Home Depot Beats Estimates on Cost Cuts, Sales

Home Depot Inc. on Tuesday reported a sharper-than-expected 28% increase in fiscal second-quarter earnings as it cut store expenses and sold more appliances and other big-ticket items.

The nation’s largest home improvement retailer also said it was comfortable with Wall Street estimates for higher profit in the current quarter and full year.

Chief Executive Robert Nardelli is paring inventory, centralizing purchasing and slowing expansion to bolster profit as Home Depot faces increased competition from smaller rival Lowe’s Cos.

Retailers have been watching costs, concerned sales may slow as the U.S. economic recovery falters, investors said.

Atlanta-based Home Depot reported net income of $1.18 billion, or 50 cents a share, for the quarter ended Aug. 4, up from $924 million, or 39 cents, a year earlier, on a 12% rise in revenue to $16.3 billion. Analysts on average were expecting 47 cents a share, according to Thomson First Call.

Home Depot has lost some investor favor as Lowe’s, of Wilkesboro, N.C., has reported profit increases outstripping those of the industry leader.

On Monday, Lowe’s posted a 42% rise in fiscal second-quarter earnings. Lowe’s is giving Home Depot more competition as it opens stores in lucrative markets such as the Northeast.

Home Depot’s sales at stores open at least a year were up just 1% in the quarter, trailing Lowe’s 6.8% increase in same-store sales and Home Depot’s own forecast for a rise of 2% to 4%.

Home Depot’s chief financial officer, Carol Tome, said the quarter was a “tough selling environment” affected by poor weather, falling lumber prices and low consumer confidence. Cannibalization, which occurs when newer Home Depot stores take sales from older ones in the same market, and vendor changes also hurt same-store sales, Tome said.

Home Depot reiterated that it expects to reach its goals of 15% to 18% annual revenue growth and 18% to 20% annual profit growth through 2004.

The company’s year forecast suggests that it would post fourth-quarter profit of 31 cents a share, below the current First Call analyst consensus of 34 cents.

Home Depot shares rose $1.22 to $30.25 on the New York Stock Exchange.

Other retail industry earnings reports Tuesday:

* Ross Stores Inc. said net income climbed 40% to $49.7 million, or 62 cents a share, in its fiscal second quarter as the discount retailer of apparel and household items added 17 stores. Sales surged 21% to $876.9 million, and same-store sales jumped 9%. Newark, Calif.-based Ross said it also benefited by bringing in new merchandise and controlling costs. The results matched analyst expectations.

* Saks Holdings Inc. said its fiscal second-quarter loss narrowed to $20.4 million, or 14 cents a share, from $42.4 million, or 30 cents, a year earlier as inventory management and profit margins improved. The results were much better than the 18-cent loss analysts had expected. Sales were down 2.6% to $1.24 billion.

* Staples Inc.’s fiscal second-quarter earnings rose 48% to $59.6 million, or 13 cents a share, a penny better than expectations, as revenue rose 5% to $2.43 billion. But the office supplies retailer said profit in the current quarter would be somewhat weaker than analysts had forecast. It sees earnings of 22 cents to 24 cents, compared with estimates of 23 cents to 25 cents.