Home Depot Inc still sees room for profit growth this year as consumers take up long-delayed maintenance and repair projects for their homes, even if a return to bigger renovations will have to wait. The company posted a higher-than-expected quarterly profit and raised its full-year earnings forecast on Tuesday, helped by cost controls.
While sales missed expectations in a weak economy, investors were relieved that the top home improvement chain still expects an increase for the rest of the year. Home Depot's results echoed those of smaller rival Lowe's Cos, which reported on Monday. Shares of both companies rose for the second straight day on hopes that they are positioned to grow once consumer sentiment picks up in earnest. Home Depot forecast earnings of $1.90 a share from continuing operations in the current fiscal year, up 2 cents from its prior outlook. For the prior year, it reported profit of $1.66 a share from continuing operations, excluding charges.
The company expects sales growth of about 2.6 percent, down from a prior view of 3.5 percent. Home Depot is implying a 2 percent same-store sales gain for the second half of 2010, similar to Lowe's, J.P. Morgan analyst Christopher Horvers said. Home Depot shares rose 1.9 percent to $27.90 in premarket trading, while Lowe's gained 1.5 percent to $20.00.
Like many other retailers, Home Depot has tightly managed costs to offset tepid sales. It has benefited from a slower expansion strategy, improvements to its supply chain and cost cuts that included job reductions in January. Home Depot's net income rose to $1.2 billion, or 72 cents a share, in the second quarter ended August 1 from $1.1 billion, or 66 cents a share, a year earlier.
Analysts on average were expecting 71 cents a share, according to Thomson Reuters I/B/E/S. Sales rose 1.8 percent to $19.41 billion, missing the average estimate of $19.59 billion. Sales at stores open at least a year rose 1.7 percent globally. UBS analyst William Truelove had expected an increase of 3.5 percent, while Wall Street on average had forecast growth of 2.3 percent, according to an early note. Same-stores sales rose 1 percent in the United States, the company's main market. Lowe's, which has few stores outside the United States, posted a 1.6 percent increase for its latest quarter.