Home Depot Inc (HD.N) 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 (LOW.N), 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 February 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 February 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 February 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)