Home Depot Inc. said Tuesday that quarterly profit rose 22%, beating estimates, as store improvements paid off in higher sales.
The world's largest home improvement retailer said third-quarter net income rose to $1.15 billion, or 50 cents a share, from $940 million, or 40 cents, a year earlier. Analysts on average were expecting earnings of 46 cents, a Reuters survey found.
Sales at stores open at least a year, an important retail gauge known as same-store sales, rose 7.8%, the biggest increase since the fourth quarter of 1999. Total sales rose 14.7% to $16.6 billion.
The company is benefiting from increased investment in store renovations and technology upgrades as competition heats up with rival Lowe's Cos. in big cities.
"The management initiatives are starting to show up in the bottom line," said Christopher Shea, a portfolio manager for Intrinsic Investors. "Not only are revenues improving, but we're starting to see an expansion in some of the company's profitability ratios."
In the stores, "the level of service is definitely up," Shea added.
Atlanta-based Home Depot, which has more than 1,600 stores in the United States, Canada and Mexico, reported double-digit same-store sales gains in some of its most competitive markets, including Lowe's home state of North Carolina.
On Monday, Lowe's reported a 33% jump in profit as same-store sales rose a stronger-than-expected 12%.
Though a strong housing market has helped, Home Depot credited changes it made to enhance service levels and the shopping experience.
The retailer has spent the last year making its stores cleaner and more inviting, and said additions such as self-checkout stations reduced customer wait times and gave workers more time to spend with customers.
Additionally, new products such as John Deere tractors and Ridgid power tools have lured shoppers while increased advertising, how-to clinics for women and a recent Web site redesign provided marketing momentum, Home Depot said.
Home Depot said it expected full-year per-share earnings growth of 15% to 17%, up from its previous estimate of 9% to 14%.
Home Depot shares eased 52 cents, or 1.5%, to $34.95 as the broader market slumped; Lowe's shares fell 74 cents, or 1.3%, to $57.17. Both trade on the New York Stock Exchange.