Home Depot reports higher-than-expected profit
Home Depot Inc. still sees room for profit growth this year as consumers take up long-delayed maintenance and repair projects for their homes, even if a return to bigger renovations will have to wait.
Cost controls helped the company post a higher-than-expected quarterly profit and raise its full-year earnings forecast Tuesday. While sales missed expectations in a weak economy, investors were relieved that the top home-improvement chain still expects an increase for the rest of the year.
“We come in looking at these numbers and think that … things really did not fall apart,” said Thomas Villalta, a portfolio manager at the Jones Villalta Opportunity Fund in Austin, Texas.
Home Depot’s results echoed those of rival Lowe’s Cos. Inc., which reported Monday. Shares of both companies rose for the second straight day on hopes that they are poised to grow once consumer sentiment perks up.
While both home-improvement chains have yet to see demand for expensive home projects such as special-order kitchens, they have benefited from U.S. consumers selectively spending on repairs and replacing appliances with energy-efficient ones.
Home Depot plans to focus on cheaper products such as faucets, paints and simple flooring projects to drive traffic as it sees limited room for “ticket growth” in the weak sales climate.
“As uncertain as the economic climate is, we are seeing our business return to sales growth and the hardest hit parts of the country start to stabilize,” Chief Executive Frank Blake said.
Blake pointed out that 70% of the company’s top 40 U.S. markets reported same-store sales increases in the second quarter, with key markets such as Florida and California performing in line with the company average.
Home Depot’s net income rose to $1.2 billion, or 72 cents a share, in the second quarter ended Aug. 1 from $1.1 billion, or 66 cents, a year earlier.
Analysts on average were expecting 71 cents a share, according to Thomson Reuters.
Sales rose 1.8% to $19.41 billion, missing the average estimate of $19.59 billion.
Home Depot forecast earnings of $1.90 a share from continuing operations for the current fiscal year, up 2 cents from its previous outlook. For the prior year, it reported profit of $1.66 a share from continuing operations, before charges.
The company expects sales growth of about 2.6%, down from an earlier view of 3.5%.
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