Home Depot 2nd-Quarter Net Rises 12% Despite Sales Pressure
08/14/2012| 07:26am US/Eastern
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--Earnings rise more than expected despite soft sales growth
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--CEO notes latest period missed some sales booked earlier in year
--Focus on productivity bolsters bottom line
(Updates with further details and context.)
By Joan E. Solsman and Melodie Warner
Home Depot Inc.'s (>> The Home Depot, Inc.) fiscal second-quarter earnings rose 12% despite pressure on sales growth, as its laser focus on productivity continued to bolster margin and whittle down overhead costs.
The company, the biggest home-improvement retailer in the country, raised its full-year earnings estimate by five cents to $2.95 a share, which includes the benefit of stock repurchases. While the lift was better than analysts were expecting, Home Depot's affirmed sales growth outlook--at 4.6%--was short of Wall Street's 5.1% consensus.
In the latest period, Home Depot reported its weakest sales growth since a contraction in the first quarter of last year. Same-store sales rose 2.1% and were up 2.6% in the U.S., while the top line rose 1.7%.
The company and, to greater extent, its smaller rival Lowe's Cos. (>> Lowe's Companies, Inc.) in May said unseasonably warm weather early in the year pulled sales into the first quarter from the second, and analysts recently predicted softness continued through the period.
At that time, Home Depot predicted its first-quarter same-store sales had a two to three percentage point lift from weather, with as much as a full point representing sales that otherwise should have come in the latest period. It also predicted the second quarter would have the weakest same-store sales growth of the year.
"As expected, second-quarter sales reflected the pull forward of seasonal activity into the first quarter," Chairman and Chief Executive Frank Blake said in a release Tuesday. "But we saw continued demand for core products and delivered second-quarter earnings above our expectations."
Home Depot's sales growth has long outperformed Lowe's, and its productivity initiatives have underpinned the bottom line even in instances of sales pressure, like the second quarter.
For the period ended July 29, Home Depot reported a profit of $1.53 billion, or $1.01 a share, up from $1.36 billion, or 86 cents, a year earlier. Sales increased 1.7% to $20.57 billion.
Analysts polled by Thomson Reuters had most recently forecast earnings of 97 cents on revenue of $20.74 billion.
Gross margin edged up to 34.2% from 34%. Overhead costs fell 2.9%.
Average ticket and transaction volume increased 1.8% and 0.6%, respectively.
In the first half, the company repurchased $2.63 billion of common stock and said Tuesday it planned to buy back $1.4 billion in additional shares over the remainder of the year.
Last week, Home Depot also agreed to pay about $93 million to acquire U.S. Home Systems Inc. (>> US Home Systems Inc), a supplier of kitchen, bath and storage products.
Shares were inactive premarket and closed Monday at $52.82. The stock, up 26% this year through the close, hit its highest level in more than a decade last month.
Write to Joan E. Solsman at joan.solsman@dowjones.com and Melodie Warner at melodie.warner@dowjones.com
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