NOVEMBER 16, 2010, 2:08 P.M. ET.

Home Depot Profit Rises 21%

By MAXWELL MURPHY

Home Depot Inc. reported a 21% jump in third-quarter earnings and boosted its profit expectations for the year, citing cost controls and share repurchases that are offsetting the effects of a still-troubled U.S. economy. Sales for the full year, however, will miss the company's previous growth forecast.

In reporting quarterly results Tuesday, Home Depot said the number of customer transactions rose 2.5%, but the average amount spent per transaction was 0.8% lower.

For the quarter ended Oct. 31, Home Depot reported a profit of $834 million, or 51 cents a share, up from $689 million, or 41 cents a share, a year earlier. Revenue rose 1.4% to $16.6 billion. Sales at stores open at least a year increased 1.4%, the fourth straight gain after three years of declines, and climbed 1.5% in the U.S.

"As the business stabilizes, we continue to improve our operational performance," said Chairman and Chief Executive Frank Blake. "We are exercising good control over our expenses."

On a conference call to discuss the results, Mr. Blake said that although the average amount customers spend per transaction "continues to be a challenge, just as the macro housing environment remains under pressure," the market is "steadying" as consumers focus on basic home repairs and maintenance.

He said the company has experienced positive results in California and Florida, large states that had seen outsized woes due to the recession.

The per-share profit and new guidance benefit from nearly $2 billion in stock buybacks Home Depot completed through the nine months through the end of October. Those buybacks reduced its average shares outstanding by 2.7% for the quarter compared with a year earlier.

Carol Tome, chief financial officer, on the call said buybacks added 2 cents a share to the third-quarter results, and the Atlanta-based company expects to use "excess cash" to buy back more stock through the rest of the fiscal year.

Its new, current-year forecast for earnings of $1.94 a share will come on revenue growth of 2.2%, the company said, and reflects completed repurchases but not any additional shares it may buy back during the current quarter. In August, the company had forecast earnings of about $1.90 and sales improving about 2.6%.

In an interview, Ms. Tome said the slightly lowered sales view is mainly driven by Canada, where Home Depot fared better than peers but missed expectations, and will continue to do so during the current quarter, as it deals with tough comparisons with a year ago when Canadians were taking advantage of a government tax credit for home remodeling.

On Monday, rival Lowe's Cos. trimmed its earnings and revenue expectations for the year while reporting sales that lagged analysts' views.

Lowe's said consumers remain cautious and "the economic recovery continues to bounce along the bottom," but it does see some signs of "gradual improvement in the fundamentals of the housing market."

—Nathan Becker contributed to this article.
Write to Maxwell Murphy at maxwell.murphy@dowjones.com

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