Home Depot (NYSE:HD) released its first-quarter results on May 19 before the market opened.
The home improvement retailer reported mixed results due to lower traffic, higher average ticket price and expanded worker benefits during the Covid-19 pandemic.
By the numbers
The hardware store chain reported earnings per share of $2.08 in the first quarter, down 10.7% on a year-over-year basis. Analysts had anticipated EPS of $2.27. Revenue of $28.26 billion jumped 7.1% from the same period last year. This was also more than the forecasted $27.54 billion.
Comparable store sales surged 6.4% during the quarter versus the anticipated growth of 4.4%. The quarterly comps growth was aided by an 11% increase in the average shopper's ticket price. U.S. comps were up 7.5%.
Reflecting on the company's performance, Chairman and CEO Craig Menear said:
"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. 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."
The housing market
Home Depot's success relies largely on the demand from the housing market. The coronavirus pandemic has hampered demand for home sales. Home sales declined 22.5% during the quarter, while home that are newly listed for sales witnessed decline exceeding 42%. In addition, permits dropped more than 20% in April as compared to March.
Impact of worker benefits
In the course of the pandemic, Home Depot expanded paid leave for both hourly and non-hourly workers. Moreover, the company reported it provided hazard incentives in the form of doubled overtime pay and weekly bonuses to keep workers from quitting during the pandemic. The company incurred roughly $850 million in pre-tax expense ($640 million after-tax) associated with the above measures, or 60 cents per share.
Home Depot is deemed to be an essential retailer in many states, which is why its stores have remained open in the middle of the pandemic. As a result, the company witnessed solid sales at the end of the first quarter and into the first two weeks of the second quarter.
In addition, the company has put its money in e-commerce and online spaces like curbside pickup.
Going forward, the company says its second-quarter performance will be dependent on how quickly it eases restrictions associated with limiting customer traffic in the stores. Moreover, the reduction in coronavirus-related costs will also play a key role in lifting the company's earnings.
The Atlanta-based retailer did not provide fiscal 2020 outlook, citing the global uncertainty caused by the pandemic.
Disclosure: I do not hold any positions in the stocks mentioned.
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This article first appeared on GuruFocus.