Home Depot says U.S. housing recovery to boost sales in second half

Reuters
A customer wheels a cart through a Home Depot store in Washington
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A customer wheels a cart through a Home Depot store in Washington February 20, 2012. Home Depot will report its 2011 fourth quarter earnings on Tuesday. REUTERS/Jonathan Ernst

By Sruthi Ramakrishnan

(Reuters) - Home Depot Inc said it expected same-store sales to grow faster in the second half of the year as customers renovate homes with big-ticket purchases such as wood and laminate flooring in a recovering U.S. housing market.

Shares of the world's largest home improvement chain rose as much as 6.5 percent to an all-time high of $88.99, adding more than $7 billion to the company's market value after it also reported better-than-expected quarterly results.

An improving U.S. jobs market is encouraging people to undertake larger home remodeling projects, David Crowe, chief economist at the National Association of Home Builders, said in July. (http://bit.ly/1w5iXUB)

People also spent more on repairing winter-related damage to their houses, helping Home Depot recover most of sales it lost in the first quarter, Wedbush Securities analyst Seth Basham wrote in a note on Tuesday.

Home Depot expects same-store sales growth in the second half to be 80 basis points higher than the first half, Chief Financial Officer Carol Tome said on a conference call.

The company, however, maintained its full-year sales growth forecast of about 4.8 percent, which Canaccord Genuity analyst Laura Champine called "somewhat conservative."

She said Home Depot was expected to gain market share on the strength of its product assortment and in-store execution.

The company controlled 19.2 percent of the U.S. home improvement market in 2013, up from 17 percent in 2006, according to Euromonitor International. In the period, smaller rival Lowe's Cos Inc's share grew to 15.6 percent from 12 percent.

Lowe's, the world's second-largest home improvement company, is scheduled to report results on Wednesday.

Lowe's shares rose 3 percent to $51.98 on Tuesday.

Tome said there was a "nice recovery" in demand from building contractors as "customers clearly feel better about investing in their homes." Home Depot gets much of its business from building contractors.

Purchases of over $900 rose 8.4 percent in the second quarter ended Aug. 3, driven by sales of appliances, windows, water heaters, wood and laminate flooring.

U.S. housing starts rebounded strongly in July, Commerce Department data showed on Tuesday, signaling that the housing market is regaining its footing after being hurt by last year's runup in interest rates.

Home Depot, however, said it was concerned about the availability of mortgage financing, given that a third of Americans aged 18-36 were living with their parents.

"Something has got to move on mortgage financing reform ... we continue to pay real close attention to that," Tome said.

STRONG SECOND QUARTER

Home Depot's same-store sales rose 5.8 percent in the second quarter, higher than the 4.4 percent analysts polled by research firm Consensus Metrix had expected.

Same-store sales grew 6.4 percent in the United States, where Home Depot has more than 85 percent of its stores.

"In the second quarter, our spring seasonal business rebounded, and we saw strong performance in the core of the store and across all of our geographies," Chief Executive Frank Blake said in a statement on Tuesday.

A severe winter had delayed the onset of spring in the United States, hurting Home Depot's first-quarter sales.

Spring is an important time for home improvement retailers, as customers begin to repair snow-damaged homes and gardens and get set for the barbecue season.

Home Depot raised its full-year profit forecast to $4.52 per share from $4.42. The revised forecast includes the impact of a $3.5 billion share buyback plan.

Net income rose 14.5 percent to $2.05 billion, or $1.52 per share, in the second quarter, while revenue increased 5.7 percent to $23.81 billion.

Analysts on an average had expected a profit of $1.45 per share and revenue of $23.61 billion, according to Thomson Reuters I/B/E/S.

Home Depot's shares were up 6 percent at $88.67 in afternoon trading on the New York Stock Exchange. The stock was the top percentage gainer on the Dow Jones Industrial Average Index, which was up 0.5 percent.

(Editing by Kirti Pandey)

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