Home Depot Sales Surge on Renovation Boom Even as Costs Rise

(Bloomberg) — Home Depot Inc. reported sales growth that was more than double the already brisk rate analysts had been expecting, but rising expenses meant flat margins in an otherwise standout quarter.

Same-store sales rose 23.4%, sharply beating the estimate for an 11.4% gain from Consensus Metrix. Revenue of $38.1 billion also surpassed expectations. The gain was driven by both higher average customer checks and more transactions, meaning more shoppers bought from Home Depot in the quarter and they spent more every time they came in. Comparable sales in August are at similar levels to the past quarter, executives said on a call with analysts.

In an interview, Chief Financial Officer Richard McPhail said consumers “are spending less on travel and entertainment and restaurants and are spending more on where they’re spending most of their time — which is the home.”

But even though Americans have been opening their wallets on home improvement during the pandemic, the retailer has also faced higher costs to serve those customers. Selling, general and administrative costs jumped 26% in the quarter, with Morgan Stanley’s Simeon Gutman noting the company is spending more than anticipated on virus-related costs and benefits.

Like many companies during the pandemic, Home Depot suspended its full-year forecast in May due to widespread uncertainty around Covid-19 and its impact on the broader economy. It did not reinstate it in Tuesday’s results.

Home Depot, long viewed as a proxy for the U.S. housing market, benefitted as mortgage rates are at a record low, driving demand for new homes and keeping the Atlanta-based retailer’s goods in high demand. U.S. home construction starts increased in July by more than forecast, according to data released Tuesday. Home Depot said its business serving do-it-yourself customers is growing faster than its pro business, aimed at contractors.

Home Depot shares fell 1.1% to $285.11 at 11:55 a.m. in New York. The stock had advanced 32% this year through Monday, far outperforming the S&P 500 Index. Home Depot’s biggest competitor, Lowe’s Cos., reports its quarterly results premarket Wednesday.

(Adds CFO comment in third paragraph and updates share trading.)

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