Home Depot Sees Bright Side of Crisis

A surge in sales of insulation, florescent lights and other energy savers helped brighten quarterly results for the nation’s largest home improvement retailer.

Home Depot Inc. said Tuesday that its second-quarter earnings topped analysts’ expectations, joining retail bellwether Wal-Mart Stores Inc. in squeezing out improved results in the sluggish economy.

Although the companies logged modest gains in profits and sales, their performance showed that consumers continue to spend while being more selective about where they shop.

J.C. Penney Co. recorded a loss in the second quarter as the slowdown in consumer spending pinched its department store and catalog units. HomeBase Inc., a smaller, Irvine-based rival of Home Depot, sustained a hefty loss on disappointing sales as it transformed itself from a home improvement chain into a home furnishings business.

Home Depot, which operates more than 1,000 stores, said its results were bolstered in part by the sale of conservation products during the energy crisis.

Sales of compact florescent lighting, for example, jumped 165% in the quarter, while insulation and thermostat sales were up 33%, the company said.

For the quarter, Home Depot earned $925 million, or 39 cents a share, up about 10% from $838 million, or 36 cents, in the comparable quarter last year. Analysts had expected earnings of 37 cents a share. Sales climbed 16% to $14.6 billion.

Sales at stores open at least a year, a key industry indicator, edged up 1% after slipping 3% in the first quarter.

The company’s stock gained $1.20 to $49.30 a share on the New York Stock Exchange.

Home Depot and other home improvement chains have launched major marketing campaigns aimed at touting products that consume less energy. In a television and radio campaign that began airing last month, Home Depot urged consumers to use their tax rebate checks to buy these goods.

The Atlanta-based company declined to give further details about how much these products--a fraction of the thousands of items sold by Home Depot--contributed to quarterly results.

Other home improvement stores also report a brisk business in energy-efficient goods.

Crown Ace Hardware in Anaheim has sold so many screw-in florescent bulbs that it has had to add three manufacturers to keep the bulbs in stock, store manager Tom Balaja said.

At a Lowe’s outlet in Westminster, florescent bulb sales are up about 9% over last year, said Paul Fairfax, the store’s electrical expert. The store also is enjoying strong sales of energy-efficient refrigerators, washing machines and dryers, Fairfax said, partly because energy companies are offering rebates on such purchases.

“Everybody seems to be coming in and upgrading their appliances,” he said.

The home improvement industry also has benefited from mortgage refinancings and lower interest rates on personal and home equity loans, which have prompted consumers to pour money into home remodeling projects.

“They’re borrowing, maybe even more than they had in mind, to do a bigger home improvement project or an addition,” said Lisa Gunggoll, spokeswoman for the National Assn. of the Remodeling Industry.

For Wal-Mart, its second-quarter earnings represented the smallest percentage increase in more than five years. And without elaborating, the discount retail giant said growth in the second half of the year will miss its earlier expectations.

Even so, Wal-Mart’s sales rose 15% in the second quarter. But the company’s wage and utility costs increased more, hurting earnings, which rose 1.6%. Shoppers also bought more low-profit items such as electronics and food.

“Customers are searching for value,” Wal-Mart Chief Executive Lee Scott said in a conference call. “They are increasingly choosing products at the [lowest] price point.”

J.C. Penney, matching Wall Street expectations, reported a loss from continuing operations, before special items, of $45 million, or 20 cents a share, compared with a loss of $31 million, or 15 cents, in the year-ago quarter. The Plano, Texas-based company previously reported second-quarter sales of $7.21 billion, about the same as a year ago.

HomeBase lost $37.6 million, or $1 a share, contrasted with a profit of $1.4 million, or 4 cents, a year ago. Sales slumped to $144.8 million from $407.1 million, when the company operated twice as many stores.

Wal-Mart’s shares closed up 16 cents to $52.36, Penney’s stock was up 10 cents to $26.49, and HomeBase shares dropped 13 cents to $2.64, all on the NYSE.

*

Bloomberg News was used in compiling this report.