Home Depot profit beats Street; outlook strong

Home Depot’s (NYSE:HDNews) quarterly results trumped estimates as demand for home renovations perked up, and the top home improvement chain forecast a fiscal-year profit above analysts’ estimates.

The news from the top home improvement chain came a day after rival Lowe’s Cos (NYSE:LOWNews) posted better-than-expected results and said sales would improve this year as demand for remodeling projects picks up.

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Both Home Depot and Lowe’s said customers were more willing to spend on big-ticket home projects such as painting, new flooring and redoing their kitchens after a prolonged slump in the U.S. housing market.

Sales at Home Depot stores open at least a year rose 1.2 percent globally. U.S. same-store sales fell 1.1 percent, compared with a 1.6 percent drop for Lowe’s.

JPMorgan analyst Christopher Horvers said Home Depot posted its first positive same-store sales results since the first quarter of 2006.

“This is a strong report and demonstrates both the recovery in the home improvement market and Home Depot’s initiatives to drive gross margin,” he added.

Home Depot, whose shares rose more than 1 percent, is benefiting from a slower expansion strategy, recent measures to improve its supply chain, and draconian cost cuts that included workforce reductions in January.

SALES EXCEED EXPECTATIONS

Home Depot’s net income was $342 million, or 20 cents a share, in the fourth quarter ended on January 31, compared with a year-earlier loss of $54 million, or 3 cents a share.

Excluding items, the profit was 24 cents a share, beating the analysts’ average forecast of 17 cents.

Sales fell 0.3 percent to $14.57 billion, but exceeded expectations of $14.07 billion. The company reported gains in kitchen and bath, paint, flooring and plumbing as well as its international businesses.

Under Chief Executive Officer Frank Blake, Home Depot has been closing secondary chains while upgrading service and products in its core big-box strip-mall retail business to win back market share from Lowe’s.

Early evidence that this was working came in August, when Home Depot beat Lowe’s on the same-store sales front for the first time in several years. Home Depot said it had increased its U.S. market share by more than 100 basis points in the last fiscal year.

Home Depot forecast increases of about 2.5 percent in both total and same-store sales this fiscal year, while net earnings from continuing operations should rise about 15.5 percent to $1.79 a share.

Analysts on average were expecting earnings of $1.55 a share on a comparable basis.

On Tuesday, Home Depot said its board had approved a 5 percent increase in its quarterly cash dividend to 23.625 cents a share. The rise in the payout was the first since 2006 and “a testament to our confidence in the company’s strategic initiatives,” CEO Blake said.

“Home Depot’s much improved tone, renewed interest in buying back stock, and increased dividend, albeit modest, reaffirm our view that the sector is rebounding and is one to own in 2010,” JPMorgan’s Horvers said.

Home Depot shares were up 1.4 percent at $30.74 in premarket trading, while Lowe’s fell nearly 1 percent to $22.90.

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