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Home Depot manages to rise above retail fray

May 17, 2016

The Home Depot Inc. topped expectations for the first quarter thanks in part to mild weather and a rebound in housing. And the company, bucking the trend of many national retailers, lifted its outlook for the year.

Shares in Home Depot, which has eight stores in the Indianapolis area, neared an all-time high before the opening bell Tuesday but slipped slightly in morning trading.

For the three months ended May 1, Home Depot earned $1.8 billion, or $1.44 per share, easily surpassing per-share projections for $1.33, according to a survey of analysts by Zacks Investment Research. It also topped last year's quarterly profit of $1.58 billion, or $1.21 per share.

Revenue increased to $22.76 billion, from $20.89 billion, better than the $22.32 billion that Wall Street expected.

Sales at stores open at least a year, a key indicator of a retailer's performance, climbed 6.5 percent. They were even stronger, up 7.4 percent, in the U.S.

Those comparable-store sales are also running in the opposite direction of other retailers like Macy's and J.C. Penney. A host of retailers reported falling profits, falling revenues or outright losses over the past week.

J.C. Penney last week, after reporting another quarter of losses, said it would begin selling home appliances, the first time it has done so in three decades, hoping to grab some of the profits piling up at Home Depot and its rival, Lowe's.

Some of the same variables that hurt most retailers even more this year, namely warm weather, also pushed Home Depot sales higher. Chairman and CEO Craig Menear said the company saw "week-to-week demand spikes caused by weather variability."

Home Depot now foresees 2016 earnings of $6.27 per share. Revenue is expected to be up about 6.3 percent, with same-store sales now anticipated to rise approximately 4.9 percent.

The company's previous guidance was for earnings between $6.12 and $6.18 per share, with revenue predicted to rise about 5.1 percent to 6 percent and same-store sales growth of approximately 3.7 percent to 4.5 percent.

“When you look at the volatility out there in retail sales, we’re not seeing it here,” David Schick, senior retail analyst for Consumer Edge Research, told Bloomberg News. “There continues to be strong demand for home improvement.”

Americans are plowing money into homes as prices continue to rise. In its most recent report, the Standard & Poor's/Case-Shiller 20-city home price index rose 5.4 percent and the National Association of Realtors' seasonally adjusted pending home sales index rose 1.4 percent, to 110.5, the highest level since May 2015.

On Tuesday the Commerce Department will report on April U.S. home construction. Ground breakings are running ahead of last year's pace, largely because of a dramatic increase in the construction of single-family homes.

Lowe's Cos. reports quarterly results Wednesday.

Shares of Home Depot added $2.31, to $137.65, before the market opened. That's 77 cents shy of the company's all-time high.

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