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(Reuters) -Home Depot Inc reported a decline in holiday-quarter gross profit margins on Tuesday as a jump in transportation and labor costs offset the benefits of steady demand for big-ticket items and higher prices.
Shares reversed course in early trading to drop 3% in a weak broader market.
The pandemic-fueled spending on do-it-yourself home projects has so far held up better than feared even as easing restrictions encourage a return to pre-COVID lifestyles, powering a 10.7% jump in fourth-quarter sales to $35.72 billion. Analysts on average had estimated $34.87 billion.
Home Depot (NYSE:HD)’s sales have increased more than $40 billion in the last two years, crossing the $150 billion mark for the first time ever in the year ended January 2022.
The company, like other retailers, has battled a squeeze on its profit margins by pandemic-induced cost increases ranging from shipping to fuel, and has also been spending aggressively to minimize shortages due to supply chain disruptions.
“The margins are being pressured by a number of things including supply chain cost increases, labor cost increases and other cost inflation that they’re able to pass through (to customers), but not fully offset,” said Michael Baker, analyst at D.A. Davidson & Co.
Home Depot’s 36 basis point decline in fourth-quarter gross margins to 33.2%, missed D.A. Davidson estimates of 33.6%, Baker said.
The company’s full-year outlook – its first in two years – was also less detailed than its pre-pandemic forecasts. The company projected sales growth to be “slightly positive” and earnings-per-share growth to be low single digits.
Analysts have warned of the difficulty in predicting what 2022 sales for home improvement chains as rising mortgage rates threaten to hit housing demand and prices, potentially making customers less likely to invest in their homes.
