Home Depot Plans Workforce Investment as Pandemic Brings Another Strong Quarter -- 2nd Update

By Matt Grossman 

Home Depot Inc. reported strong sales growth in its latest quarter as the retailer continues to thrive from people spending more time on home-improvement projects during the coronavirus pandemic.

The company also said it would permanently raise compensation for front-line workers in a program that will cost approximately $1 billion a year.

In the fiscal third quarter, the company's revenue rose to $33.54 billion, up 23% from a year earlier, a similar pace to the second quarter. Analysts surveyed by FactSet were expecting revenue of $31.83 billion. Same-store sales grew 24% year-over-year overall, and by 25% in the U.S.

As Americans have spent more time at home during the public-health crisis, many turned their attention to domestic projects, shifting money they would have otherwise spent on vacations, gym memberships and other activities that have been postponed to prevent the virus's spread.

"Home improvement is a great space to be in at the moment," Richard McPhail, the company's finance chief, told analysts on a conference call.

During the Covid-19 pandemic, Home Depot has offered some temporary benefits to workers, including more paid time off and a temporary weekly bonus program, leading to costs of about $355 million in the latest quarter. The company on Tuesday said it plans to make some of those enhancements permanent for its hourly associates.

"We continue to lean into these investments because we believe they are critical in enabling market-share growth in any economic environment," Chief Executive Craig Menear said.

Sales growth was fairly consistent throughout the quarter, with comparable sales in the U.S. rising 25% in August, 26% in September and 23% in October after adjusting for where Labor Day fell on the calendar. Growth accelerated further during the first weeks of November, Home Depot said, as the company shifted to an earlier start for holiday sales events compared with last year.

Coronavirus cases are surging across the U.S. this month, but Mr. Menear said the pandemic didn't appear to dent the company's results more in areas where the spread is more rampant.

"We see no correlation in the business as it relates to Covid cases," he said.

Home Depot's gross margin in the third quarter was 34.2%, down about 0.3 percentage point year over year. Executives attributed the trend in part to a larger sales-mix share for lumber, which has become more expensive amid higher demand this year.

Home Depot shares were down 3.1% at $271.01 on Tuesday morning. The stock is up roughly 24% since the start of the calendar year.

The company's performance in the quarter, which ended Nov. 1, bookends a robust summer season for the Atlanta-based retailer. In the first nine months of the fiscal year, revenue grew by more than 18% overall.

The number of customer transactions for Home Depot in the third quarter rose by 13% year-over-year to more than 453 million, with an average ticket size of $72.98. Sales per retail square foot increased by more than $100 to $552.85.

Home Depot's quarterly net profit was $3.43 billion, or $3.18 a share, compared with a profit of $2.77 billion, or $2.53 a share, in last year's third quarter. Analysts had forecast a profit of $3.13 a share.

On Monday, Home Depot agreed to buy HD Supply Holdings Inc., a wholesale distributor of building supplies, for roughly $8.7 billion. HD Supply was a unit of Home Depot until 2007, when Home Depot sold HD Supply to a group that included Bain Capital, Carlyle Group and Clayton Dubilier Rice.

The deal aligns with Home Depot's goals to reach a larger share of the maintenance, repair and operations business, Mr. Menear said.

Write to Matt Grossman at [e-mail]

(END) Dow Jones Newswires

November 17, 2020 12:06 ET (17:06 GMT)

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