HD Home Depot Inc

Company increases guidance as CEO says environment for home improvement is solid

By Allison Prang 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (November 14, 2018).

Home Depot Inc. reported third-quarter earnings that rose sharply from a year earlier and again raised its full-year guidance as the retailer benefited from strong demand in the home-improvement business.

However, the company said it would continue to face tougher comparisons because of last year's hurricanes, which prompted a surge in sales related to rebuilding areas damaged by storms.

Home Depot's profit rose 32% to $2.87 billion, or $2.51 a share. Analysts polled by Refinitiv expected earnings of $2.26 a share. The retailer's provision for income taxes fell by about $489 million from a year earlier, which helped bolster profit.

Net sales grew 5.1% to $26.3 billion, helped by an increase in customer transactions and average price per customer transaction. Analysts polled by Refinitiv expected $26.26 billion. Same-store sales grew 4.8%, ahead of the 4.7% expected from analysts polled by Consensus Metrix.

Chief Executive Craig Menear said on the company's earnings call Tuesday that "overall the environment for home improvement is solid," but noted that comparisons for the U.S. Gulf region were harder this quarter because of Hurricane Harvey, the storm that hit the Texas area in 2017.

"While this quarter brought hurricanes Florence and Michael, the scope of devastation was more compact from a geographical perspective," he said.

Home Depot's Chief Financial Officer Carol Tomé said the company logged about $282 million in hurricane-related sales in the third quarter last year, compared with about $150 million this year. In the fourth quarter, the company will be competing against about $380 million in hurricane sales it made in the fourth quarter a year ago, she said.

"While we do expect to get hurricane-related sales in the fourth quarter, we don't expect to get $400 million worth of hurricane-related sales," she said.

Home Depot said it now expects full-year sales to grow by about 7.2% from a year earlier -- or 5.5% when excluding the 53rd week in the current fiscal year. The company had expected sales to rise about 7%, or about 5.3% excluding the extra week. The company expects profit for the year to be $9.75 a share, compared with its prior forecast of $9.42 a share.

The higher earnings guidance includes stronger activity around share buybacks. Home Depot said Tuesday it now expects about $8 billion in share repurchases for the year. The company had expected to complete $6 billion in share buybacks.

Wells Fargo analysts said in a note that Home Depot "continues to outpunch its weight" given the context of hurricanes and other factors, but added that investor sentiment has waned in recent months. "While (Home Depot) managed to deliver relatively solid Q3 results, we see little in today's report to challenge an increasingly tricky narrative around rising rates, slowing home turnover and the potential for a FY19 slowdown," the analysts said.

Analysts pressed Home Depot on the call to discuss whether weaker housing-sector data of late were reasons to be less optimistic about the company's prospects. Ms. Tomé said the company was confident in its forecasts as a result of factors including strong U.S. economic growth, the age of housing stock and home-price appreciation driving activity.

"Housing is very local and when you get into the areas of home-price appreciation and affordability...it's really local," she said on the call. "So we went market-by-market to see, are we seeing any measurable impact on our sales and we just can't see it."

Shares of Home Depot closed Tuesday down 0.2% to $179, bringing their decline so far this year to 5.6%.

Write to Allison Prang at allison.prang@wsj.com

(END) Dow Jones Newswires

November 14, 2018 02:47 ET (07:47 GMT)

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