That’s great news for The Home Depot, Inc. (NYSE:HD). In fact, that’s what helped The Home Depot, Inc. (NYSE:HD) post a healthy 18% spike in Q1 earnings and prompted the company to raise its full year outlook. CEO Frank Blake said the rebound is propelling HD on “the path to recovery.”
The world’s largest home improvement retailer expects solid second quarter earnings, and full-year earnings of $3.52 per share on revenue growth of 2.8%. That’s up from its prior view of $3.37 a share and a 2% increase in revenue.
But don’t be surprised if The Home Depot, Inc. (NYSE:HD) performs even better than the upwardly revised numbers. The company has a reputation of providing conservative guidance, the Wall Street Journal notes. In 2012, Home Depot raised earnings projections three times.
A healing housing market is indeed credited for the rosy outlook. CFO Carol Tome told the WSJ the optimistic view is thanks to the declining number of homes “underwater” (worth less than what borrowers owe on their mortgages).
According to CoreLogic, the percentage of homes with negative equity fell from 25.4% in Q4 of 2012, to 21.5%, or 10.4 million homes.
“If you have equity in your home, you view your home as an investment and are more comfortable spending money on it,” Tome said. “If it’s underwater, you view your homes as an expense.”
Crushing the Competition
The Home Depot, Inc. (NYSE:HD) is comfortably sprinting ahead of rivals.
Fiscal Q1 earnings for competitor Lowe’s Companies, Inc. (NYSE:LOW). rose 2.5%, but revenue was flat. Same store sales dipped 0.7%, while Home Depot’s rose 4.8%.
Lowe’s Companies, Inc. (NYSE:LOW) blamed the lackluster showing on a cooler and wetter than expected introduction to spring which “resulted in a delayed spring selling season which impacted our results in exterior categories.”
Home Depot was subjected to the same glum weather, yet still managed solid earnings. Analysts say The Home Depot, Inc. (NYSE:HD)’s superior performance was due to “better execution, more effective marketing, competitive promotions and meaningful merchandising.”
In attempts to improve performance, Lowe’s Companies, Inc. (NYSE:LOW) has closed underperforming stores, tweaked management structure, shuffled products lines to better suit customers wants and reduced costs. Plus, the company now highlights everyday low prices rather than sales.
While Lowe’s reported EPS of $0.49 on revenue of $13.08 billion, 6 cents better than a year ago, analysts were looking for $0.51 EPS on revenue of $13.45 billion.
The company maintained its full year forecasts, expects full-year same store to increase by 3.5%, and plans to open 10 new stores this year.
Shares are definitely worth watching. They have attracted a cache of big money investors including hedge funds First Pacific Advisors and SAC Capital.
On the other end of the spectrum, and in need of cautious watching, are shares of Sears Holdings Corp (NASDAQ:SHLD).
The department store chain, which sell tools, home appliances and electronics as well as clothing, recently reported another dismal quarter.
The company lost $1.29 in Q1 of 2013, worse than the 60 cents Wall Street was anticipating. Revenue tumbled 9% to $8.45 billion, more than the expected $8.37 billion.
The decrease, the company said, was primarily because it has fewer Kmart and Sears full scale stores in operation. Also weighing on results was that stores opened at least a year turned in lower revenue. Additionally, the company blamed the separation of its Sears Hometown and Outlet business (which occurred in Q3 of 2012) for the drag.
