--Charge linked to China store closures crimps profit
--Core profit and sales stronger than expected
--Shares up 2% premarket
(Updates with further details throughout.)
By Joan E Solsman and Saabira Chaudhuri
Home Depot Inc.'s (HD) fiscal third-quarter net edged up 1.4% as
the home-improvement chain paid for its decision to retrench in
China but benefited from surprisingly robust core profit and
sales.
Shares were up 2% at $62.40 in premarket trading, as results
topped Wall Street expectations and the company lifted its 2012
earnings view again.
Chief Executive Frank Blake said the third-quarter performance
was stronger than Home Depot itself expected as well, reflecting
"in part, what we believe is the start of the path toward the
healing of the housing market."
Housing recovery is key to the growth of Home Depot and its
smaller rival Lowe's Cos. (LOW), which reports Monday. Recently,
home construction has surged and home prices have risen, mounting
signs that a real-estate recovery in the U.S. is gaining momentum.
Home Depot shares have ascended as that rebound appears to take
hold, up 46% so far this year.
However, other companies active in the sector like Fortune
Brands Home & Security Inc. (FBHS) have noted that while new
construction has been strong, rebuilding and remodeling--more
relevant to Home Depot sales--have been clumpy and modest.
Nevertheless, same-store sales at Home Depot rose 4.2% in the
latest period, including a 4.3% increase in the U.S., whereas
analysts were expecting a gain of around 3% even with the sale
benefit of disaster-preparation sales from Hurricane Sandy. Average
ticket was $54.55, a 2.9% rise from $53.03 a year earlier, while
the number of customer transactions edged up 1.7%.
Profitability growth cooled somewhat. Operating margin improved
to 9.6% from 9.3%, its most modest increase in at least the last
two years. Gross margin widened slightly to 34.6% from 34.4%.
Last month, Home Depot joined a growing list of companies
revamping their strategy in China, as it planned to close the seven
big box stores it operated there and explore other formats like a
home decorations outlet. Home Depot's warehouse model struggled to
find a foothold in China, where cheap labor and apartment-based
living crimp do-it-yourself demand. The big-box closures resulted
in a previously announced charge in the latest period, which came
out to 11 cents a share.
Overall, Home Depot reported a profit of $947 million, or 63
cents a share, compared with a year-ago profit of $934 million, or
60 cents a share. Stripping out the China charge, profit was 74
cents a share. Sales rose 4.6% to $18.13 billion.
Analysts polled by Thomson Reuters most recently forecast
earnings of 70 cents on revenue of $17.92 billion.
Home Depot raised its view for the year to adjusted earnings of
$3.03 a share on revenue growth of about 5.2% from its prior view
of $2.95 a share on growth of 4.6%.
Write to Joan E. Solsman at joan.solsman@dowjones.com and
Saabira Chaudhuri at saabira.chaudhuri@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires