Aug. 19 (Bloomberg) -- Home Depot Inc. climbed to an all-time high as purchases of big-ticket items like appliances helped second-quarter profit top analysts’ estimates and led the company to raise its annual earnings forecast.
Net income for the largest U.S. home-improvement retailer rose 14 percent to $2.05 billion, or $1.52 a share, in the three months through Aug. 3, from $1.8 billion, or $1.24, a year earlier, the company said today in a statement. The average of 25 analysts’ estimates compiled by Bloomberg was $1.44.
Rising home prices are encouraging consumers to spend more on renovations while improved weather spurred purchases of yard merchandise that shoppers passed up earlier in the year because of a late spring. Second-quarter sales gained 5.7 percent to $23.8 billion, topping analysts’ estimates. Results have also been aided by Chief Executive Officer Frank Blake’s focus on boosting sales from existing locations and e-commerce.
“People were looking for a rebound from the late spring, and we certainly got that,” said Robin Diedrich, an analyst at Edward Jones & Co. in Des Peres, Missouri. Home Depot’s mention of more orders for expensive purchases such as counter-top installations bodes well, she said. “You are starting to see the purse strings loosen up.”
Home Depot said profit this year will be $4.52 a share, up from a previous forecast of $4.42. The increased guidance stems from last quarter’s results surpassing expectations and the company boosting share repurchases to $7 billion this year from a previous forecast of $5 billion, Chief Financial Officer Carol Tome said on a conference call with analysts.
Shares of Atlanta-based Home Depot surged 5.6 percent to $88.23 in New York for the biggest one-day gain since February 2013 and its highest closing price ever. The stock has advanced 17 percent in the past 12 months. That compares with an 18 percent advance for Lowe’s Cos., which reports second-quarter results tomorrow, and a 20 percent increase for the Standard & Poor’s 500 Index.
While Home Depot and Lowe’s have benefited from the housing rebound, retailers that sell basic goods and apparel are struggling as lackluster wage gains restrain spending by middle-and low-income consumers. Discounters Wal-Mart Stores Inc. and Target Corp. as well as department-store chain Macy’s Inc. all reported second-quarter results this month that showed evidence of sluggish consumer demand.
A harsh winter and late spring this year delayed purchases of seasonal items such as landscaping materials, hurting Home Depot’s results in the first quarter, when earnings per share trailed estimates for the first time in six years. Sales in those categories rebounded in the second quarter, and the first half ended up meeting the company’s expectations, Tome said in an interview.
Same-store sales, considered an important measure of performance because only established locations are counted, rose 5.8 percent. Analysts expected a gain of 4.4 percent, according to Consensus Metrix.
Revenue by that measure advanced 6.8 percent in July and is “trending well” so far this month, giving the company confidence to reiterate its annual sales guidance for a gain of 4.8 percent, Tome said.
Homeowners also are buying more appliances, a category Home Depot has been expanding. U.S. shipments of major home appliances rose 7.1 percent in July, according to the Association of Home Appliance Manufacturers.
Sales of washers and dryers at Home Depot drove purchases of more than $900 to a gain of 8.4 percent while those below $50 rose just 3.1 percent.
“It’s confirmation of the health of the home-improvement industry,” Tome said. “As homeowners start to view their home as an investment and not an expense, they spend differently.”
Controlling costs also helped results. Selling, general and administrative expenses were little changed last quarter, while sales rose. The company is paying out fewer bonuses because this year it’s merely meeting its sales plan instead of blowing past it like last year, when it underestimated the strength of the housing rebound.
While home values have been consistently gaining for more than two years, the growth slowed to a 4.4 percent advance last quarter from an increase of 8.3 percent in the first quarter, according to the National Association of Realtors. Price appreciation is moderating as more properties are listed for sale and buyer demand slows, the group said.
Limited availability of credit, sluggish wage gains and higher interest rates are also proving to be obstacles. Pending sales of previously owned homes fell 1.1 percent in June, the realtors group said last month.
However, home construction rebounded in July as housing starts jumped 15.7 percent, the biggest increase since November, the Commerce Department said today.
“Housing is still going in a positive direction,” said Diedrich, who has a hold recommendation on Home Depot shares. “With new home sales and household formations at very low levels, there’s still a lot of room for upside.”
(Home Depot held a conference call on the results at 9 a.m. New York time. To listen, visit HD US <EQUITY> EVT <GO>)
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