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Home Depot Profit Tops Estimates as Housing Spurs Sales

February 25, 2014

The Home Depot Inc. Slogan is Seen on a Bucket at a Store

The Home Depot Inc. slogan "Let's Do This." is seen on a customer's bucket while waiting in line to check out with lumber at a store in Torrance, California. Photographer: Patrick T. Fallon/Bloomberg

Home Depot Inc. (HD:US) posted fourth-quarter profit that topped analysts’ estimates, marking six straight years (HD:US) of meeting or exceeding projections, as the U.S. housing rebound spurs spending on renovations.

Net income in the three months ended Feb. 2 fell 0.8 percent to $1.01 billion, or 73 cents a share, from $1.02 billion, or 68 cents, a year earlier, the Atlanta-based company said today in a statement. The average of 25 analysts’ estimates (HD:US) compiled by Bloomberg was 71 cents. The chain has topped quarterly projections 23 times since mid-2008, while matching estimates once.

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The largest U.S. home-improvement retailer has benefited from two years of rising housing prices, fueling spending on remodeling kitchens and bathrooms. That demand helped Home Depot more than double its initial forecast for a 2 percent increase in 2013 sales, with revenue climbing 5.4 percent to $78.8 billion last year.

Home Depot topped earnings estimates “while managing through a difficult retail environment” that included “extreme winter weather,” Gary Balter, an analyst with Credit Suisse Group AG in New York, wrote today in a note to clients. These results should reduce concerns that the housing market may be slowing down, he said.

The company also raised its quarterly dividend 21 percent to 47 cents a share.

Shares Rise

Home Depot rose (HD:US) 4 percent to $80.98 at the close in New York. The shares have gained 27 percent in the past 12 months. That compares with a 34 percent advance for Lowe’s Cos. and a 24 percent increase for the Standard & Poor’s 500 Index.

The decline in fourth-quarter earnings was attributable to an extra week that boosted profit by 7 cents a share a year earlier. If that week were removed, sales gained 3.9 percent to $17.7 billion, the company said.

Heavy snowfall and cold weather hurt results during the quarter and contributed to a sales decline in New York and New Jersey. Those areas also had a tough comparison because of the surge in demand last year following the cleanup of Hurricane Sandy, the company said.

The unusual weather should boost sales this spring, which is the company’s largest sales period of the year, as people repair homes damaged this winter, the company said.

Home Depot said today that sales in the current fiscal year will increase 4.8 percent, compared with a December forecast of about 5 percent. The retailer also reiterated that operating margin would expand by 0.7 percentage points, spending on share repurchases will total about $5 billion, and earnings per share will gain about 17 percent.

Housing Tailwind

The company expects the housing rebound to continue this year, including more gains in prices, and serve as a “tailwind” for its business, Chief Executive Officer Frank Blake said today on a conference call with analysts.

Housing contributed 2.5 percentage points last year to a 6.8 percent increase in same-store sales -- the biggest gain since 1999. This year that benefit will be 2 percentage points, Chief Financial Officer Carol Tome said on the call with analysts. Revenue by that measure is projected to advance 4.8 percent as the housing recovery enters a “moderate” phase, she said.

Growth Strategy

Blake has embarked on a growth strategy that relies on boosting sales within existing stores and online rather than opening new locations. The chain has “effectively saturated” markets in the U.S. and Canada and doesn’t plan to expand into new countries because it can get a better return by investing in current locations, Blake said at an investor conference (HD:US) in December.

To drive home the point, Blake said that in the third quarter Home Depot boosted revenue at existing U.S. locations by about $2 billion, which would take years to match in an overseas expansion. The company generates about 89 percent of its sales in the U.S.

“A wildly successful venture into a foreign country might yield $2 billion in sales after a decade of effort,” Blake said in December. “Opportunity and capital efficiencies strongly argue for intense focus here.”

In stores, Home Depot has pushed employees to spend more time helping shoppers by reducing tasks such as stocking shelves, especially during peak periods. The chain said it should soon reach its goal of having store workers use 60 percent of their day on customers, which would be an increase from 40 percent in 2007.

On the Web, the chain is trying to better connect with its more than 2,200 stores. In 2013, it began shipping online orders to stores and this year plans to deliver online orders from stores to homes. Home Depot also is adding three fulfillment centers in the U.S. to improve delivery times of Web orders.

Online sales rose 53 percent to $2.7 billion last year, after growing 38 percent in 2012, the company said.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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