AUGUST 17, 2010, 1:57 P.M. ET.

Home Depot Earnings Climb 6.8%, Adjusts View

By MARY ELLEN LLOYD

Home Depot Inc.'s fiscal second-quarter profit rose 6.8%, helped by a slight increase in foot traffic in stores and share repurchases. But most customers are sticking with inexpensive maintenance or repair projects, which hurt top-line results and is expected to keep sales growth muted in the second half of the year.

Share repurchases so far this year and the anticipation of some second-half relief on staff-related expenses prompted the world's largest home-improvement retailer by sales to raise its full-year earnings outlook despite a more cautious view on sales.

It now sees earnings from continuing operations of about $1.90 a share, excluding future repurchases, and revenue increasing about 2.6%. In May, the company had forecast earnings of about $1.88 and a sales increase of about 3.5%.

Now Reporting
Track the performances of 150 companies as they report and compare their results with analyst estimates. Sort by reporting date and industry.


..Except for sales, the results generally met Wall Street's recently tempered expectations, and they echoed trends reported by smaller rival Lowe's Cos. on Monday, relieving some market fears that business trends were even worse.

Shares of Home Depot rose 4.9% to $28.73, while Lowe's shares gained 2.7% to $20.23, in afternoon trading Tuesday.

Home Depot and Lowe's each hit 52-week highs in April as homeowners this spring started opening their wallets for small renovation projects and demand began improving after three years of declines.

Since then, though, shares have fallen sharply as worries mount that the U.S. economic recovery is slowing, which could lead to reduced consumer spending, and Home Depot's shares heading into Tuesday's report had fallen 5.4% so far this year.

On a conference call Tuesday, Home Depot executives said products tied to plumbing repairs, roofing, cleaning and cooling sold well in the quarter. Continued pressure on big-ticket, discretionary projects is hurting sales, with the number of transactions totaling $900 or more dropping 4.9% in the quarter.

"We still see weakness in our pro segment," Chairman and Chief Executive Frank Blake said, adding the company expects its business aimed at professional contractors and handymen to be flat to modestly improved this year.

Home Depot said lower appliance sales on a same-store basis also hurt its top line after the No. 3 U.S. appliance dealer decided against matching competitors' promotions. Home Depot has gained market share over the past 12 months, though it lost some during the second quarter. But executives reiterated that they don't want to boost sales at the expense of profit margins.

"We're happy being number three" in appliance share, Chief Financial Officer Carol Tome said in an interview. Ms. Tome is also executive vice president of corporate services.

For the quarter ended Aug. 1, Home Depot posted a profit of $1.19 billion, or 72 cents a share, up from $1.12 billion, or 66 cents, a year earlier. The year-earlier quarter included a penny's worth of charges related to the closing of its high-end Expo chain.

Revenue rose 1.8% to $19.41 billion. Same-store sales rose 1.7% overall—the third straight gain after three years of declines—and 1% in the U.S.

Analysts polled by Thomson Reuters had most recently forecast Home Depot earnings of 71 cents on $19.59 billion in revenue.

The number of customer transactions increased 1.9%, slowing from the 4.2% increase in the first quarter but higher than Lowe's transaction increase. The average amount spent per transaction rose 0.1%, in line with first quarter but below Lowe's increase. Lowe's has a heavier concentration of its sales in appliances, which boosts the average sales receipt.

While Home Depot's total same-store sales increase outpaced that of Lowe's, where same-store sales rose 1.6%, it was the first quarter in five that the bigger retailer's 1% U.S. same-store sales gain was below Lowe's. Analysts generally compare Home Depot's U.S. comps to Lowe's total same-store sales because about 99% of Lowe's stores are in the U.S., compared with about 88% of Home Depot's stores.

The retailer in June rolled out 10% discounts on several basic, household maintenance products such as light bulbs and furnace filters in the hopes that shoppers would visit stores more frequently and buy more. The discount was tied to putting the purchase on a Home Depot consumer credit card, and Ms. Tome said customers are starting to respond to the promotion.

Selling, general and administrative expenses were basically flat on the slightly higher sales, showing Home Depot kept a rein on expenses. Ms. Tome said lower bonuses and other staffing costs should help limit expense growth for the year, too.

Home Depot repurchased about $700 million in shares during the quarter and said it expects to buy back a total of $3 billion for the full year.

—Nathan Becker contributed to this article.
Write to Mary Ellen Lloyd at maryellen.lloyd@dowjones.com

http://online.wsj.com/article/SB1000142 ... 97146.html