Home Depot Earnings Beat Expectations. Why Its Stock Is Tumbling.

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Updated Aug. 17, 2021 10:42 am ET / Original Aug. 17, 2021 6:29 am ET

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Home Depot shares are on pace for their largest percentage decrease since November when they fell 5%.

NICHOLAS KAMM/AFP/Getty Images

Home Depot stock is falling after the home-improvement retailer reported earnings that topped expectations.

Home Depot reported an adjusted profit of $4.53 a share, beating forecasts for $4.43 a share, on sales of $41.12 billion, topping expectations for $40.73 billion.

“I am very proud of our associates, who continue to demonstrate a relentless focus on serving our customers,” Home Depot CEO Craig Menear said in the earnings release. “As a result of their efforts, we achieved a milestone of over $40 billion in quarterly sales for the first time in Company history.”

Despite the better-than-expected earnings, same-store sales, however, rose just 4.5%, missing estimates for 5.4%.

The company didn’t provide guidance, although that was largely expected.

Shares of Home Depot dropped 5.2% to $317.56 Tuesday. The stock has climbed 26% this year through Monday’s close, while the S&P 500 has gained 19%, and the Dow Jones Industrial Average has risen 16%.

There were items of note for both bulls and bears in the quarter. On the positive side, cost controls were tight, the company is starting to lap elevated Covid-19 costs from a year ago, and Home Depot repurchased some $3 billion in stock during the period.

Still, same-store sales were always going to be in focus, given difficult year-over-year comparisons for the home-improvement sector. Although consumers on average spent more at Home Depot, at least some of that is likely due to inflationary pressures on many products, and traffic turned negative in the quarter from elevated year-ago levels. In addition, gross margins declined, as Home Depot, like other retailers, grapple with supply-chain issues and increased transport costs.

Ultimately, Home Depot’s quarter didn’t imply any major drop-off for the home-improvement sector, as a strong housing market and backlog of projects remain tailwinds. However some investors may have been hoping that the company would “comp the comp” despite the high bar it set in 2020.

Write to Ben Levisohn at ben.levisohn@barrons.com

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