Home Depot (NYSE: HD) shares initially popped on its earnings report and the company even raised its dividend. A day later, it tanked 8%. So what actually happened?
Q4 revenue came in at $35.72 billion v.s. an estimated $34.88 billion, which was equivalent to a healthy 10.7% increase year-over-year (YoY). Net earnings grew 17% from the same period last year to $3.35 billion. It also named a new CEO, Ted Decker, who will take the lead from March 1, as he leaves his Chief Operating Officer position at the company behind.
Another key point when it comes down to current earnings reports is guidance. While Home Depot might struggle to match the blockbuster year for sales that was 2021, the company has guided for slightly positive sales growth. There was also a 15% increase in the company's dividend, meaning, for every single Home Depot share you hold now, you're pocketing $7.60 every year.
Naturally, a company like Home Depot could almost be considered a "forgotten" stay-at-home stock, but it was a clear beneficiary as savings stacked up, and consumers decided it was time for an upgrade around the house. There were the other obvious culprits, Zoom, Docusign, Netflix -- but Home Depot got a pass -- maybe investors just have a little more respect for the value-oriented predictable business models.
Now that uncertainty surrounds markets, the tide appears to have changed. Home Depot's being criticized for lower margins, and the main bump in revenue growth is coming from raised prices -- customer transactions actually declined 3.4% YoY to illustrate. A reasonable response, however, considering furniture, appliances, and housing costs are among the hardest hit by inflation. Raised prices are a natural response, and all-in-all, a necessary precaution management must take.
Home improvement spending was $457 billion in 2020. Home improvement spending was estimated to grow 15% as we entered 2021 too, that's thousands -- if not tens of thousands -- each household was spending on home renovations. No wonder housing prices have been on the rise. It may not stop there either, as forecasts see home improvement spending steadily rising through 2025, where an estimated $621 billion will be spent on the segment.
My point is, Home Depot is rock solid.
Now, turbulent market times are taking a foothold as of late, and we don't have a crystal ball to predict how things will fizzle out. But, what's very unlikely, is seeing a major decline in Home Depot's business model. It has a 1.9% dividend for a reason, it's a staple, it's reliable, and there will always be a need for its wares, even in a diabolical bear market or recessionary times. Notice too, Home Depot never slashed its dividend when tough times came knocking -- this is the company's 140th consecutive quarter that it has paid a cash dividend. It's been considered a safety stock to many for the longest time, and that's unlikely to change any time soon.
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