* Quarterly earnings $1.01/share vs Wall St view 97 cents
* Second-quarter sales rise but miss Wall Street
* Backs sales outlook for the year, raises profit forecast
* Investor says lofty valuation of Home Depot stock is
* Shares up 3.9 percent
By Dhanya Skariachan
Aug 14 Cost controls and market share gains
helped Home Depot Inc beat Wall Street's profit estimates
for the latest quarter, prompting the No. 1 home improvement
chain to raise its earnings outlook for the fiscal year.
The retailer is also seeing improvements in California and
Florida, states that were hit hard by the housing downturn,
Chief Executive Officer Frank Blake said on Tuesday.
The news boosted Home Depot shares as much as 4 percent to
their highest level in 12 years and raised hopes that the
company was positioned to keep outdoing rival Lowe's Cos Inc
once the housing market and the U.S. economy stabilize
"The worst of the (housing) crisis is behind us," said
Barclays analyst Alan Rifkin, who added that he was seeing signs
of stability after years of declines.
Groundbreaking on new U.S. homes rose in June, hitting its
fastest pace in more than three years, a report showed last
"Housing is now a contributor to GDP growth, rather than a
drag," said Blake, who has often been credited for improving
Home Depot's merchandise, supply chain and customer service.
For Home Depot, he said, Florida and California were among
the best-performing states in the quarter in terms of sales
growth at stores open at least a year.
During the housing downturn, Home Depot's same-store sales
were down more than 20 percent in those markets, Chief Financial
Officer Carol Tome told Reuters, but shoppers there are now
spending across the store.
"We fell so dramatically," Tome said. "We are just starting
to kind of grow back into where we were, and we are not there
U.S retail sales rose 0.8 percent in July, their first gain
in four months, the Commerce Department said on Tuesday. Demand
increased for everything from cars to electronics, signaling
that consumers could drive faster economic growth in the third
Home Depot is "executing marvelously" and taking market
share from Lowe's with the help of better pricing and customer
service, Rifkin said. He said he expected Lowe's to post lower
same-store sales growth than Home Depot for the 13th consecutive
quarter when it reports its results next week.
Shares of Home Depot were up 3.9 percent at $54.88 in midday
trading after touching a high of $54.95 earlier in the session.
At Monday's close, they had climbed more than 26 percent this
While the stock trades at a high price-to-earnings multiple,
the lofty premium is justified, said analyst Walter Stackow of
Manning & Napier, which owns shares in the company.
"You have slow economic growth in general in the U.S., and
there's some uncertainty," Stackow said. "What Home Depot offers
is earnings growth, high amount of visibility and reasonably
high predictability," and it is picking up market share.
Net earnings rose to $1.53 billion, or $1.01 a share, in the
second quarter ended on July 29 from $1.36 billion, or 86 cents
a share, a year earlier. Analysts were expecting a profit of 97
cents a share, according to Thomson Reuters I/B/E/S.
Home Depot, which cut operating expenses by 2.7 percent to
$4.46 billion in the quarter, has benefited from its recent
efforts to improve distribution and customer service. It has
been quicker than Lowe's to cut costs, and in some cases has
gotten a boost as housing markets have rebounded in regions
where it has a heavy presence.
A return to more localized marketing and merchandising has
also helped Home Depot.
THE WEATHER IMPACT
Sales rose 1.7 percent to $20.57 billion, but missed the
analysts' average estimate of $20.74 billion.
The company's second quarter is typically the most important
selling period for home improvement chains, but unseasonably
warm weather early in the year pulled some demand into the first
In the second quarter, same-store sales rose 2.1 percent
globally, including a 2.6 percent increase in the United States.
While Home Depot's results exceeded his estimates, Janney
Capital Markets analyst David Strasser said he was less
optimistic about same-store sales growth in the back half of the
year, citing consumer spending trends.
The company's operating performance remains impressive, but
that is largely priced into the stock, Strasser said.
Home Depot said it still expected total fiscal-year sales to
rise 4.6 percent. It forecast earnings at $2.95 a share, up from
its prior outlook of $2.90.
The company, which has stores in the United States, Canada,
Mexico and China, reported a 0.6 percent rise in the number of
customer transactions in the second quarter, and their average
value increased 1.8 percent to $55.02.