Home Depot Q1 sales and profits lifted by skyrocketing inflation

Brian Sozzi
·Executive Editor
3 min read
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The coronavirus pandemic driven boom for new homes and the aggressive remodeling of existing ones by homeowners during quarantine continues to put serious upward pressure on prices for everything from plywood to copper pipes at the major home improvement retailers.

"Similar to what we reported in our previous three quarters, the growth in our comp average ticket was driven by elevated project demand, customers trading up to new and innovative products and continued inflation in many product categories including lumber," Home Depot President and COO Ted Decker told analysts on an earnings conference call Tuesday. "This was another record-setting quarter for lumber prices. Let me give you an example of what that means for one of our core lumber SKUs [stock keeping units]. At the end of the first quarter last year, a sheet of seven sixteenths OSB [or plywood] was approximately $9.55. As we exited the first quarter of this year, that same sheet of OSB more than quadrupled in price to $39.76."

Lumber prices have skyrocketed 127% this year amid the demand boom. Copper prices are up about 32%. Steel prices — used in products such as power tools — has gained more than 30% in 2021.

Power tool giant Stanley Black & Decker is looking at a $235 million hit to profits this year due to inflation in steel and other commodities, CEO James Loree told Yahoo Finance Live.

LOS ANGELES - AUGUST 17: Construction worker Alex Sierra buys lumber for home framing at the Home Depot store on August 17, 2010 in Los Angeles, California. Atlanta-based Home Depot Inc.'s fiscal second-quarter profit rose 6.8 percent as they've seen a 1.8 percent increase in sales. (Photo by Kevork Djansezian/Getty Images)
A construction worker buys lumber for home framing at the Home Depot store. (Photo by Kevork Djansezian/Getty Images) (Kevork Djansezian via Getty Images)

Inflationary pressures ultimately helped pump up Home Depot's sales and profits in the first quarter.

Home Depot said first quarter same-store sales surged 31%. Same-store sales in the U.S. rose 29.9%. Operating profits exploded 76.5% from a year ago.

Said Home Depot's Decker on the impact of inflation on sales, "Inflation from core commodity categories positively impacted our average ticket growth by approximately 375 basis points during the first quarter." Home Depot's customer transactions and average ticket increased 19.3% and 10.3%, respectively.

Here's how Home Depot performed relative to Wall Street estimates for the first quarter. Clearly, analysts were unable to accurately model for inflation effects on Home Depot's top and bottom lines.

  • Net Sales: $37.50 billion vs. $34.86 billion

  • Same-Store Sales: +31% vs. +20%

  • Diluted EPS: $3.86 vs. $3.06

Home Depot shares rose slightly to $320 in Tuesday's session.

Analysts generally think inflationary pressures will cool down for home improvement retailers in coming quarters. While that could mean less eye-popping sales and earnings beats, most on the Street agree the fundamentals remain strong for the likes of Home Depot and its smaller rival Lowe's.

"Home Depot is a beneficiary of a healthy consumer that is committed to repair and remodeling projects. Pro-focused initiatives, enhanced e-commerce, optimized labor, and services will drive near-term results, with supply chain fortifying LT dominance," said Jefferies analyst Jonathan Matuszewski in a research note to clients.

The analyst reiterated a Buy rating on Home Depot's stock with a $375 price target.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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