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Housing recovery boosts Home Depot results; outlook raised

The entrance to The Home Depot store is pictured in Monrovia, California August 13, 2012. REUTERS/Mario Anzuoni
The entrance to The Home Depot store is pictured in Monrovia, California August 13, 2012. REUTERS/Mario Anzuoni

By Dhanya Skariachan

(Reuters) - Home Depot Inc reported higher-than-expected quarterly results and raised its sales and profit outlook for the year on Tuesday as the world's largest home improvement chain benefited from a nascent recovery in the U.S. housing market.

The news pushed the retailer's shares up as much as 3.4 percent to an all-time high and gave fresh evidence that the U.S. housing market was improving after years of weakness.

For the first time since 2008, sales to contractors and professional customers grew at a faster pace than those to regular homeowners and other shoppers, Chief Executive Officer Frank Blake said on a conference call.

"This quarter's outperformance from the pro segment is a positive sign" of a housing recovery, Blake said.

A bubble in the U.S. housing market was at the core of the 2007-2009 financial crisis. During the downturn, Home Depot's sales at established stores fell more than 20 percent in such markets as Florida and California. In recent quarters, the company has gotten a boost as housing markets have rebounded in regions where it has a heavy presence.

"In the first quarter, we saw less favorable weather compared to last year, but we continue to see benefit from a recovering housing market that drove a stronger-than-expected start to the year for our business," Blake said.

Recent government data showed permits for single-family homes rose 3 percent to 617,000 in April, the highest since May 2008, while newly issued building permits, a gauge of future construction, rose 14.3 percent.

SALES STRENGTH

Despite cooler-than-usual weather in many parts of the United States at the start of the spring selling season, Home Depot's sales rose 7.4 percent to $19.12 billion in the first quarter ended on May 5. That topped the analysts' average estimate of $18.68 billion.

Better pricing and customer service have helped Home Depot take market share from smaller rival Lowe's Cos . The industry leader has also gained from tailoring its marketing to local areas, centralizing distribution centers and shifting more workers to jobs where they serve customers directly.

Sales at Home Depot stores open at least a year rose 4.3 percent, including a 4.8 percent increase in the United States. Many on Wall Street expect same-store sales at Lowe's to be weaker than Home Depot's for the 16th straight quarter when the smaller chain reports results on Wednesday.

Credit Suisse analyst Gary Balter said he expected Home Depot's sales to accelerate this year "given the company's strong internal momentum and a developing external tailwind in housing." He has an "outperform" rating on the stock.

At the end of 2012, Home Depot had 19 percent of the U.S. home improvement retail market and Lowe's had 16.7 percent, data from Euromonitor International showed. (Related graphic: http://link.reuters.com/teh38t)

Under Blake, Home Depot was quicker than Lowe's to cut costs in the years after the housing collapse.

Net income in the first quarter rose to $1.2 billion, or 83 cents a share, from $1 billion, or 68 cents a share, a year earlier. Analysts on average had forecast a profit of 77 cents a share, according to Thomson Reuters I/B/E/S.

For the year, the company now expects earnings of $3.52 a share, up from its prior outlook of $3.37. It forecast a sales increase of about 2.8 percent, up from previous expectations of a 2 percent rise.

Shares of Home Depot were up 2.8 percent at $78.89 in morning trading after rising as high as $79.40 earlier in the session.

(Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn)

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