Home Depot (NYSE:HD) closes out the fiscal year with a strong quarter. Macy's (NYSE:M) turns a profit in the fourth quarter but gears up for a year of recovery and rebuilding. In this episode of MarketFoolery, host Chris Hill is joined by Motley Fool analyst Bill Barker to analyze those stories, secondary offerings from Shopify (NYSE:SHOP) and Carnival Cruise (NYSE:CUK) (NYSE:CCL), and more.

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This video was recorded on February 23, 2021.

Chris Hill: It's Tuesday, February 23rd. Welcome to MarketFoolery. I'm Chris Hill. With me today, Mr. Bill Barker. Good to see you.

Bill Barker: Good to be here.

Hill: We've got a couple of secondary offerings and we have a couple of fourth-quarter earnings reports. We're going to start with the earnings. Home Depot's fourth-quarter profits came in higher than expected, but shares falling a little bit today on concerns that 2021 is not going to be as strong for Home Depot as 2020 was. I will just point out, shares of Home Depot over the past year, even with the drop today, shares are up little more, let's call it 10%, maybe 11%, 10-11%. This is not a stock that has shot to the moon in the [laughs] past year. It's still the same business. They've done an amazing job over the last 10 months managing their business in the wake of the pandemic. I'm not sure why there is at least a little bit of pessimism today about Home Depot.

Barker: The pessimism if there is some, comes out of what small amount of guidance the company gave. Before addressing that on the numbers, the total sales were up 24.5% and comparable sales were up 25%. So, that gives you a level set on how business did. They don't grow a lot of stores at Home Depot. They just keep doing a great job at the stores they have. Not many close, not many open. It's not a growth story though. They expand the size of their stores in many cases with side lots for plants and things like that and things that they can put outside the four walls of the store. Growth for the company was about 25% for the year and as you say, the stock only went up about 11%. Part of that is because the sales growth was more expensive.

Margins contracted because of the increased costs of operating during COVID. Then the guidance is a little weaker than what people might have been hoping for, which is a, they didn't give any guidance. The company said that because of the uncertainty of how things are going to play out, they don't feel comfortable giving guidance. But if things look in 2021 the way they looked at the second half of 2020, they think flat to slightly positive comps for stores. Now, this is pretty comparable, pretty much the same story that Tractor Supply gave a couple of weeks ago during its announcements about the same level of growth. Their comps were about 27% so very comparable operations and increase in business that each company did. Tractor Supply's guidance, which you did provide, was slightly negative to slightly positive comps for the year ahead. So really for both companies it's, "Hey, are you able to digest this incredible surge in sales the last 9-11 months have provided and maintained that?" If so the two-year growth of the companies is very good.

Hill: When you and I were talking about Tractor Supply last week, one of the things we discussed was their acquisition of a retailer in the Midwest, adding in one fell swoop 160 locations for Tractor Supply. When you look at Home Depot and the fact that they really don't grow their store count all that much, I don't want to argue against that because clearly their strategy has worked. If you're an Home Depot shareholder over the last 10 years, it's been a really wonderful ride, but it is something that just strikes me as a little bit curious.

Barker: It's a choice by management which is different from a lot of other places. The growth for growth's sake has not been what the company has pursued. It's pursued a more concentrated delivery of high quality of service to customers and hasn't been off making acquisitions and then trying to take substandard brands and raise them to the level of Home Depot. As we say, it's working, it's just a different way of going about things and shareholders can't be disappointed about their experience during that time, really, ever since about 2011, 2012-ish. The chart looks just delightful for Home Depot.

Hill: Nothing better than a delightful chart.

Barker: Well, yeah. There are these interruptions. You look back, obviously the business suffered 2001. 2008, 2009, takes a hit. But ever since, it's just been great. The numbers out today from Case-Shiller, home prices increased 10% year over year. All of the low interest rates and people stuck in their homes, whether they're buying new homes, upgrading the homes they're in, it's been a year unlike any other for Home Depot. I think just digesting all of the growth that they've achieved and improving margins is enough of a task for the year ahead.

Hill: Macy's fourth quarter was the company's first profitable quarter in a year, and if that were the only data point, then maybe shares of Macy's would be up today. But fourth-quarter revenue was more than 50% lower than a year ago. Same-store sales were down 17%. Shares of Macy's are flat, both today and over the past year. It's rebounded from its lows from last spring, but I don't know. When you look at Macy's, what stands out to you?

Barker: A lot of the time, when I'm looking at stock that I don't follow closely, I take a look at where it is today in terms of the stock price and what its 52-week range is, and try to get an idea of whether anything interesting is going on today compared to the longer-term story. Macy's has been as low as $4 and as high as $22. I was right in the middle of the range, which a lot of the time, to me, says, nothing too interesting today. The top and the bottom of that range are interesting in Macy's case. Obviously, $4 a share, this was back in March when everything bottomed and the viability of Macy's would have, at least for a couple of weeks, looked highly questionable. The $22 range was really Macy's became a third-tier opportunity in the WallStreetBets Reddit games a couple of weeks ago. "Hey, here's another stock that we can maybe have some fun with" was an experience that Macy's shareholders had for 24, 48 hours, something like that. It's back down to where it was more or less before now. Unlike Home Depot, which is, "can we digest this great year and repeat something that looks at the comp level, no better perhaps than this great year we just had?" Macy's challenge is, "hey, are we going to be surviving this year?" This is a survival game that Macy's and department stores, mall-based chains that are anchoring malls. What do things look like? I think it's what you're putting in front of yourself, if you're Macy's to get excited about, other than just the economy reopening, is getting back to your high brand opportunities, to your signature parade and your signature time of the year to sell most of your merchandise, which is next Christmas. Will people experience a nostalgia to return to malls, an opportunity which they really didn't get this year, and is that something that Macy's can really take advantage of? If not, if Christmas is not something in 2021 that looks reasonably like 2019, boy, I wouldn't look forward to the years ahead.

