Home Depot Posts Strong Sales, But Warns on Dollar -- 2nd Update

By Suzanne Kapner 

Home Depot Inc. said strong demand from small professional contractors for everything from compressors to roofing helped boost sales in the latest quarter, a sign of strength in the housing market.

Small contractors play an large role in Home Depot's business, accounting for 3% of customers and 35% of its sales, according to Chief Financial Officer Carol Tomé.

"Their health is a proxy for the housing market," Ms. Tomé said. "As housing recovers they have work and are spending more in our stores."

Under Craig Menear, who became chief executive last year, Home Depot has sought to improve on recent steady sales growth. The home-improvement chain, like its smaller rival Lowe's Cos., has been one of the main retail beneficiaries of the improving U.S. housing market as consumers pursue renovations and other projects. Earlier this month, the company said it would hire 80,000 workers for the spring and summer season this year, matching last year's level.

The growth in home prices last year came in less than the 5% to 6% that Home Depot was expecting. Prices in 2014 rose 4.6%, their slowest gain in three years, according to the S&P/Case-Shiller Home Price index report.

Home Depot still managed to post healthy sales and profit gains that beat analyst expectations. "We had great relative performance, because we took market share," Ms. Tomé said in an interview. In the three months to Feb. 1, sales rose 7.9%, excluding newly opened or closed stores.

Shares of Home Depot, up 44% over the past year, rose 3.7% in afternoon trading.

For 2015, Home Depot said it expects sales growth to slow to between 3.5% to 4.7%. At current exchange rates, the company estimated that the strong dollar would bring down its 2015 sales by $1 billion.

Consumers have also benefited from lower gas prices, though Mr. Menear said Home Depot hasn't been able to correlate the lower prices to higher spending by its customers. Ms. Tomé said it was possible that customers weren't spending the money they saved on gas.

Home Depot also has had to contend with the aftermath of a widespread data breach last year. The company has said it faces several dozen civil suits related to the breach in which millions of customers' credit-card information and emails were stolen. To combat future thefts, the company has completed a project to encrypt credit-card data at the point of sale.

The company said expenses related to the data breach totaled $63 million in 2014, though the amount falls to $33 million after factoring in what the company expects to get back from insurance.

Overall, earnings for the period rose 37% to $1.38 billion. Net sales increased 8.3% to $19.16 billion. The quarter's results included a $111 million gain on the sale of a portion of the company's ownership in HD Supply Holdings Inc.

Home Depot also boosted its quarterly dividend by 26% and authorized an $18 billion share repurchase program to replace its prior authorization.

Michael Calia

and

Chelsey Dulaney

contributed to this article.

Write to Suzanne Kapner at [e-mail]

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