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Wednesday, November 14, 2012

Home Depot delivers latest upbeat housing signals

NEW YORK – Providing a positive signal for the housing market, the world’s largest home-improvement retailer, Home Depot Inc., reported a better-than-expected fiscal-third-quarter profit Tuesday and raised its outlook for the year.

Among its upbeat indicators, the company cited continued improvement in Florida and California, both of which were among the states hardest hit by the housing downturn, as well as increased sales to professional contract customers, another key barometer of housing-market demand. ...

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NEW YORK – Providing a positive signal for the housing market, the world’s largest home-improvement retailer, Home Depot Inc., reported a better-than-expected fiscal-third-quarter profit Tuesday and raised its outlook for the year.

Among its upbeat indicators, the company cited continued improvement in Florida and California, both of which were among the states hardest hit by the housing downturn, as well as increased sales to professional contract customers, another key barometer of housing-market demand.

“We believe the U.S. is still working through the issues associated with the housing crisis,” Chief Executive Frank Blake said during a Tuesday conference call, adding that national numbers also show housing has regained its status as a positive contributor to U.S. economic growth.

“Credit availability remains a major issue, but we can start to see the housing market as an assist to our growth rather than an anchor,” he said. “We are starting to see the recovery of the housing market. The harder-hit areas that were really the epicenter of the housing crisis appear to be on the mend, and it’s been constructive, and it’s been consistent.”

Thirty-three of the company’s top 40 markets posted positive same-store sales. Its Northeastern region was the main one in which some markets saw negative sales.

While the company continued to see demand for maintenance and repair projects, a positive sign also emerged in sales of higher-priced items. The number of customer transactions rose 1.7 percent, while the average transaction amount rose 2.9 percent to $54.55, marking a sixth straight quarter of transaction and ticket growth.

While customer transactions – or “tickets” – under $50, representing approximately 20 percent of Home Depot’s U.S. sales, were flat, transactions over $900, also about one-fifth of U.S. sales, were up 4.3 percent, driven by demand for appliances, flooring and in-stock kitchens.

Analysts have said a recovery in bigger-ticket items offers a view into consumers’ willingness to shell out beyond basic repair needs. Blake said the company’s windows business, hard hit during the economic downturn, also has seen a return to growth.

“Customers are beginning to be willing to step in and do the decor projects,” Blake said on the call.

Home Depot, which saw demand rise as consumers readied for Hurricane Sandy, said recovery and rebuilding efforts will positively impact its sales. The Home Depot executives, however, are uncertain about the timing of that impact. The company said consumers buying batteries, flashlights, generators and extension cords ahead of Sandy buttressed third-quarter sales by about $70 million.

Last year, Irene lifted sales by a total of $360 million, Chief Financial Officer Carol Tome recalled.

Demand during the quarter also was helped by warmer weather, which inspired customers to buy things like mowers.

Internationally, as the company made the decision to shut its seven stores in China and exit that market, it saw positive comparable-store sales in Mexico and Canada.

Blake initiated moves to bolster customer service, use technology to free up time dedicated to certain tasks, and make distribution of the company’s products more efficient through a regional distribution network.

“We believe today’s positive results are indicative of the company’s sound execution and market-share gains through better merchandising, improved execution, better customer service (equal to meeting customer needs) and efficiency through technology in store,” said Citigroup analyst Kate McShane, who has a buy rating on the stock.

“Given the market’s preference for housing exposure, lack of available market cap among home builders and vendors, and solid operating metrics, (Home Depot) remains a top pick in the space,” said ISI Group analyst Greg Melich.

As prospective keys to fourth-quarter performance, the company is unveiling an exclusive wood-grain porcelain tile from Marazzi and Kidde’s Worry-Free smoke alarms that use lithium technology to eliminate battery changes for 10 years, also a Wal-Mart exclusive. The company said it also will use Black Friday promotions to kick off holiday shopping.

Profit for the period ended Oct. 28 rose to $947 million, or 63 cents a share, from $934 million, or 60 cents, a year earlier. Sales rose 4.6 percent to $18.13 billion. Comparable sales increased 4.2 percent, including a 4.3 percent increase in the U.S. Excluding charges of 11 cents a share related to closing stores in China, the company earned 74 cents a share.

Home Depot raised its adjusted per-share outlook to $3.03 with a sales gain of 5.2 percent. Previously it was looking for profit of $2.95 a share on a sales increase of 4.6 percent.

Distributed by MCT Information Services.