Home Depot Sees Profit Rise 15%
Home Depot Inc., the world’s largest home-improvement retailer, said Tuesday that third-quarter earnings climbed 15% because of demand for emergency supplies during the hurricane season and for installation services.
Net income surpassed analysts’ average estimates, rising to $1.32 billion, or 60 cents a share, from $1.15 billion, or 50 cents, a year earlier. Revenue in the quarter ended Oct. 31 increased 13% to $18.8 billion, though sales slowed as the quarter progressed, the Atlanta-based company said.
Chief Executive Robert Nardelli is working to narrow the gap in sales growth with No. 2 Lowe’s Cos. this year by increasing installations of products including kitchen cabinets. Both companies benefited from sales in advance of four hurricanes and are being helped by rebuilding work in Florida, where each gets about 7% of sales.
Home Depot said same-store sales, those at locations open at least a year, rose about 2% in October after gains of more than 6% in August and September, when demand for building materials and generators surged in Florida.
The company’s shares fell 79 cents to $43 on the New York Stock Exchange. They have risen 23% this year.
Home Depot said annual profit would rise as much as 20%, compared with its forecast of 17% in August. Third-quarter profit was 3 cents more than the 57-cent average estimate of 26 analysts surveyed by Thomson First Call.
Same-store sales increased 4.5% in the quarter, compared with 5.2% for Lowe’s. The gains at Lowe’s have exceeded Home Depot’s for 10 of the last 11 quarters, in part because its new stores are less likely to take sales from existing locations.
Home Depot said revenue from services rose 26%, with increases in installation of carpeting, countertops and windows.
Nardelli is looking for ways to tap avenues for growth for the 25-year-old retailer, which operates 1,826 stores. Although sales have risen 16% a year for the last five years, investors say the company may face saturation in much of the United States in the next few years.
Last quarter, Home Depot opened 38 stores, including its first Manhattan location. Nardelli said he wanted to extend Home Depot’s name globally, and in June the company set up a business development office in China. It also operates 110 stores in Canada.
In Mexico, where the company has 42 locations, same-store sales rose more than 10%. The company gained from its June purchase of Home Mart, its closest competitor in Mexico.
“Home Depot is moving into China, Mexico and Canada aggressively and is spending the money to compete domestically,” said Keith Davis, an analyst with Farr, Miller & Washington in Washington.
Nardelli is spending $1 billion this year to remodel stores with brighter lighting, larger signs and wider aisles to make Home Depot more competitive with newer Lowe’s stores.
Lowe’s said Monday that third-quarter net income rose 15% to $522 million, or 66 cents a share.
Faster sales growth at Lowe’s during the last five years has made it the favorite among analysts, with 16 “buy” ratings and five “hold” ratings, according to Bloomberg data. Home Depot has 10 “buys,” 11 “holds” and one “sell.”
Home Depot and Lowe’s have benefited from a strong housing market, with sales of existing homes expected to set a record this year, according to the National Assn. of Realtors.
