Home Depot Dodges Retail Malaise as Profit Exceeds Estimates

  • Retailer forecasts annual earnings at high end of its range
  • Same-store sales rise 5.1 percent, beating projections

Home Depot Inc. posted third-quarter profit that topped analysts’ estimates, showing that consumers are still willing to spend on big-ticket items like their houses even while they pull back on purchases elsewhere.

Profit in the three months through Nov. 1 was $1.36 a share, excluding some items, the Atlanta-based company said Tuesday in a statement. Analysts projected $1.32 a share.

While several parts of the retail industry have struggled this year as shoppers hold off on discretionary purchases, home-improvement has continued to shine. Home Depot’s sales rose 6.4 percent to $21.8 billion last quarter -- the biggest gain this year -- helped by higher employment, lower gasoline prices and a roughly four-year run-up in housing prices that’s encouraging Americans to spend on their dwellings.

The results countered concerns that U.S. consumers curtailed spending last month, said David Schick, an analyst at Stifel Financial Corp.

“The idea that retail as an industry had a massive inflection point in October just isn’t holding up,” Schick said. “There is a sky-is-not-falling element.”

Home Depot’s same-store sales advanced 5.1 percent, topping analysts’ estimate for a 4.6 percent gain. The figure is especially important to the world’s largest home-improvement chain because it has mostly stopped opening new stores -- once a key driver of its growth. Now the chain relies on boosting its online business and making existing locations more productive.

Profit Forecast

The retailer said Tuesday that profit this year will be $5.36 a share, at the top of its previously forecast range of $5.31 to $5.36. Analysts estimate $5.32, on average. Same-store sales for the year will rise 4.9 percent, also the top of its earlier projection.

The shares rose 4.4 percent to $126.18 in New York, the biggest gain since Aug. 26. Home Depot has now advanced 20 percent this year. Its results also lifted the stock of smaller competitor Lowe’s Cos., which reports its third quarter on Wednesday.

No Slowing

Home Depot sees no signs of the housing market slowing in the near term, not even if the Federal Reserve increases interest rates, Chief Financial Officer Carol Tome said. Home prices still have about 5 percent to recover from their peak before the recession. Then more demand from accelerating rates of household formation should keep values increasing, she said.

“As we think about the home-improvement space, it’s good right now, and we think it’s going to be good for a while,” Tome said in an interview.

Investors soured on U.S. retailers in the past two weeks after lackluster results from department-store chains like Macy’s Inc. and Nordstrom Inc. The Commerce Department only added to the malaise after saying that sales at U.S. retailers rose 0.1 percent during the third quarter, which trailed the median forecast of economists surveyed by Bloomberg. Athletic-gear retailer Dick’s Sporting Goods Inc. posted third-quarter results Tuesday that trailed analysts’ estimates, heightening concerns about consumer spending.

More Customers

While slowing foot traffic at shopping centers has hurt mall-based retailers, Home Depot saw a 4.4 percent increase in the number of customer transactions during the third quarter. The average purchase size grew as well, gaining 0.8 percent to $58.03.

Also benefiting from higher spending on homes was TJX Cos., owner of the T.J. Maxx and HomeGoods stores. The Framingham, Massachusetts-based retailer said Tuesday that third-quarter profit was 86 cents a share, topping analysts’ 84-cent average estimate. The HomeGoods stores posted a 6 percent gain in comparable-store sales. Analysts had projected a 5.5 percent gain. TJX shares climbed 3.9 percent to $68.18, the biggest advance since Aug. 18.

Home prices in 20 U.S. cities rose at a faster pace in the year ended August, a sign the industry continues to strengthen on improving demand. The S&P/Case-Shiller index of property values climbed 5.1 percent from August 2014 after rising 4.9 percent in the year ended in July, the group said last month.

Home Depot also has benefited from investments in its e-commerce and logistics, which has helped it intertwine its store and Web operations better than peers, Schick said.

“The prior two weeks, people thought, ‘This is over. E-commerce is winning, and people aren’t shopping in stores,’” Schick said. “This shows that not all retailers are created equal.”

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