NEW YORK (AFX) -- Home Depot Inc., the No. 1 home-improvement-products retailer, reported a 19% increase in first-quarter profit Tuesday, helped by strength in its supply business, though sales missed Wall Street's expectations.
On a conference call with analysts, Chief Executive Bob Nardelli said he was disappointed with store sales and blamed bad weather and weakness in flooring products for the miss.
Atlanta-based Home Depot said net income rose to $1.48 billion, or 70 cents a share, from $1.25 billion, or 57 cents a share, a year ago. Revenue climbed 13.1% to $21.46 billion.
Analysts, on average, were expecting the retailer to earn 67 cents a share on revenue of $21.63 billion, according to Thomson First Call.
Shares were down 3.9% at $38.92 in afternoon trading.
Home Depot, which is grappling with tough competition from rival Lowe's Cos. Inc. , a softening in the real-estate market and higher commodity prices, has been trying to boost profit by rolling out more high-end merchandise in its stores, offering installation services and bolstering its supply business.
'It was a fairly good quarter,' said Anthony Chukumba, a stock analyst with Morningstar. 'The revenue was a little light, but the profit margin was strong.'
The company's retail business increased its sales by 5.7% to $19.4 billion, after seeing average-ticket growth across all merchandise categories. The average ticket rose 4.3% to a record $60.75 in the quarter. Sales in its supply business more than tripled, helped by its acquisition of Hughes Supply Inc. earlier this year.
Home Depot has just started breaking out the results of its retail and supply businesses, but it has stopped reporting comparative sales at stores open at least a year -- a closely watched retail-sector measurement known as same-store sales or comparable-store sales.
'The firm's decision to stop disclosing comp-store sales trends will likely capture almost as much focus as the results themselves,' Goldman Sachs analyst Matthew Fassler wrote in a note to clients. 'We dislike any decision to reduce transparency.'
On its post-earnings-release conference call, the company backed its profit and sales forecasts for the year and through 2010. It has forecast annual sales growth of 9% to 12% and earnings-per-share gains in a range of 10% to 14%.
The company, which said it believes it can improve upon its 4.3% average-ticket-value gain, has been stocking pricier items like grills, patio sets and power equipment, and it expects consumers to continue trading up.
'I don't think that we're anywhere near where we can be an average ticket,' said Tom Taylor, Home Depot's executive vice president of merchandising, speaking on the conference call. 'I think our customers are continuing to upgrade, and as we introduce innovation I think that our customers are accepting of that.'
Home Depot is expanding its supply business, which targets business contractors, businesses and towns, and has made a flurry of acquisitions to boost its offerings. Earlier this year, it acquired Hughes Supply Inc. for $3.51 billion, more that doubling the size of its supply operations. Hughes is a distributor of construction, repair and maintenance products.
Other recent acquisitions include its move last week to buy EnerBank, which helps finance home-improvement projects, and the purchase of catalog and online home-fashions retailer Home Decorators Collection.
The slowdown in the housing market is a concern for home-improvement retailers like Home Depot and rival Lowe's.
They've been ringing up robust sales in recent years as a booming real-estate market and low interest rates have encouraged consumers to refinance mortgages or take out home-equity lines of credit to remodel.
'The housing market is slowing, but it's a soft landing. The market is still strong by historical levels,' Morningstar's Chukumba said. 'As long as the economy stays strong and unemployment stays low, I have a bullish outlook on Home Depot and the sector. If there's a slowdown, all bets are off.'
Shares of Dow component Home Depot have slipped less than 1% over the quarter, slightly outperforming Lowe's, whose shares fell about 1.5% in the period. This story was supplied by MarketWatch. For further information see www.marketwatch.com.
© 2006 AFX News
