Home Depot sees signs of improving housing market

This photo from 2011 shows a truck pulling out of the park­ing lot at a Home Depot store in Okla­homa City. Bet­ter sales in the U.S. and healthy demand for its main­stay home-improvement prod­ucts helped Home Depot’s net income rise 13 per­cent in its fis­cal sec­ond quar­ter, the com­pany reported Tues­day. (Asso­ci­ated Press file | Sue Ogrocki)

Asso­ci­ated Press

ATLANTA — The Home Depot Inc. is feel­ing more opti­mistic about the recov­ery of the hous­ing mar­ket after cus­tomers spent more on spruc­ing up their homes in the sec­ond quarter.

The country’s biggest home-improvement retailer said Tues­day that strong cost con­trols and healthy sales of paint, bath­room acces­sories and kitchen instal­la­tions helped lift its net income by 12 per­cent dur­ing the period.

The Atlanta-based com­pany boosted its full-year out­look, cit­ing its per­for­mance so far this year.

In a con­fer­ence call with investors, Chair­man and CEO Frank Blake noted that some of the strongest growth in the lat­est quar­ter came from the mar­kets that were hit hard­est in the down­turn, such as Cal­i­for­nia and Florida.

“These are encour­ag­ing signs of sta­bi­liza­tion in the hous­ing mar­ket,” Blake said.

He also noted that the hous­ing mar­ket is now a con­trib­u­tor to the country’s gross domes­tic prod­uct, rather than a drag. Another pos­i­tive sign for Home Depot: the Com­merce Depart­ment said Tues­day that Amer­i­cans boosted their spend­ing at retail busi­nesses in July by the largest amount in five months, as spend­ing increased on fur­ni­ture and build­ing mate­ri­als, among other items.

Still, the hous­ing mar­ket is still a long way from return­ing to its hey­day before the reces­sion. Home Depot’s net sales in the quar­ter rose just 2 per­cent from a year ago and came in short of Wall Street expec­ta­tions. And although the com­pany lifted its earnings-per-share fore­cast, it didn’t update its out­look that sales for the year would grow by 4.6 percent.

When the hous­ing mar­ket is weak, com­pa­nies such as Home Depot strug­gle because new con­struc­tion slows and con­trac­tors don’t spend as much on sup­plies. Home­own­ers also pull back on projects, such as kitchen or bath­room renovations.

Although cus­tomers still aren’t spend­ing as much on their homes as dur­ing the hous­ing bub­ble, Home Depot said it saw signs of improve­ments in key areas.

Over­all, rev­enue at stores open at least a year rose 2.1 per­cent, which was slower than the 4.3 per­cent growth last year. The com­pany noted that the warm win­ter pulled sales of many sea­sonal items, such as gar­den­ing prod­ucts, into the first quarter.

In the U.S., where the major­ity of Home Depot’s stores are located, the fig­ure rose 2.6 per­cent. The met­ric is a key gauge of a retailer’s health because it strips out the impact of recently opened or closed locations.

Trans­ac­tions of $900 or more, which make up about 20 per­cent of U.S. sales, rose 3.4 per­cent in the quar­ter, as appli­ance, kitchen and floor­ing sales increased. Trans­ac­tions of $50 or less, which also make up about 20 per­cent of sales, were down 0.7 percent.

The com­pany attrib­uted the decline to the sales of sea­sonal items into the first quarter.

Brian Sozzi, chief equi­ties ana­lyst with NBG Pro­duc­tions, noted that the improve­ment in sales of bigger-ticket items sug­gests con­sumers are open­ing up to the pos­si­bil­ity of larger projects, such as redo­ing their cab­i­nets. They’re also spend­ing on other items.

“Peo­ple are buy­ing lawn mow­ers and other items they weren’t nec­es­sar­ily buy­ing in 2010 or 2011, when they just didn’t want to put that on their credit cards,” he said.

Home Depot’s total oper­at­ing expenses also eased to $4.46 bil­lion dur­ing the quar­ter, down 3 per­cent from a year ago. The improve­ment was partly the result of tight cost con­trols and a new reg­u­la­tion that caps the amount banks can charge retail­ers when cus­tomers pay with debit cards.

In the sec­ond half of the year, how­ever, Home Depot expects expenses to rise as it spends on new call cen­ters and other oper­a­tional improvements.

Look­ing ahead, Home Depot now expects fis­cal 2012 earn­ings of $2.95 per share, up from the $2.90 per share it pre­vi­ously fore­cast. Rev­enue is still expected to rise 4.6 per­cent, imply­ing $73.63 billion.

Ana­lysts expect earn­ings of $2.92 per share on rev­enue of $73.95 billion.

Home Depot runs more than 2,200 stores. Its smaller rival Lowe’s Cos. reports its earn­ings Monday.

Shares of Home Depot rose $1.60, or 3 per­cent, to $54.42 in morn­ing trading.

Posted by AP News on Aug 14 2012. You can follow any responses to this entry through the RSS Feed. Comments can be made below.