UPDATE 6-Home Depot boosted by early signs of US housing recovery

Tue Feb 26, 2013 4:58pm EST

* Home Depot earnings, sales beat analysts' estimates
    * Raises quarterly dividend by 34 percent
    * Same-store sales outpace those at Lowe's again
    * Sees higher sales, EPS for current fiscal year
    * Shares end up nearly 6 pct

 (Adds analyst comments, CFO comments, closing stock price)
    By Dhanya Skariachan
    Feb 26 (Reuters) - Home Depot Inc posted
better-than-expected earnings on Tuesday, helped by a nascent
recovery in the U.S. housing market and rebuilding efforts in
the wake of Hurricane Sandy.
    The results came on the same day the U.S. Commerce
Department said sales of new U.S. single-family homes jumped
15.6 percent to a 4-1/2 year high in January, raising hopes that
the U.S. housing market was indeed recovering. 
 
    The world's largest home improvement chain also forecast
higher sales and earnings per share for the current fiscal year,
an outlook that analysts thought might even be somewhat
conservative. Its shares gained nearly 6 percent.
    For the 15th straight quarter, Home Depot also bested its
rival, Lowe's Cos Inc, in sales performance at
established stores, pointing to an ongoing dominance that
analysts say Lowe's is far from overcoming.
    "They are getting the assortment right," said Robin
Diedrich, analyst at Edward Jones, referring to merchandise in
stores. "This quarter is a kind of perfect example of that where
they really seemed to have gone after the holiday market, in a
much bigger way than Lowe's did." 
    She added: "Just really executing on the right product at
the right price goes a long way."
    Better pricing and customer service have helped Home Depot
take market share from Lowe's. The industry leader has also
benefited from having more centralized distribution centers and
from recent efforts to shift more employees to jobs where they
serve customers directly. A return to more locally targeted
marketing and merchandising has also helped. 
    Home Depot said it expected overall sales to rise about 2
percent and sales at stores open at least 12 months to increase
about 3 percent in this fiscal year, which began on Feb. 4.
Chief Financial Officer Carol Tome told investors the U.S.
housing recovery would contribute 100 basis points of the
company's anticipated same-store sales rise.
    Home Depot forecast fiscal-year earnings per share of $3.37
after stock repurchases, up about 12 percent from the previous
year. The profit outlook was below what most analysts were
expecting.
    Many Wall Street analysts, including Diedrich of Edward
Jones and Budd Bugatch at Raymond James, called the outlook
"conservative," citing recent improvements in the U.S. housing
market and market share gains.
    "We are not surprised that management remains a bit cautious
given the uncertainty about the timing of the recovery in the
economy and the housing market and its flow through to Home
Depot," Bugatch said.
    He had an estimate of $3.50 a share for Home Depot's
earnings in the current fiscal year while Wall Street had an
average estimate of $3.49 a share.
    Home Depot's results came a day after Lowe's gave a
fiscal-year operating margin outlook that analysts said did
little to inspire confidence in its turnaround or in the U.S.
housing market. 
    "While recovering, we do not believe the housing market will
fully recover in 2013," CFO Tome told analysts on a conference
call. "Some may say that this is a conservative view - we would
agree. But we would rather plan conservatively."
    
    HOUSING HEALS ... SLOWLY
    Under Chief Executive Officer Frank Blake, Home Depot was
quicker than Lowe's to cut costs in the years after the housing
collapse.
    A bubble in the U.S. housing market was at the core of the
2007-2009 financial crisis, which started the same year that
Blake became CEO. During the housing downturn, Home Depot's
sales at established stores fell more than 20 percent in such
markets as Florida and California. In recent quarters, the
company has received a boost as housing markets have rebounded
in regions where it has a heavy presence. 
    New York and New Jersey were Home Depot's best-performing
regions in the fourth quarter ended on Feb. 3, mainly because of
Sandy-related repair activity. The company also continued to see
a recovery in Florida, California and Arizona, Blake told
investors.
    "The path to recovery will resemble a gradual thawing
process," he said.
    The company's sales to professional contractors rose on par
with those to consumers, in yet another sign of healing in the
housing market.
    
    MARKET SHARE GAINS
    Home Depot has 19 percent of the U.S. home improvement
market, while Lowe's holds 16.7 percent, according to
Euromonitor International.
    Diedrich said Lowe's investors will have to wait at least
two to three years to see the company's turnaround take hold
fully.
 
    Home Depot also raised its quarterly dividend by 34 percent
to 39 cents a share and approved a $17 billion stock repurchase
program to replace its previous authorization on Tuesday.
    Net earnings rose to $1.0 billion, or 68 cents a share in
the fourth quarter, from $774 million, or 50 cents a share, a
year earlier. 
    Excluding a gain from adjusting a previously announced
charge for China store closures, the company earned 67 cents a
share, while analysts on average expected a profit of 64 cents,
according to Thomson Reuters I/B/E/S.
    Sales rose 13.9 percent to $18.2 billion, beating the
analysts' average estimate of $17.7 billion.
    Sales at Home Depot's stores open at least a year rose 7
percent, including a 7.1 percent increase at its U.S. stores.
This was the 15th straight quarter when its same-store sales
outpaced those at Lowe's, which had posted a 1.9 percent rise
worldwide and for the United States.
    The average ticket rose 5.6 percent to $55.46 in the quarter
ended Feb. 3, the largest quarterly gain since the fourth
quarter of 2005, Bugatch said.
    In an interview, CFO Tome said February has started off well
and the company did not plan to be "more promotional" this
spring.
    Home Depot shares rose 5.7 percent to close at $67.56 on the
New York Stock Exchange on Tuesday.

 (Reporting by Dhanya Skariachan in New York; editing by Lisa
Von Ahn and Matthew Lewis)
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