August 20, 2013 / 10:09 AM / 5 years ago

Home Depot reaps benefits from U.S. housing rebound

(Reuters) - A recovery in the U.S. housing market helped boost Home Depot Inc’s (HD.N) quarterly profit and sales above analysts’ estimates, prompting the world’s largest home improvement chain to raise its outlook for the fiscal year.

The entrance to The Home Depot store is pictured in Monrovia, California in this file photo from August 13, 2012. REUTERS/Mario Anzuoni/Files

The U.S. retailer also reported its first double-digit rise since 1999 in sales at stores open at least a year and had the highest quarterly transaction count in its history, Chief Executive Officer Frank Blake said on Tuesday.

Sales were strong across the country, Blake added.

The news, which came just days after data showed that U.S. housing starts rose 5.9 percent in July, gave more evidence that the market for homes was healing after years of weakness.

“These stronger results demonstrate the sales leadership of the housing/home improvement segment and Home Depot’s strong positioning and execution within it,” said Credit Suisse analyst Gary Balter. He said he believed the company’s future sales would also beat estimates as the housing recovery advances.

A bubble in the U.S. housing market was at the core of the 2007-2009 financial crisis. During the downturn, Home Depot’s sales at established stores fell more than 20 percent in such markets as Florida and California.

In recent quarters, housing has rebounded in those markets and other states where Home Depot has a heavy presence, such as Arizona and Nevada. In May, the company said its sales to contractors and professional customers increased faster than those to individual homeowners and other shoppers for the first time since 2008.

“In 2008, the consumer was really focused on core repair and maintenance,” Chief Financial Officer Carol Tome said in an interview. “Fast-forward to 2013: Home prices are better, and as consumers start to see their home price appreciate, they start to view their home as an investment and not an expense.”

Home Depot shares, which have outperformed the Standard & Poor’s 500 Index .SPX and Dow Jones Industrial Average .DJI so far this year, were unchanged at $75.21 on Tuesday afternoon. At least one analyst recommended selling the stock.

“While we see continued near-term margin improvement on strong cost control, we think rising interest rates threaten housing turnover, limiting sales growth,” said S&P Capital IQ analyst Michael Souers, who believes Home Depot shares are expensive at current levels.

But Tome said: “We have got a long way to grow” in terms of sales.

Net earnings rose to $1.80 billion, or $1.24 a share, in the second quarter ended August 4 from $1.53 billion, or $1.01 a share, a year earlier. Analysts on average were expecting a profit of $1.21 a share, according to Thomson Reuters I/B/E/S.

Sales rose 9.5 percent to $22.5 billion, topping the analysts’ average estimate of $21.8 billion. Sales at stores open at least a year rose 10.7 percent, including an 11.4 percent increase in the United States.

For the year, the company raised its earnings forecast to $3.60 a share from $3.52. It said it expected a sales rise of about 4.5 percent, up from previous expectations of a 2.8 percent increase.

Home Depot has also benefited from its own efforts to improve customer service and attract shoppers with more compelling prices than its rivals. It has tailored its marketing to local areas, centralized distribution centers and shifted more workers to jobs where they serve customers directly.

As a result, Home Depot has gained market share from rival Lowe’s Cos (LOW.N), which is due to report results on Wednesday.

Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn

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