Home Depot Says U.S. Housing Recovery Remains on TrackMatt Townsend
Home Depot Inc. says the U.S. housing recovery is just fine.
The nation’s largest home-improvement retailer blamed lackluster first-quarter revenue on the harsh winter -- not a slowdown in the housing market -- and said sales this month have rebounded as it recoups garden and other spring purchases delayed by record snow and cold temperatures.
“Many indicators in the housing market have softened over the last several months, leading to the question of whether this indicates that the housing recovery has run out of steam,” Chief Executive Officer Frank Blake said today on a conference call with analysts. “As we parse the data from our own business, that is not what we see.”
Home Depot cares most about home prices, which have continued to rise, because that gives customers confidence to spend on renovations and repairs. While the number of home sales has declined, only about 4 percent of the nation’s housing units change hands each year, the company said. So with expectations for the U.S. market intact, it reiterated its forecast for annual revenue despite sales last quarter trailing analysts’ estimates by a wide margin.
The shares rose 1.9 percent to $77.96 at the close in New York. The stock had slid as much as 2 percent in early trading after the company posted first-quarter profit that trailed analysts’ estimates.
Home Depot’s first-quarter revenue gained 2.9 percent to $19.7 billion, the Atlanta-based company said today in a statement. Analysts on average estimated about $20 billion. Same-store sales, considered an important measure of performance because only established stores are counted, rose 2.6 percent. Analysts projected a 5 percent gain.
Revenue by that measure so far in May has advanced more than 4 percent, Chief Financial Officer Carol Tome said in an interview. Tome described the gains this month as “robust” as they follow a surge of more than 11 percent in May 2013.
For the year, Home Depot repeated that total revenue will advance 4.8 percent. The company expected the housing market would keep growing this year, albeit more slowly, Tome said. Plus, the age of houses in the U.S. should continue to boost repairs. The company did a study this year that showed 66 percent of renters want to own a house, she said.
“We said last year that the housing market would slow down,” Tome said. “This is not new news, at least according to the way we built our model.”
Net income in the three months through May 4 rose 12 percent to $1.38 billion, or $1 a share, from $1.23 billion, or 83 cents, a year earlier. Excluding some items, profit was 96 cents a share. The average of 25 analysts’ estimates compiled by Bloomberg was 99 cents, with some projections as high as $1.01.
Home Depot’s quarterly profit had met or exceeded analysts’ estimates every quarter since early 2008, beating expectations 23 times and matching them once.
Profit this year will be $4.42 a share, Home Depot said today. That’s up from a previous forecast of $4.38 and tops analysts’ $4.41 average estimate.
The softening in the U.S. housing market included sales of previously owned homes falling to the slowest pace in 20 months in March, and purchases of new houses sinking 14.5 percent from February, according to reports last month. Mortgage applications to buy homes plunged 19 percent from a year earlier, indicating slowing demand during what is typically the busiest season for deals.
Economists have been questioning whether the pullback is a result of the unusual weather or the waning of outside influences that fueled the rally. The average 30-year, fixed-rate mortgage rate was 4.2 percent in the week ended May 15, up from 3.51 percent in the comparable week a year earlier, according to Freddie Mac. Also, the investors who helped drive up prices in the past two years by buying homes and converting them into rentals are finding fewer distressed properties on the market.
Home Depot said in February that continued strength in the housing market would add 2 percentage points of growth in same-store sales this year.
The company underestimated how the housing market would rebound last year, with its initial forecast calling for a sales gain of 2 percent. Revenue ended up climbing 5.4 percent to $78.8 billion.
“Weather caused a substantial impact on Home Depot and its suppliers through March,” Keith Hughes, an analyst at SunTrust Banks Inc. in Atlanta, said in an interview. He recommends buying Home Depot shares. “The question is, ‘Once you get past that, what’s the growth rate going to be?’”