Even though the stock price fell following the announcement, Home Depot (HD 0.20%) shareholders received about all the good news they could have wanted in the chain's latest earnings report.
Sure, sales gains will slow over the next few quarters. But management revealed solid sales and profit trends in late February. The chain also issued a bullish outlook for cash returns in 2022, despite big pressures on the industry such as inflation and rising interest rates.
Let's take a closer look at three standout numbers from the report.
1. Home Depot is beating sales targets
Home Depot delivered on the sales front, with revenue rising 11% to $35.7 billion in the fourth quarter. That spike was about $1 billion more than investors had expected and pushed the chain above management's full-year target.
Comparable-store sales were strong, jumping 8% in a nice acceleration from the prior quarter's 6% boost. The big-picture trends were even more impressive, given that Home Depot crossed $151 billion in annual sales after having passed $100 billion just four years ago. "Our ability to grow the business by over $40 billion in the last two years," CEO Craig Menear said in a press release, "is a testament to investments we have made in the business."
2. Home Depot is spending money
Those investments, along with inflation and rising costs, pressured the bottom line. Yet Home Depot offset its declining gross profit margin with savings elsewhere in the business. That success allowed operating income to land at $23 billion, or 15% of sales, from $18.3 billion, or 14% of sales, a year ago. Rival Lowe's has recently succeeded in pushing its profitability higher, but operating margin is still hovering around 12% of sales.
The report wasn't entirely good news, though. Customer traffic was negative for a second straight quarter, meaning the chain had to lean on soaring average spending for its growth. Those gains might be harder to hold if inflation keeps pushing prices higher.
3. The new outlook is for conservative growth
Home Depot issued a conservative growth outlook that likely incorporates several headwinds that could impact the business in 2022. Sales will be roughly flat, management said, after rising 14% last year and jumping 20% in 2020.
Executives are looking out at a home improvement industry that will see pressure from inflation and rising interest rates. It's also likely that consumers choose to allocate more of their budgets away from home improvements after spending the last two years prioritizing that category.
Meanwhile, Home Depot's cash returns are heading higher. The company raised its dividend by 15%, a big upgrade compared to last year's 10% increase. Management didn't outline detailed stock buyback targets, but shareholders should see solid spending here following last year's $15 billion splurge.
Investors might be slightly disappointed by Home Depot's modest sales outlook and the fact that the dividend raise wasn't nearly as high as earnings growth was this past year. But those trends make sense considering the expected slowdown ahead after the company added a whopping $40 billion to its sales footprint and $6 billion to annual earnings since 2019.