(Reuters) - Home Depot Inc (HD.N), the world's largest home improvement chain, reported better-than-expected sales, boosted by an improving housing market and mild weather in the holiday quarter that encouraged customers continue outdoor activities and home renovations.
Shares of the company, which also raised its quarterly dividend by 17 percent and announced a $5 billion share buyback plan, rose as much as 3.5 percent in morning trading on Tuesday.
Home Depot is benefiting from a pent-up demand for houses after the 2008 financial recession. Low interest rates and growth in jobs, wage and credit are also spurring customers to spend more on renovating homes.
Warmer-than-average weather during the holidays also helped Home Depot drive sales across a number of outdoor categories as activities such as gardening carried on for much longer, Conlumino analyst Carter Harrison said.
Favorable weather trends in the quarter helped sales growth by about $100 million, Ted Decker, executive vice president of Merchandising, said on a conference call.
Net sales rose 9.5 percent to $20.98 billion in the fourth quarter.
Sales at stores open for more than a year rose 8.9 percent in the United States in the quarter ended Jan. 31. Analysts on average expected sales to rise 5.3 percent, according to research firm Consensus Metrix.
The results bucked a broader retail trend of disappointing holiday quarter sales as shoppers spent more on big-ticket items such as home improvement and automobiles, instead of discretionary items such as apparel.
Sales of items priced above $900 rose 11.9 percent in the quarter, while those below $50 rose 3.8 percent, Decker said.
The appliances, tools and building material businesses posted double-digit comparable sales, while those for outdoor garden, paint, kitchen and bath were in mid-single digits, he added.
"Home Depot remains a beacon of strength in an increasingly bumpy macro and retail backdrop," Morgan Stanley analysts wrote in a note, raising their price target by $10 to $145.
Home Depot's strong performance has set a high bar for rival Lowe's Cos Inc (LOW.N), which reports results on Wednesday.
Home Depot said it expected 2016 sales to grow by 5.1-6.0 percent, which translates to $93.03-$93.83 billion. Analysts on average were expecting $93.12 billion. Comparable sales are expected to grow 3.7-4.5 percent, the company said.
Net earnings rose 6.6 percent to $1.47 billion, or $1.17 per share, in the fourth quarter, above analysts' average estimate.
Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Shounak Dasgupta and Don Sebastian