Home Depot share price up, beats profit estimates on US strength

Home Depot announced on Tuesday profit above expectations as the worlds largest home-improvement retailer benefited from strong demand for its products amid elevated house prices.

Net income for the three months ended February 1 stood at $1.38 billion, or $1.05 a share, better that the $1.01 billion, or $0.73 a share, the company posted in the fourth quarter of fiscal 2013. In comparison analysts surveyed by Bloomberg estimated profit of $0.89 per-share.

Results were boosted by the sale of the company’s equity ownership in HD Supply Holdings, which reflected in a pre-tax gain of $111 million, or $0.05 per share.

The companys results were also aided by the strengthening US job market and the increased valued of houses, prompted citizens to spent more on improving their current homes.

Although higher house prices benefit Home Depot they also hurt them as they push first-time buyers out of the market, which in turn means less sales of products needed for new homes. Additionally, the Federal Reserve is set to increase interest rates later this year, boosting funding costs for buyers.

The company reported a revenue of $19.16 billion, up from the $17.7 billion a year earlier and also better than analysts estimate of $18.7 billion. Same-store sales increased 7.9% in the fourth quarter, up from projections of 5.5% gain. US comparable sales edged up 8.9%.

During the quarter customer transactions increased 5.1% and the average amount spent per purchase increased 3% to $57.79, which led to a 8.1% gain in sales per square foot to $324.58.

For the fiscal 2015 Home Depot projected to reach sales growth of between 3.5% and 4.7%, while same-store sales are expected to land at 3.3% to 4.5%. Per-share earnings are estimated to range from $5.11 to $5.17 compared to $4.71 a share in 2014.

However, the company warned that if the dollar remains at its position of strength, it may dent revenue by $1 billion, which is relatively small when compared to the $83.2 billion the company reported in 2014.

Home Depot also increased its quarterly dividend by 26% to $0.59 per share and announced a plan to complete a $18-billion share buyback program by 2017.

“We had a strong finish to the year, as strength across the store and solid execution aided our business in 2014,” said Chief Executive Craig Menear.

Home Depot gained 0.04% on Monday and closed at $112.28 in New York, marking a one-year increase of 44.43%. The company is valued at $147.91 billion. The stock edged up 4.09% on Tuesday to $116.86 during pre-market trading.

According to the Financial Times, the 25 analysts offering 12-month price targets for Home Depot have a median target of $112.00, with a high estimate of $130.00 and a low estimate of $94.00.