Fitch: Renovation Spending Lends a Hand to HD Operating Margin

  Fitch: Renovation Spending Lends a Hand to HD Operating Margin

Business Wire

CHICAGO & NEW YORK -- December 11, 2013

An increase in home renovations, precipitated by a rise in U.S. home prices,
has allowed The Home Depot, Inc. (HD) to adjust its operating margin and
return on capital targets, according to Fitch Ratings.

HD said Wednesday in a press release that it anticipated reaching its
long-term operating margin of 12% and its 24% return on invested capital
targets by the end of fiscal 2014, which is one year earlier than the company
anticipated via an announcement in June 2012. Fitch affirmed its long-term
issuer default rating (IDR) for HD at 'A-' and its short-term IDR at 'F2' on
Nov. 19. The Rating Outlook is Stable.

HD has been able to generate positive operating momentum in the midst of a
home improvement industry that has seen consumers focus on repair and
maintenance projects. HD's comparable store sales have been positive for the
past three and a half years, following four years of negative comparables
(comps). Faster growth of seasonal and big-ticket items helped drive strong
comp store sales growth of 10.7% in the second quarter of 2013 and 7.4% in the
third quarter, and Fitch expects comp store sales to grow in the positive low
to mid-single digits over the next two years.

Fitch forecasts home improvement spending will increase 6% in 2014, following
a projected 5% growth in 2013. The continued improvement in the housing
market, as well as strong home price appreciation seen so far this year, are
likely to drive higher spending on home renovation projects in 2014.

That said, challenges remain for the sector that could derail a sustained
rebound in remodeling spending. Unemployment is still high, consumer credit
standards remain tight and consumer confidence is still weak. Additionally,
rising mortgage rates could slow down cashout refinancing activity, which may
limit homeowners' ability to finance large projects. Spending for big-ticket
remodeling projects will continue to lag the overall growth in the home
improvement sector somewhat, as credit availability remains relatively
constrained and homeowners remain cautious in their spending. However, there
are signs that homeowners are somewhat more willing to undertake larger
discretionary projects and purchases.

Additional information is available on www.fitchratings.com.

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