Home Depot Inc. (HD:US), the largest U.S. home-improvement retailer, expects to meet a profitability goal a year earlier than planned as rising housing prices prompt an increase in renovations.
Operating margin will expand to 12 percent by the year ending January 2015, a year earlier than expected, the Atlanta-based company said today in a statement. Home Depot also anticipates share repurchases (HD:US) of about $5 billion and capital spending of $1.5 billion in the period.
Homeowners, buoyed by a one-and-a-half year gain in U.S. housing prices, are spending more on remodeling kitchens and bathrooms, helping the company post profit that has topped analysts’ estimates for six straight quarters. Home Depot, led by Chief Executive Officer Frank Blake, last month posted third-quarter profit that topped analysts’ estimates and boosted its earnings forecast.
“They have done a tremendous job with margins as the housing market has picked up,” Michael Souers, an analyst for Standard & Poor’s in New York, said in an interview. “After several years of neglect, homeowners are re-investing in their homes.”
Souers recommends selling Home Depot’s shares because he said the housing market is likely to slow with increased borrowing costs.
Home Depot rose 0.5 percent to $79 at the close in New York. The shares (HD:US) have gained 28 percent this year, while competitor Lowe’s Cos., based in Mooresville, North Carolina, advanced 33 percent.
Earnings per share in the year ending January 2015 will rise about 17 percent to about $4.35, the company said today. That trailed the average analyst estimate (HD:US) of $4.43 compiled by Bloomberg. Sales will rise 5 percent over the period, matching analysts’ estimates.
Lowe’s, the second-largest U.S. home-improvement chain, has dropped (LOW:US) 6.1 percent since Nov. 19, the day before it posted third-quarter profit that trailed analysts’ estimates as it works to match Home Depot’s growth in an improving housing market.
Home Depot has more than 300,000 workers and had 2,260 retail stores at the end of the third quarter. The chain plans to open eight stores next year.
The company discussed its financial targets today at an investor and analyst conference that began at 9 a.m. New York time.
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