Home Depot's stock falls after U.S. sales disappoint, amid 'big-ticket' weakness

By Tomi Kilgore

Dividend was raised to an annual rate of $9 a share, to boost the stock's implied yield to 2.5%

Shares of Home Depot Inc. were knocked lower Tuesday, after the home improvement retail giant topped fiscal fourth-quarter net sales expectations but missed on U.S. same-store sales and provided a downbeat full-year outlook.

"After three years of exceptional growth for our business, 2023 was a year of moderation," said Chief Executive Ted Decker.

On the bright side, the company beat profit expectations, and raised its quarterly dividend by 7.7%.

The stock (HD) fell 0.6% in morning trading. The implied price decline of $2.09 would shave about 14 points off the price of the Dow Jones Industrial Average DJIA, while the Dow eased 30 points, or 0.1%.

Net income for the quarter to Jan. 28 fell to $2.8 billion, or $2.82 a share, from $3.36 billion, or $3.30 a share, in the same period a year ago, to beat the FactSet consensus of $2.77.

Gross margin declined 0.2 percentage points to 33.1%, has pay raises for hourly employees boosted operating expenses by 1.15 percentage points.

Net sales fell 2.9% to $34.79 billion, above the FactSet consensus of $34.64 billion, with the company's Pro and do-it-yourself consumer business relatively in line with each other.

Overall same-store sales, or sales from stores open at least a year, decreased 3.5%. U.S. same-store sales declined 4.0%, as "big-ticket" transactions, or those over $1,000, dropped 6.9%. The FactSet consensus for both overall and U.S. same-store sales was for a decline of 3.6%.

The company "continued to see softer engagement in big-ticket discretionary categories, like flooring, countertops and cabinets," said John Deaton, executive vice president of supply chain and product development, according to a FactSet transcript of the post-earnings call with analysts.

For fiscal 2024, the company expects EPS growth of about 1%, while the current FactSet consensus of $15.57 implies 3.0% growth.

The company is expecting sales to increase 1% and same-store sales to be down 1%, while the FactSet consensus is for sales to grow 1.4% and same-store sales to slip 0.4%.

Separately, the company raised its quarterly dividend to $2.25 a share from $2.09 a share, with the new dividend payable March 21 to shareholders of record on March 7.

Based on current stock prices, the new annual dividend rate implies a dividend yield of 2.50%, which is well above the yield for shares of rival Lowe's Companies Inc. (LOW) of 1.97% and the implied yield for the S&P 500 index SPX of 1.44%.

Home Depot's stock has rallied 16.9% over the past three months, while Lowe's shares have gained 9.5% and the Dow has advanced 9.8%.

-Tomi Kilgore

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02-20-24 1041ET

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