By Uday Sampath Kumar

(Reuters) - Home Depot Inc missed estimates for quarterly profit on Tuesday, as the home improvement chain spent about $850 million on benefits for employees keeping its stores and warehouses running through the COVID-19 pandemic.

Shares of Home Depot, which have gained 12.4% this year, dropped nearly 3%, as the company also scrapped its full-year outlook, citing uncertainties stemming from the pandemic.

While shelter-in-place restrictions and government stimulus checks boosted Home Depot's sales in the first quarter, with people spending more on tools for do-it-yourself house projects, analysts say a looming recession will weigh on home improvement spending later in the year.

U.S. homebuilding dropped by the most on record in April and permits for future construction tumbled, underlining fears that the crisis would lead to the deepest economic contraction since the Great Depression.

"Home Depot is showing that it should weather the COVID-19 pandemic better than most retailers ... That said, we are concerned about the expected deterioration of the U.S. economy, rapidly rising unemployment, and declining consumer confidence," Telsey Advisory Group analysts wrote in a post-earnings note.

Total net sales rose 7.1% to $28.26 billion, beating the average estimate of $27.54 billion, despite the company cutting operating hours and limiting the number of customers allowed in stores to maintain social distancing.

The risks posed to staff working through the crisis led the company to provide additional bonuses, double overtime pay and add more hours of paid time-off.

The lockdowns also sent online traffic on Home Depot's website above Black Friday levels, the company said, adding that its e-commerce sales soared by triple-digits at the end of April.

The company's net earnings fell 10.7% to $2.25 billion, or $2.08 per share, in the first quarter ended May 3. Analysts had expected $2.27 per share, according to IBES data from Refinitiv.

(Reporting by Uday Sampath in Bengaluru; Editing by Shinjini Ganguli and Saumyadeb Chakrabarty)