Hill: Yeah, the company said that 2021 will be a year for recovery and rebuilding. I would just throw in there, they should also consider reimagining what their business is, because the Macy's of 10 years ago can't be what Macy's is over the next 10 years or they're in really big trouble.

Barker: Between about 2006 and 2019, nothing really changed at the top line. There were some acquisitions and there were some divestitures, but every year, this company did between about 22 billion and 27 billion in sales. There was basically no growth between 2007 and 2019, 2018 for this company. It did become a little bit more profitable at times during that, but then it would also take on tremendously awful one hit years, like 2009 and last year. It's been two steps forward, two steps back for this company for a long time and that's in an era where many other retailers have not survived the decline in mall traffic. Macy's has perhaps done better than some of the competition, but there's so many more interesting things that have been going on that it's been buying back a lot of its shares and that's kept the earnings per share at a reasonable level up until this year. We're looking at $12 a share losses for Macy's in the last 12 months. If they can survive, great. But that's a challenge for some excellent managers in the spot that they are in.

Hill: Shopify and Carnival Cruise Lines both announced secondary offerings and both stocks are falling on the news, not a lot, somewhere in the range of 3% to 5%. But something tells me these two very different businesses are doing secondary offerings for different reasons.

Barker: Yeah. Shopify is becoming a serial secondary machine, getting one out about every quarter lately, which is good business. They've built up their balance sheet. I think they had a second-quarter secondary. In 2020, they had a third-quarter convertible, and now this secondary. That has given them a lot of cash. They didn't really need to do this at any level, but it solidifies the floor. It brings the ceiling down. There are more shares out there, so there's more supply of Shopify shares. If the demand is the same, then that brings the price down per share. But in terms of the floor and whether, not that anybody is really looking at what could go wrong for Shopify right now, because they're doing an outstanding job at managing hypergrowth. But they've put all that cash on the balance sheet and that just makes them an even more solid company to pursue the kind of growth they are pursuing, maybe make acquisitions, maybe make some mistakes, and not suffer too greatly from the consequences. That is a very different story from Carnival.

Hill: Do you think we're going to see consolidation in the cruise industry? We've seen over the last week and certainly over the last 48 hours, more analysts notes, more commentary in the financial media about the businesses that are going to benefit from "the great reopening." Yesterday, we saw airline stocks up and cruise lines stocks up on this idea that, look, there are enough positive macro stories out there that we think the second half of 2021 is looking good for these businesses, these beaten-down stocks. That is one possibility. But I'm wondering if you think another possibility is the cruise industry survives, but as an industry, it is smaller.

Barker: It's certainly possible that the smaller lines, I don't know that either Carnival, or Royal Caribbean, or some of the other top ones are likely to have to do that. But there are smaller lines that may have to. The survival here, business has been largely shut, certainly in this part of the world. They may still be doing, I'm not sure, Asian cruises, but probably not, and they're really looking forward to reopening. But expenses are still going to be super high compared to what they would like them to be in terms of keeping cruises safe. Also just the messaging, getting people, they are doing a good job on selling out a couple of years ahead.

People have more confidence about signing up for more than a year ahead on cruises right now than they had at many other times in the past. But still, the next 3, 6, 9 months could be pretty tricky for these things, and Carnival needs the money. They all do. They all need the money. Their stocks have done well in the last couple of weeks. Hey, if you're a conspiracy theorist out there, maybe some of these upgrades are coming out of your Wall Street shops that would like to help out on secondaries. I'm not here to pump conspiracy theories, but it's worth keeping an eye on. These stocks have done well in the last couple of weeks. There is a logic to that, things are going to reopen, the light is more visible at the end of the tunnel, and if companies take advantage of a higher stock price and get some cash that they need, that makes sense.

Hill: If you're going to push conspiracy theories, I would prefer they be about real things like UFOs.

Barker: I'm pretty bad at conspiracy theories. I wouldn't be very good at them. I'm throwing the word conspiracy theory out, but it's like business as usual would be another way of [laughs] actually saying, well, when Wall Street firms start promoting some level, what's in it for them is a question that is worth asking as an investor.

Hill: I think like anything else in life if you want to get better at something you start small, you start slow, and like I said, UFOs, just ease into conspiracy theories, check out some websites about Area 51, and that's your training wheels. You'll get going.

Barker: I think in an apropos-of-nothing episode, we could go into the pros and cons of our favorite conspiracy theories.

Hill: Looking forward to it.

Barker: That would be fun.

Hill: Bill Barker, always good talking to you. Thanks for being here.

Barker: Thanks for having me.

Hill: As always, people on the program may have interest in the stocks they talk about and The Motley Fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. That's going to do it for this edition of MarketFoolery. This show is mixed by Dan Boyd. I'm Chris Hill, thanks for listening. We'll see you tomorrow.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.