Home Depot Posts Strong Profit, Sales
Home Depot Inc. on Tuesday posted higher-than-expected quarterly profit as sales to contractors increased and said it would spend more on stores to defend its market share as the U.S. housing market cools.
Citing mixed economic signals and a tougher second half, the largest home-improvement retailer said profit and sales for this year were likely to rise only to the low end of its previous forecast. Nevertheless, its shares climbed more than 3%.
Some analysts also said the stock was helped by a weaker-than-expected U.S. producer price report that bolstered hopes the Federal Reserve won’t lift interest rates in the short term.
Earnings rose 5% to $1.86 billion, or 90 cents a share, in the second quarter ended July 30, from $1.77 billion, or 82 cents, a year earlier.
Excluding a charge for a retroactive tax assessment from Canada, adjusted profit came to 93 cents a share. Analysts had expected 92 cents, according to Reuters Estimates.
Sales rose 16.7% to $26 billion, outdoing analysts’ expectations of $25.57 billion. At its retail stores, sales were up 5% to $22.6 billion, but sales at stores open at least a year eased 0.2%.
Home Depot, which faces more competition as rival Lowe’s Cos. adds stores in big cities, said it would spend $350 million in the second half of 2006 to refresh products, boost staffing levels and start a customer service hotline at its retail stores, which account for 87% of sales.
“In a challenging environment like this, we believe it’s all about investing to win,” Chairman Robert Nardelli said during a conference call.
Home Depot and Lowe’s have benefited from record U.S. home sales and construction in recent years but now face tougher conditions as the housing market cools and consumers grapple with higher energy costs and interest rates.
Atlanta-based Home Depot said profit and sales growth would come in at the low end of its projections for the year. The company had forecast a 14% to 17% rise in sales and a 10% to 14% increase in earnings per share.
