Home Depot Inc (HD.N) raised its full-year outlook on Tuesday, even before considering any future sales lift from superstorm Sandy, as the retailer benefited from a recent uptick in the U.S. housing market.
The nascent recovery in housing has encouraged professional contractors to buy more in recent months. Home Depot, the world's largest home improvement chain, has also gained from its own efforts to improve distribution, cut costs and localize marketing and merchandising.
Janney Capital Markets analyst David Strasser said Sandy "will certainly help the home improvement sector in the next few quarters". The fact that Home Depot's new forecast does not include those benefits was helping to push up the stock, he said, along with "further evidence of a company running on all cylinders."
Shares of Home Depot, which also beat analysts' quarterly earnings and sales estimates, were up 4.2 percent at $63.72 in midday trading.
"Sales were considerably higher than we had anticipated," said Chief Financial Officer Carol Tome in an interview. "The whole store performed better than expected."
"We believe we're on a path to recovery. We're not there, but we're on a path," she said.
The U.S. housing market, which is being buoyed by low interest rates and falling inventories, is becoming "an assist to growth, rather than an anchor," added.
Rising sales are pushing down the stock of unsold properties on the market, lifting prices and giving builders more confidence to take on new projects.
The company said it had rung up $70 million in third-quarter sales to consumers who stocked up on flashlights, batteries, generators and extension cords before Sandy slammed into New Jersey on October 29, the day after the quarter ended. Home Depot expects a bigger sales boost ahead because of rebuilding efforts, but could not pinpoint its magnitude or timing.
Home Depot raised its full-year sales growth forecast to 5.2 percent from 4.6 percent.
The company said it expected earnings of $3.03 a share, excluding an 11-cent charge for closing stores in China. Its prior full-year forecast, given before news of the China closures, called for a profit of $2.95 per share.
The new forecast implies fourth-quarter earnings of 62 cents per share, according to Janney Capital Markets analyst David Strasser. That is one cent higher than analysts' average estimate, according to Thomson Reuters I/B/E/S.
Home Depot derived about $360 million in incremental sales from Hurricane Irene last year, whose strong winds tore off roofs and caused trees to fall on homes.
So far, estimates are pegging property damage from Sandy at around $20 billion, Tome said, versus about $16 billion from Irene.
"With Sandy sadly, this is structural. Homes are destroyed," said Tome. "It's more like Katrina, and if you think about Katrina, the rebuilding continues in New Orleans."
So far in November, sales have been "quite good," Tome said, with strength in the southern and western parts of the country, which the storm did not affect.
The company's outlook reflects plans to buy back $700 million in additional shares this quarter, which would bring the total value of repurchases for the year to $4 billion.
Net earnings rose to $947 million, or 63 cents per share, in the third quarter from $934 million, or 60 cents per share, a year earlier.
Excluding a charge for closing seven stores in China, Home Depot said earnings were 74 cents per share. On that basis, analysts were expecting 70 cents.
Sales rose nearly 5 percent to $18.13 billion, topping analysts' estimates of $17.93 billion.
Sales at stores open at least a year increased 4.2 percent globally, including a 4.3 percent rise in the United States.
Edward Jones analyst Robin Diedrich was expecting same-store sales growth of just above 3 percent.
"Things are going pretty well for them, with sales remaining strong," said Diedrich, who has a "hold" rating on the shares due to their valuation. "The stock has done extremely well and trades at quite a premium to the rest of retail."
Home Depot has been taking market share from rival Lowe's Cos Inc (LOW.N) with the help of better pricing and customer service, analysts have said. Lowe's, which has lagged Home Depot in same-store sales for 13 straight quarters, plans to report its results next week.