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Home Depot 2Q profit beats expectations
By MAE ANDERSON (AP) – 1 day ago
NEW YORK — Home Depot Inc. on Tuesday that its fiscal second-quarter profit fell 7 percent, as consumers continued to shy away from bigger purchases, but cost cutting and sales of smaller items such as paint and garden products helped results beat expectations.
The nation's biggest home-improvement retailer said total transactions in the U.S. increased year-over-year for the first time in five years and same-store sales rates improved in Florida and California, two of its most important — and troubled — markets. It lifted its guidance for full-year earnings from continuing operations.
Shares rose 74 cents, or 2.8 percent, to $26.85 during afternoon trading.
Still, similar to its rival Lowe's Cos. on Monday, Home Depot reported a sales decline as consumers continue to cut back. Investors have been closely watching consumer spending since it accounts for 70 percent of all U.S. economic activity. But Chairman and CEO Frank Blake said he does not expect positive same-store sales until the second half of 2010.
Blake said Home Depot took market share from competitors, but he added that same-store sales remained negative in all regions except those experiencing hurricanes last year. In California, double-digit same-store sales declines improved to single-digit declines. In Florida, there were still some markets with same-store sales declines in the double digits, but the percentage decline was about half of what it was in the second quarter last year.
"We remain concerned by the high level of foreclosure activity, which we believe continues to put pressure on the housing markets in (markets such as California and Florida), as reflected in lower sales of basic building material products," he said.
Home Depot earned $1.12 billion, or 66 cents per share, for the three months ended Aug. 2. That's down from $1.2 billion, or 71 cents per share, a year earlier.
Excluding charges related to Expo, which Home Depot is closing, profit was 67 cents per share, topping analysts' estimate of 59 cents per share, according to a poll by Thomson Reuters.
Quarterly results also included a tax benefit of about $50 million, which boosted earnings by about 3 cents per share. Cost-cutting also helped results as total operating expenses fell 8 percent to $4.56 billion.
Revenue dropped 9 percent to $19.07 billion from $21 billion, falling short of the $19.23 billion analysts expected. Paint, outside garden products building materials, flooring and plumbing performed better than average, while millwork, hardware, kitchen, lumber and electrical sold less well. Air conditioner and fan sales were weak due to cooler-than-average temperatures in June and July.
In California, however, weather was good, and the company said that drove garden sales, despite continued high enemployment and foreclosures in the area. Foreclosed homes being put back on the market are also driving sales of things like paint and carpet upgrades.
At Home Depot, the average ticket fell 9.3 percent, to $52.25, but the number of customer transactions actually edged up 0.3 percent, a key figure, said Janney Montgomery Scott analyst David Strasser, because it is the first time since the second quarter in 2004 the figure was positive.
"We have to believe that this is the result of better advertising, a more sophisticated pricing strategy, and general improvements in the service levels at stores," said Strasser.
Overall, sales at stores open at least a year, a key retail metric known as same-store sales, slid 8.5 percent. For U.S. stores, the figure was 6.9 percent.
Credit Suisse analyst Gary Balter noted that for the first time in recent memory Home Depot's U.S. same-store sales were better than Lowe's.
On Monday Lowe's reported second-quarter profit fell 19 percent, missing expectations. The weak results helped send the market tumbling on Monday as investors worried about consumers' continuing tight-fistedness.
Home Depot lifted its 2009 earnings from continuing operations forecast to flat to up 7 percent. Adjusted profit is expected to fall by 15 to 20 percent. Its prior guidance was for a 7 percent dip in earnings from continuing operations.
The retailer backed its expectation for revenue to be down about 9 percent.
Analysts predict full-year net income of $1.44 per share on revenue of $65.4 billion.
AP Retail Writer Michelle Chapman contributed to this report from New York.
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