Home Depot 2Q net income rises on storm repairs

AP News
Posted: Aug 16, 2011 11:04 AM
Home Depot 2Q net income rises on storm repairs

Home Depot Inc.'s second-quarter net income rose 14 percent as shoppers picked up lawn and garden products and made storm-related repairs during the summer, the company said Tuesday. The nation's largest home-improvement retailer also raised its earnings guidance.

The results sent Home Depot shares up 5 percent in morning trading and are a positive sign that consumers are feeling slightly better about spending money to improve their homes. Purchases over $900, which accounts for about 20 percent of Home Depot's revenue, rose 5.4 percent during the quarter. Transactions under $50 were flat.

"Our second-quarter results were driven by a rebound in our seasonal business, storm-related repairs and strength in our core categories," said CEO Frank Blake.

He added that results were positive in the North, South and Western U.S., indicating a "stabilizing environment across the country."

The news came even as The Commerce Department reported that builders began work on a seasonally adjusted 604,000 homes last month, a 1.5 percent decrease from June. That's half the 1.2 million homes per year that economists say must be built to sustain a healthy housing market.

And the results stood in contrast to smaller rival Lowe's, which a day earlier in part blamed bad weather for its flat second-quarter earnings and cut its revenue forecast. Its shares rose 15 cents to $19.83.

Home Depot said it gained market share in several categories including flooring, plumbing, electrical lighting and kitchens.

Net income rose to $1.36 billion, or 86 cents per share, during the three months ended July 31. That's up from $1.19 billion, or 72 cents per share, in the same period last year.

Analysts expected net income of 83 cents per share, according to FactSet.

Revenue rose 4 percent to $20.23 billion. Analysts predicted $19.97 billion. Revenue in stores open at least a year, considered a key gauge of a retailer's financial health because it excludes stores that open or close during the year, rose 4.3 percent globally and 3.5 percent in the U.S.

The results show a "really strong quarter," said Janney Capital Markets analyst David Strasser in note to investors. Home Depot is "operating at a high level, taking chances where appropriate in merchandising, leveraging technology investments, and benefiting from a return to more localized marketing and merchandising in the store," he added.

Home Depot said heat waves as the quarter progressed drove sales of ceiling fans and refrigerators. Winter and spring storms and tornadoes helped fuel sales of roof, gutter and lawn repair products as well as cleaning supplies and water pumps.

Lowe's had also said that repairs after storms helped results, but added that heat and drought hurt its results in the Gulf Coast.

Spring and summer are the most important seasons for home-improvement retailers since people spend more on their lawn and garden projects during those months. Home-improvement retailers have slumped for more than three years after shoppers cut back on big-ticket renovation projects because of the moribund housing market and weak economy.

Home Depot has said that its sales performance is increasingly more correlated with the U.S. gross domestic product growth than the housing market. But in the current quarter, that was not the case, even though the company said its results are still closely tied to GDP growth.

"We expect that certain quarters will exhibit such a disconnect as there are factors such as weather-related sales, storm damage-related sales and event driven sales that on a short term basis can't be matched to any specific economic statistic," said CFO Carol Tome.

Home Depot, based in Atlanta, raised its full-year earnings guidance to $2.34 per share from $2.24. Analysts had expected $2.30. It still expects yearly revenue to rise 2.5 percent.

On Monday, Mooresville, N.C.-based Lowe's said its second-quarter net income was nearly flat as its revenue rose 1 percent to $14.54 billion.