Home Depot Rises to Meet Housing Demands.
Home Depot (NYSE: HD) is the largest home enhancement retailer in the United States. They supply tools, construction resources, and more.
They currently operate 2,298 retail stores around the world which have all benefited greatly from being deemed essential services throughout the past year. Home Depot has been at the right place at the right time for many as housing demands have increased which has inevitably led to more construction materials being shipped and sold. As the economy is recovering there is bound to be shortages of materials. We saw something very similar very recently with the global chip shortage, except now it’s lumber.
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These demand surges have caused flocks of customers rushing to get their hands on any materials they can before prices continue to rise. Home Depot has continued to increase prices to factor in rising costs and inflationary factors which we will discuss later on.
During the first fiscal quarter of 2021 Home Depot blew past expectations of Wall Street, almost like they were some sort of a tech company which was being heavily doubted. They surged revenues to $37.5 billion versus the $34.96 billion expected which is mind blowing for a retailer the size of Home Depot. In result, their sales increased by 32.7% compared to the previous year.
Their earnings per share also came out on top of Wall Street expectations once again, reaching earnings per share of $3.86 versus the $3.08 expected.
These results were a shock for many investors, it’s not too often that a retailer grows revenues at such high multiples. So let’s understand what may have caused it.
A candidate for such phenomenal revenues could be the increasing prices of construction materials due to the rising inflation and a skyrocketing housing market. As the demands for more houses continue, lumber prices continue to increase and in result Home Depot can bring in more revenue and profit.
“The current shortage of new housing clearly is helping to drive improvements in the home values, which is a good thing for spending in the home,” CEO Craig Menear stated when addressing the surging demand for lumber and other construction materials.
Housing prices have been increasing alongside lumber as a result of the higher costs of construction which has only begun an endless loop of more demand, higher pricing, and less materials to go around for it all. This cycle doesn’t look to be slowing anytime soon.
There was also another driving force, the stimulus checks provided by the federal government just last march. It most definitely had some effect on their performance, however Home Depot wasn’t able to quantify how much of this growth was derived from the stimulus money.
Home Depot didn’t release an outlook for 2021 due to the uncertainties of the shaken economy, although if this quarter was any indication of what we may experience in the near future, then shareholders will be very pleased with what may be coming next.
Despite the lack of outlook on the upcoming quarters for Home Depot, It may be very likely that Home Depot will continue to excel at providing their customers with tools and construction resources while looking to benefit from the rising prices as they adjust their pricing accordingly.
There’s no telling what may happen in the short term, however there’s nothing stopping Home Depot from continuing to impress Wall Street as they continue to scale their business in retail and their new online presence throughout the world.
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