House Depot’s margin warning casts shadow on strong quarter

By Aditi Sebastian and Uday Sampath Kumar

(Reuters) -House Depot Inc on Tuesday indicated that it expects gross revenue margins to stay underneath stress by the 12 months because it spends aggressively to take care of supply-chain bottlenecks and get constructing instruments and supplies to retailer cabinets quicker.

Shares of the biggest U.S. dwelling enchancment chain tumbled as a lot as 8.3% to an over six-month low of $318.18. Rival Lowe’s Cos, set to report on Wednesday, fell 3.2%

House Depot’s shares have climbed about 50% for the reason that finish of February 2020, driving a greater than $40 billion bounce in gross sales through the interval as stuck-at-home Individuals used their time and financial savings on do-it-yourself dwelling tasks.

The corporate expects working margins to be flat in 2022, assuming inflation is not going to get any worse.

House Depot has rolled out measures equivalent to chartering its personal cargo ship and utilizing air freight to maneuver in-demand items to beat provide chain disruptions and transport delays.

Whereas bolstering gross sales, these bills together with surging prices of all the things from gasoline to wages led to a 35-basis level decline in fourth-quarter gross margins to 33.2%.

“The margins are being pressured by quite a lot of issues together with provide chain price will increase, labor price will increase and different price inflation that they are capable of cross by (to clients), however not totally offset,” mentioned Michael Baker, analyst at D.A. Davidson & Co.

Total gross sales rose a higher-than-expected 10.7% within the fourth quarter to $35.72 billion, whereas earnings per share of $3.21 topped estimates of $3.18.

The corporate, which final month named chief working officer Edward Decker as its subsequent high boss, projected full-year gross sales development to be “barely optimistic”.

Analysts have warned of dwelling enchancment gross sales cooling in 2022 as rising mortgage charges threaten to hit housing demand and costs, doubtlessly making clients much less prone to spend money on their properties.

(Reporting by Uday Sampath and Aditi Sebastian in Bengaluru; Modifying by Sriraj Kalluvila)

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