Home Depot Shares Jump on Strong Earnings Data

El Nino, shmino.

Shrugging off the West’s spring storms to extend its seemingly unstoppable growth, building-supplies giant Home Depot Inc. on Tuesday announced an unexpectedly strong 30% jump in fiscal first-quarter profit compared with a year earlier.

Wall Street, joyfully surprised, propelled Home Depot’s red-hot shares even higher. The stock gained $2.88, to $73 a share, in New York Stock Exchange composite trading, and it’s now soared 83% over the last 12 months.

The first-quarter performance cheered investors not only because the 656-store chain outlasted the wet weather in the West, but because it surpassed Home Depot’s own lofty goal of increasing its earnings by 23% to 25% a year.

“We are very pleased with where we are today,” Arthur Blank, chief executive of the Atlanta-based operator of the huge warehouse-style stores, told reporters and analysts in a teleconference.

Key factors driving Home Depot’s growth are the robust economy and Home Depot’s aggressive expansion, which includes plans to open 137 additional stores this year.

*

Consumers, general contractors and builders are spending more on supplies because housing construction is robust, and employment and income levels are enabling more consumers to repair and upgrade their homes.

Housing starts unexpectedly fell 2.3% in April, to an annual rate of 1.54 million units, after also dropping in March, the Commerce Department said Tuesday. Even so, April marked the eighth-straight month that starts were running above an annual rate of 1.5 million units--the longest stretch at that pace since the mid-1980s.

Blank said sales of flooring, kitchen goods and bathroom fixtures were especially strong in Home Depot’s first quarter, which ended May 3. Also, the average bill paid by his customers in the quarter was $45.19, up 4% from a year earlier, the company said.

“Home Depot’s growth is being helped by a favorable housing market,” said Wayne Hood, an analyst at Prudential Securities in Atlanta. Also, the El Nino effect produced unseasonably good weather in the Northeast early this year, and that helped offset the storms in the West, he said.

In the quarter, Home Depot’s net income rose to $337 million, or 45 cents per diluted share, from $259 million, or 35 cents, a year earlier. The chain’s sales climbed 26%, to $7.1 billion from $5.7 billion.

Home Depot’s same-store sales--those sales of stores open at least a year, and the retail industry’s bellwether gauge of performance--rose a strong 7% from a year earlier.

*

Some other home-improvement stores are benefiting from the economy’s strength as well. Lowe’s Cos., a North Carolina-based chain of 451 stores in the South and East, Monday reported a 34% first-quarter earnings gain that was also above expectations.

Even struggling HomeBase Inc., an 83-store chain based in Irvine, said Monday it managed a $758,000 first-quarter profit, if a one-time, $667,000 charge were excluded. HomeBase said the results were “slightly ahead” of its expectations.

(Orchard Supply Hardware, another major chain in Southern California, is owned by Sears, Roebuck & Co.)

Home Depot’s relentless growth also reflects its new-store openings, which is taking market share away from its rivals, analysts said. And Home Depot has no plans to let up: Blank said the chain expects to have more than 1,300 stores by the end of 2001.

Two can play that game, though. Lowe’s recently unveiled plans to invade California and other Western states beginning next year, with stores planned in Los Angeles and San Diego.

*

Experience shows Home Depot’s sales will temporarily drop about 20% when Lowe’s shows up in the same neighborhood, but Home Depot typically bounces back after three or four months, said Prudential’s Hood.

Blank, in fact, was asked about Lowe’s recent opening of stores that compete with Home Depot in Dallas and Atlanta. Without giving specific sales figures, Blank said, “We are very pleased . . . with the way customers have responded,” and that Home Depot’s sales in those cities “are running ahead of plan.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Home Run

Home Depot’s stock has soared on the heels of the home-improvement chain’s strong financial growth. Monthly closes and latest:

Tuesday close: $73

Source: Bloomberg News