue rose 10.7% in the holiday quarter to $35.7 billion, above forecast of $34.8 billion. The number of customer transactions fell 3.4% from the year-ago quarter, while the average purchase jumped 12.4%.
Sales to professional customers grew faster than DIY sales in the fourth quarter, but demand in both markets accelerated from the third quarter, the company said.
“All we hear from our professional clients is that they have more work than they can handle. I know for myself that it took a while to find someone to do simple projects around my house. We’re hearing that across the country,” Craig Menear, president and chief executive, said during an earnings call.
Rising real estate values have encouraged Americans to invest in their homes. Home prices jumped 18.8% in 2021 from a year earlier, the biggest annual increase in 34 years of data, according to the S&P Corelogic Case-Shiller Index.
But high prices and impending interest rate hikes threaten to chill the housing market as many first-time buyers pull out.
The proportion of U.S. consumers planning to buy homes, cars, major appliances and book vacations in the next six months fell in February as inflation fears drove down the confidence index Conference Board Consumer Index for the second month in a row.
Retailer Macy’s joined The Home Depot on Tuesday in flagging challenges from inflation, supply chain constraints and labor shortages as it forecast adjusted earnings for the whole for the year between $4.13 and $4.52 per share, compared to $5.31 last year. He expects net sales to remain flat at 1% in fiscal 2022.
Macy’s increased its quarterly dividend by 5% and announced a $2 billion share buyback plan after reporting strong fourth-quarter earnings that beat forecasts and predicted better-than-expected sales this year.
The New York-based department store chain has rejected calls from activist investor Jana Partners to spin off its e-commerce business as it reported a 12% year-over-year increase in digital sales during the holiday quarter.