The U.S. housing industry's rebound isn't just good for
homebuilders, construction companies and the like. It's also good
for retailers that supply builders with the tools of the
One of those retailers,Home Depot (
), delivered its best performance in years in 2012 amid a rebound
in many of the country's housing markets.
Home Depot is the nation's biggest home improvement chain with
$75 billion in annual revenue and more than 2,200 stores in North
The company posted a year-over-year sales increase of 6% in
fiscal 2012, while earnings climbed 26%. The sales gain was Home
Depot's biggest since 2006. It has been even longer than that
since the company grew annual profit at a faster clip.
Same-store sales for the year rose 4.5%. Home Depot also
raised its quarterly dividend 34% to 39 cents per share, the
fourth dividend increase in as many years.
The company has now delivered three straight years of sales
and profit gains following four straight years of declines. Sales
and earnings growth have accelerated each of the last two
Home Depot can thank both internal and external factors for
the financial turnaround, experts say.
"The basic macro-level enablers for Home Depot's growth
remained the U.S. housing market rebound, bringing along
increased home occupancy rates, higher rates of home construction
and spending, as well as new home sales," analysts at Trefis
noted in a report.
According to data from the Commerce Department, sales of new
single-family homes in the U.S. reached their highest level in
three years in 2012. Americans bought 367,000 new homes during
the year, up 20% from 2011.
In January, U.S. new-home sales climbed 16% to their highest
level in more than four years. Although new-home sales slipped
4.6% in February -- the biggest drop in two years -- poor weather
in the Northeast played a major role in the decline.
Meanwhile, the National Association of Home Builders'
Remodeling Market Index reached a reading of 55 during the fourth
quarter of 2012 -- the highest reading since the first quarter of
A reading above 50 indicates that more remodelers report
market activity is higher vs. the prior quarter than those that
report it is lower.
These kinds of positive trends go a long way toward explaining
why Home Depot has seen a steady rise in sales and profit and why
its stock price trades near an all-time high.
It also helps that Home Depot continues to outperform the
competition, including top rivalLowe's (
"Home Depot is well-positioned for an ongoing recovery in the
U.S. housing market and is generating industry-leading revenue
growth, margins and cash flow," said James Ragan, an analyst at
Crowell, Weedon & Co.
During the fiscal 2012 fourth quarter, Home Depot posted
revenue of $18.2 billion. That was up 14% from the prior year and
above Wall Street estimates for $17.7 billion.
It was the company's first double-digit quarterly sales gain
in years. Excluding the $1.2 billion impact of an extra week
during the quarter vs. the prior year, revenue rose 6%.
Earnings for the quarter grew 34% to 67 cents a share, topping
views by 3 cents. Same-store sales climbed a robust 7%.
"Comp sales were positive in all three major regions and in 38
of 40 regional markets," Ragan said. "The strongest region was
New York/New Jersey, which benefited from sales related to
Home Depot's numbers compare favorably to those at Lowe's,
which posted Q4 declines in revenue and earnings and a 1.9%
increase in same-store sales.
Home Depot's fourth-quarter results were helped by a 5.6%
increase in average ticket prices.
"(The increase) shows how buyers have been gradually moving
towards bigger purchases, further confirming the general
improvement in consumer confidence," Trefis noted.
Despite the rosy macro outlook, Home Depot officials remain
cautious in their assessment of the U.S. housing market.
On a conference call with analysts, Chief Executive Frank
Blake said he expects the path to a full housing recovery "will
resemble a gradual thawing."
Chief Financial Officer Robert Hall added, "While recovering,
we do not believe the housing market will fully recover in
Home Depot guided fiscal 2013 earnings of $3.37 a share and
revenue of $76.21 billion. That compares with Wall Street
expectations of $3.51 a share and revenue of $76.24 billion.
Many analysts reckon that management's projections are on the
conservative side. They cite the impact an improved homebuilding
market will have on results as well as Home Depot's own marketing
initiatives designed to improve sales of appliances and other
"Home Depot appears poised to capture additional upside by
expanding its appliance program to another 120 stores, adding new
innovation to categories -- including LED technology to power
tools -- and aggressively expanding its seasonal/decor business,"
JPMorgan analyst Christopher Horvers noted in a Q4 earnings
Analysts polled by Thomson Reuters expect Home Depot to log
first-quarter earnings of 65 cents a share, up 30% from a year