Home Depot Raises Guidance as Profit Soars - Update

By Kimberly Chin 

Home Depot Inc. raised its earnings and sales targets for the year as it continued to benefit from robust home-improvement activity and a strong U.S. economy in the latest quarter.

The Atlanta company on Tuesday said it is targeting sales growth of about 7% and comparable-store sales growth of about 5.3%, above its prior guidance of 6.7% and 5%, respectively. Home Depot also raised its earnings target to $9.42 a share from its earlier forecast of $9.31 a share.

Home Depot said its second-quarter profit jumped 31% to $3.5 billion, or $3.05 a share, from the year-ago period. Analysts polled by Thomson Reuters had expected a profit of $2.84 a share.

Revenue rose 8.4% from a year earlier to $30.5 billion. Analysts polled by Thomson Reuters were expecting revenue of $30.03 billion. Meanwhile, overall comparable-store sales rose 8%, with U.S. comparable-store sales rising 8.1%.

Shares of Home Depot fell 0.5% to $193.10 in Tuesday trading. The retailer's shares have gained 1.9% this year.

The report comes as a basket of retail companies from Walmart Inc. to Macy's Inc. are due to report earnings this week.

Home Depot benefited from customers spending more money on each transaction in the latest quarter. The average customer ticket rose 5% to $66.20, driven in part by inflation for lumber building materials and copper.

Ted Decker, Home Depot's executive vice president of merchandising, said on a conference call that the company is dealing with inflation on multiple fronts as costs for raw materials and transportation rise. However, RBC Capital Markets analysts said in a client note that Home Depot would be largely unaffected by rising commodity prices as product manufacturers would have to bargain hard to pass on price increases to the retailer.

The company's profit continues to soar on a favorable economic backdrop, marked by rising home prices, stronger housing formation and tight housing supply. Low inventory levels are expected to drive home prices higher and home-related investment activity.

"We feel very positive about the strength of the home improvement sector and the customers' willingness to spend," Chief Executive Craig Menear said on the call.

Analysts were also concerned that the retailer's plan to accelerate investments to improve its supply chain and integrate online tools to improve customers' in-store shopping experiences would weigh on earnings over the next couple of quarters. The company reported cost of sales rose 7.8% to $20.1 billion.

The investments, however, were seen as necessary to "future-proof Home Depot's business against online competition," RBC analysts said in a note.

Home-improvement retailer Lowe's Cos. is due to release its quarterly report Aug. 22.

Write to Kimberly Chin at [e-mail]

(END) Dow Jones Newswires

August 14, 2018 17:01 ET (21:01 GMT)

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