Home Depot's expanded worker benefits took a huge bite out of its profit

New York(CNN Busines) Home Depot said sales growth was strong in the early part of the year before the Covid-19 pandemic ground the economy to a halt. But the retailer is suspending its 2020 outlook and also reported earnings that were worse than expected because of higher expenses tied to helping its workers.

Home Depot spent $850 million on its expanded worker benefits during the quarter, including the expansion of paid time off for all its hourly workers, additional time off for senior citizen employees and those deemed to have higher health risks, and bonuses and higher overtime pay.

The retailer said that it reported earnings of $2.2 billion, or $2.08 a share in the first quarter. That was down from a $2.5 billion profit in the same period last year and below Wall Street's consensus earnings forecast of $2.26 a share. Shares of Home Depot (HD) fell more than 2% in early trading.

Home Depot did post strong sales growth before the outbreak, however. The company said that total revenue rose 7.1% from a year ago to $28.3 billion. That topped expectations. Sales at stores open at least a year were up 6.4% overall and 7.5% in the United States.

But CEO Craig Menear said sales in some locations were hit by social distancing guidelines that company put into place towards the end of the quarter.

"We took early and decisive action to intentionally limit customer traffic in our stores which we believe had a significant impact to sales in many markets," said Menear in a statement.

"I want to thank our associates and express how grateful and proud I am of the resilience and strength that our teams have demonstrated as we navigate these extraordinary circumstances together," Menear added.

Home Depot could benefit if more consumers, many of whom are now working from home, decide to do more improvement projects.

But the coronavirus outbreak could continue to hurt demand for home sales, which would be bad for Home Depot and rival Lowe's (LOW), which will report its latest earnings Wednesday.

Online real estate brokerage Redfin (RDFN) said in its latest monthly report Monday that home sales were down 22.5% from a year ago while homes newly listed for sale plummeted more than 42%.

Demand for newly constructed homes is down too. Property condition database BuildFax said in a report this week that authorizations for new single-family houses fell nearly 7.5% from March to April.

The US Census Bureau also reported April figures for housing starts and building permits Tuesday morning. Permits plunged more than 20% from March while housing starts plummeted more than 30%.