Home Depot Profit Rises 10%, Beating Expectations

Home Depot Inc., the world’s largest home improvement retailer, Tuesday posted a 10% rise in second-quarter profit as sales at stores open at least a year rebounded. But its stock fell more than 5% as results lagged behind those of its chief rival.

Home Depot’s earnings topped Wall Street expectations but trailed the 28% profit gain reported by faster-growing Lowe’s Cos. on Monday. Home Depot’s same-store sales rose 2.2%; Lowe’s beat forecasts with a rise of 6.9%.

Home Depot, which is investing heavily in national advertising, store renovations and technology, had net income of $1.3 billion, or 56 cents a share, compared with $1.18 billion, or 50 cents, a year earlier.

Earnings were 2 cents better than the average analyst estimate of 54 cents a share.

Sales rose 10.5% to $18 billion. The rise in same-store sales, a key measure of growth, reversed three straight quarterly declines.

Eric Bosshard of FTN Midwest Research said the results were a “big step” as Home Depot revamps its business. “They needed to rebuild sales momentum, and they are clearly doing that,” he said.

Home Depot said best-performing categories included paint and outdoor equipment such as John Deere tractors. Sales in its service business rose 45%, driven by installations of heating and air conditioning systems, sheds and fences.

Gross margins also expanded because of gains from centralized purchasing, lower price markdowns and higher imports.

But average weekly store sales fell 2.5% from a year earlier. Sales per square foot also fell, to $415 from $421 last year. Home Depot also cited higher expenses related to workers’ compensation.

The company said an accounting change related to the timing of vendor allowances for cooperative advertising could cut its diluted per-share profit for fiscal 2004 by as much as 5 cents. In May, Lowe’s said the change would shave 12 cents from its 2004 profit.

Home Depot affirmed that it expected sales to rise 9% to 12% for fiscal 2003, with per-share earnings growth of 9% to 14%.

Home Depot shares on Tuesday shed $1.74 to $32.16. Lowe’s rose 71 cents, or 1.4%, to $52.67 after Prudential Financial upgraded it to “buy” from “hold.” Both stocks trade on the New York Stock Exchange.