Home Depot sees post-winter repairs boosting spring sales

Reuters

By Dhanya Skariachan Feb 25 (Reuters) - Winter storms and record cold in much of the United States hurt Home Depot's fourth quarter sales of everything from lumber to building materials.

But the world's largest home improvement chain expects to benefit this spring when Americans begin to repair snow damaged homes and gardens.

"We know firsthand that many homeowners have some major repairs ahead of them which suggest we should have a great spring selling season," Chief Financial Officer Carol Tome said on Tuesday, adding that sales at stores open at least a year were up so far in February despite harsh winter weather.

The comments came after Home Depot missed sales estimates and relied on tight cost controls to beat profit estimates in the fourth quarter, which ended Feb. 2.

Some Wall Street analysts said the retailer held up pretty well in the quarter plagued by inclement weather in its key U.S. market and weakness in the Canadian currency.

Home Depot shares were up 2.4 percent at $79.77 Tuesday on the New York Stock Exchange.

Home Depot faced tough comparisons with the final quarter of its previous financial year when repairs and rebuilding after Superstorm Sandy boosted sales.

In the latest fourth quarter, overall sales fell 3 percent to $17.70 billion, missing the analysts' estimate of $17.91 billion. Sales at stores open at least a year rose 4.4 percent, including a 4.9 percent rise at its U.S. stores.

The latest period had one week less than the prior-year quarter.

RBC Capital Markets analyst Scot Ciccarelli said he was cheered by the retailer's sales at its established stores and recommended Home Depot over rival Lowe's, due to report results on Wednesday.

Others worried whether the sales weakness at Home Depot indicated the recent U.S. housing recovery was losing momentum.

Severe cold weather and a shortage of houses on the market had pushed U.S. home resales to an 18-month low in January.

"We believe weather had a modest impact, but affordability remains stretched, household formation soft and younger people are not in the market due to higher education debt," wrote Janney analyst David Strasser, who has a "neutral" rating on the company.

Home Depot CEO Frank Blake expects the housing recovery to continue, but does not see all housing metrics sustaining 2013 growth rates. He expects home prices to rise but at a lower rate.

COST CUTS Home Depot was faster to begin cutting costs than its smaller rival Lowe's Cos Inc during and after the most recent U.S. recession.

It has particularly gained from its move to have more centralized distribution centers. It managed to cut total operating costs by 4 percent in the quarter.

Home Depot has also managed inventory tightly and found creative ways like using less energy in its stores to save money. It also has benefited from its slower expansion strategy. Under Blake, Home Depot closed smaller, secondary stores and upgraded service and products in its core "big box" stores to win back market share from Lowe's.

Net earnings were $1.01 billion, or 73 cents a share, compared with $1.02 billion, or 68 cents a share, a year earlier. Analysts were looking for a profit of 71 cents a share, according to Thomson Reuters I/B/E/S.

Some analysts had raised concerns about inclement weather hurting traffic to its stores in the United States in December and January.

For the current fiscal year, the company expects earnings of $4.38 a share on sales growth of about 4.8 percent. It sees same-store sales, or sales at stores open at least a year, rising about 4.6 percent.

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