The housing market is booming. That’s great news for Home Depot – and its workers.
Home Depot reported better-than-expected sales and earnings Tuesday, and the company is planning to invest $1 billion annually on increased worker benefits. That’s on top of the $1.7 billion in benefits the company has already granted this year in response to Covid-19.
Home Depot (HD) unveiled temporary programs during the coronavirus pandemic such as expanded paid time off and weekly bonuses. But the company has decided to give hourly workers a permanent pay increase as the housing market continues to thrive.
Sales at stores that have been open for at least one year surged 24% in the third quarter. And Home Depot reported a net profit of $3.4 billion, an increase of more than 20% from a year ago.
“[T]he investments we have made in the business as well as our associates’ focus on customers…are critical in enabling market share growth in any economic environment,” CEO Craig Menear said in the company’s earnings release.
Shares of Home Depot fell 3% Tuesday following the news, but the stock is up nearly 25% this year.
Home Depot is thriving during the pandemic as many consumers focus on home improvements at a time when they may be less willing (or able) to spend on leisure activities such as dining out or taking a family trip.
“Spending on the home continues to be a priority,” Neil Saunders, managing director of retail research firm GlobalData, said in a report.
“Savings from lower outlays on commuting, eating out and not taking vacations have given consumers a pool of cash which they have diverted into home projects and activities,” Saunders said. “Improvement continues to be at the forefront of spending.”
Home Depot chief financial officer Richard McPhail echoed that sentiment during a conference call with analysts Tuesday.
“We are encouraged by consumer sentiment and consumption trends, which show home improvement receiving more than its historical share of consumer spending,” he said. “Housing metrics are significantly stronger than when we entered this crisis.”
A bet that the housing market still hasn’t peaked yet
Home Depot’s results come one day after the company announced plans to buy back HD Suppl, a former subsidiary that focuses on selling construction materials to homebuilders, apartment managers and the hospitality industry, for more than $8 billion.
Home Depot sold the business to private equity firms in 2007, and there had been recent chatter that Home Depot rival Lowe’s (LOW), which will report its latest results Wednesday, was interested in purchasing HD Supply.
The acquisition of HD Supply is a clear sign that Home Depot is bullish on the prospects for housing. And the news may only get better. The Mortgage Bankers Association said in a report Tuesday that it was raising its forecast for new home loans in 2021.
The MBA now expects purchase loans to hit $1.59 trillion next year, an increase of 12% from 2020 and topping the all-time high of $1.51 trillion in new home loans from 2005.
Housing prices may continue to rise as well. Many people, particularly in cities, are looking to move to the suburbs for more space – especially since working from home is becoming more common.
“There should be resilience in housing. There is pent-up delayed demand contributing to strong home prices,” said Kenon Chen, executive vice president of Clear Capital, a real estate valuation and technology company.
Chen added that there isn’t a glut of houses on the market either in many key markets. That should further prop up prices.
“We have low supply, low interest rates and the continued remote work trend,” he said.