Wall Street Journal
By Maxwell Murphy
Home Depot Inc.'s first-quarter profit rose 12% despite a surprise drop in sales though costs declined, margins rose and it bought back more than half the stock it had projected for the entire year in just the first three months.
The world's largest home-improvement retailer raised its current-year earnings forecast to $2.24 from its February view of $2.20. The updated prediction includes the company's share-buyback activity year-to-date, which totalled $1.3 billion for the first quarter and reduced its average share count by 15 million. In late February, Home Depot said it planned $2.5 billion in repurchases this fiscal year.
The quarterly results follow a strong showing last year, as a multiyear decline in sales halted. Smaller rival Lowe's Cos. on Monday reported a sharper drop in first-quarter sales and reduced its per-share earnings guidance for the year, despite buying back over $1 billion of the $2.4 billion in share repurchases approved by its board for the whole year.
Like Lowe's, though to a lesser extent, Home Depot sales reflected a softer-than-expected spring, typically one of the strongest times of year in the industry. Home Depot didn't quantify the cause, but presumably it felt the same stings as did Lowe's, namely continuing economic pressures, extended stretches of terrible weather across large swaths of the U.S. and the lack of government incentives from last year.
At the end of the quarter ended earlier this month, Atlanta-based Home Depot operated 2,245 stores, nearly 2,000 of which are located in the U.S. During the quarter, it closed four stores in the U.S. that a spokesman described as "low-volume" and not performing up to snuff, including two in Lowe's home state of North Carolina.
It also closed a store in China, a market where Home Depot has struggled to gain a foothold and now operates seven locations, while it opened one store in the U.S. and another in Canada. Spokesman Ron DeFeo said Home Depot's plan in China is to focus on "high-growth cities," specifically Tianjin and Xi'an.
For the quarter ended May 1, Home Depot reported a profit of $812 million, or 50 cents a share, up from $725 million, or 43 cents a share, a year earlier. The year-earlier result included a 2-cent charge related to the extension of a loan guarantee.
Sales dipped 0.2% to $16.82 billion. Same-store sales decreased 0.6% and were 0.7% in the U.S.
Analysts polled by Thomson Reuters most recently forecast earnings of 49 cents on $17.02 billion in revenue.
Gross margin widened to 34.6% from 34.4%. Operating costs dipped 1.8%.
The number of customer transactions fell 1.9% while customers' average ticket increased 1.5%.
