By Dow Jones Business News, February 26, 2013, 02:29:00 PM EDT
--Same-store sales jump 7% in quarter, highest figure since 2004
--Gap in comparable sales over Lowe's is widest since Home Depot has outperformed rival
--Conservative outlook tempers report
By Joan E. Solsman
After years training itself to outdistance rivals without help from housing, Home Depot Inc. ( HD ) is showing how far
it can go with the wind at its back.
Helped by Hurricane Sandy rebuilding and real-estate recovery, the country's No. 1 home-improvement retailer reported
its strongest sales at longstanding locations in eight years Tuesday. It widened its lead over rival Lowe's Cos. ( LOW )
and, unlike a swath of other retailers, said strain on consumers from a payroll-tax increase was nowhere to be seen.
But it joined their ranks with a weaker forecast than expected, undercutting an otherwise superlative report.
Shares climbed 5.5% to $67.41 in recent trade. As investors have flocked to beneficiaries in housing recovery, Home
Depot's stock has surged, last month hitting a 13-year high.
However, executives at the do-it-yourself chain remained sober. Chief Executive Frank Blake said "recovery will
resemble a gradual thawing process" on a conference call to discuss results. The recovery so far is consistent, if not
slightly better, than the path the company predicted last summer when it refreshed its-long term goals, he said.
But a full recovery isn't coming this year, according to Chief Financial Officer Carol Tome. "Some may say that this
is a conservative view. We would agree, but we would rather plan conservatively," she said.
Its outlook was weak. For the 2013 fiscal year, Home Depot expects per-share earnings of about $3.37, less than the $
3.49 expected on average by analysts in a Thomson Reuters survey. Home Depot has a record of conservative guidance, last
year raising its earnings projection three times.
The merchant also predicted lower same-store sales growth this fiscal year than Lowe's, targeting 3% versus 3.5% at
its smaller rival, which is resetting areas of its store and modifying its staffing strategy to compete better.
Home Depot's own struggles before the housing downturn prompted it to make changes earlier than others, putting it on
course to gain market share through the economy's slow recovery. It revamped supply chain, reformatted its workforce for
more face-time with customers and improved merchandise assortment.
With tailwinds from housing and hurricane repairs, Home Depot's same-stores sales jumped 7% in the latest period. That
beat the company's internal target by about 4.5 percentage points and well outstripped Lowe's 1.9% growth, marking the
biggest gap since it began outperforming the competitor in 2009.
While about half of the company's internal sales beat was driven by Sandy or higher prices for lumber, the rest
reflected broad strength in its stores' core business. In an interview, Ms. Tome said the professional segment, where
growth is now on par with its consumer segment, was a major factor.
She added that the company wasn't seeing any effect from higher payroll taxes. "Anytime you have more costs coming
your way it's going to impact your discretionary income," she said. "But we're not seeing it in our business as of
today." Earlier she said Home Depot is very pleased with its performance so far in February, the month it faces its
It also unveiled a suite of shareholder returns. It authorized a $17 billion share repurchase program, raised its
quarterly dividend 34% to 39 cents a share and targeted a 50% dividend payout ratio. This year, it is planning on $4.5
billion in repurchases but could tap debt markets to raise money for more.
For the quarter ended Feb. 3, earnings climbed 32%. Home Depot reported a profit of $1.02 billion, or 68 cents a
share, compared with a year-earlier profit of $774 million, or 50 cents a share. The latest period included a favorable
adjustment to a previously announced China store closing charge of about a penny a share. Stripping this out, per-share
earnings for the quarter were 67 cents.
Sales rose 14% to $18.25 billion.
Analysts polled by Thomson Reuters had most recently forecast earnings of 64 cents on revenue of $17.7 billion.
Home Depot noted that the extra week in the fourth quarter of 2012 added about $1.2 billion in revenue versus the
year-earlier quarter. The extra week increased per-share earnings by about seven cents.
Gross margin narrowed to 34.9% from 35%.
Write to Joan E. Solsman at email@example.com
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