Home Depot Tops Estimates as US Housing Market Continues to Recover

Andrew Klips |

Home Depot Inc. (HD) reported Tuesday third quarter earnings and revenue that beat Wall Street expectations as the mending U.S. housing market sparked consumers to spend more on improvements and repairs.  Meanwhile, the world’s largest home improvement retailer raised its full-year guidance as well.

The Atlanta-based company reported sales of $18.1 billion for the quarter, a 4.6 percent increase over the year prior quarter of $17.3 billion.  Net earnings totaled $947 million, or 63 cents per share, up from $934 million, or 60 cents per share last year.  Excluding costs related to closing seven big-box stores in China, earnings were 74 cents per share, a 23.3 percent increase over Q3 2011. Analysts were expecting earnings of 70 cents per share on revenue of $17.92 billion.  Wall Street predictions generally do not include adjusted expenses.

"Our third-quarter results were better than we expected and reflected, in part, what we believe is the start of the path toward the healing of the housing market," said Frank Blake, chairman & CEO at Home Depot.

Based on the strong third quarter, the Dow Jones and S&P 500 company boosted its fiscal 2012 predictions to adjusted earnings of $3.03 per share, representing 5.2 percent growth, from its prior guidance of $2.95 a share, or a 4.6 percent gain.  The company also intends to buy-back an additional $700 million in shares during the fourth quarter to bring its total for the year to $4 billion.

During the third quarter, same-store sales – purchases at stores that have been open at least one year – increased 4.2 percent, including 4.3 percent expansion in U.S. stores.   Same-store sales have increased now for six consecutive quarters, a signal that the U.S. housing market is improving.  Gross margins modestly expanded from 34.6 percent from 34.4 percent.  The number of transactions also rose from 325.3 million to 331 million for the quarter.  The average transaction was valued at $54.55, a 2.9 percent increase over last year’s quarter.

At the end of the quarter, Home Depot employed more than 300,000 people and operated 2,250 retail locations in all 50 U.S. states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico.

The stores in China are now closed, but Blake said in October that the company was pondering different business models for China locations that make facilitate better market penetration.

Shares of HD are ahead by nearly 50 percent in 2012 and about 75 percent in the past 52 weeks.  Shares closed Monday trading at $61.16 and sit close to all-time highs of $63.20 which were made early in October.

Rival Lowes Companies, Inc. (LOW) is also sitting near all-time highs.  Lowes closed Monday at $31.98 per share and will be reporting earnings next Monday, November 19.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
DHXM DHX Media Ltd. 5.05 -0.36 -6.65 5,247
LOW Lowe\'s Companies Inc. 72.66 0.35 0.48 7,497,021
HD Home Depot Inc. (The) 129.68 -0.19 -0.15 4,065,570

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