| NEW YORK
NEW YORK Top home-improvement chain Home Depot Inc (HD.N) reported its first quarterly same-store rise in nearly four years and gave an upbeat full-year forecast as customers begin making bigger renovation projects.
The news came a day after rival Lowe's Cos (LOW.N) posted better-than-expected results and said sales would improve this year as demand for remodeling projects picks up.
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.
"Our expectation is that 2010 will be a transitional year," CEO Frank Blake said on a conference call, adding he expected to see relatively flat growth in the first half of the year, with more momentum in the second half.
Home Depot's sales at stores open at least a year rose 1.2 percent globally. But same-stores sales fell 1.1 percent in the United States -- its main market -- compared with a 1.8 percent drop for Lowe's.
Blake said all but two of Home Depot's top 40 markets in the United States showed improvement in the fourth quarter on a same-store sales basis.
He also pointed to sequential improvements in California and Florida, areas hard-hit by the housing downturn.
In an interview, CFO Carol Tome said the company -- which has about 1,976 stores in the United States, 179 in Canada, 79 in Mexico and 10 in China -- was committed to investing in its U.S. business and was not currently eyeing acquisitions in new international markets.
Home Depot also raised its quarterly cash dividend 5 percent, the first increase since 2006 and "a testament to our confidence in the company's strategic initiatives," Blake said.
JPMorgan analyst Christopher Horvers said Home Depot posted its first positive same-store sales results since the first quarter of 2006. Along with its raised dividend, the improved tone proves the home improvement sector "is rebounding and is one to own in 2010," he said.
Oppenheimer's Brian Nagel said the same-store sales had exceeded his expectations. Better sales lately portend even stronger trends over the next several quarters, he added.
The home improvement sector is set to have higher sales growth rates than general retail in the long term because it benefits from the aging of the housing base and a growing population, Edward Jones analyst Robin Diedrich said.
She expects a fairly gradual and not a sharp return in demand for big-ticket items.
The shares of Home Depot -- whose quarterly results suggest continued gains against rival Lowe's Cos Inc (LOW.N) -- rose 2.2 percent in afternoon trading. Lowe's stock was down 1.1 percent.
SALES EXCEED EXPECTATIONS
Home Depot's net income was $342 million, or 20 cents a share, in the fourth quarter ended 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.
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.
Home Depot is benefiting from a slower expansion strategy, recent measures to improve its supply chain and cost cuts that included workforce reductions in January.
Under CEO Blake, Home Depot has been closing secondary chains while upgrading service and products in its big-box strip-mall retail business to win back share from Lowe's.
Evidence this was working came in August, when Home Depot beat Lowe's on same-store sales for the first time in several years. Home Depot said it increased its U.S. market share by more than 100 basis points in the last fiscal year.
The company's stock trades at about 22 times forward earnings, while Lowe's has a multiple of about 19.
"While the stocks have run up and aren't cheap on printed expectations, we believe the global investor demand to own these stocks as a proxy for the turn in the U.S. housing cycle is substantial," RBC Capital analyst Scot Ciccarelli said.
(Reporting by Dhanya Skariachan; editing by Lisa Von Ahn and Andre Grenon)