Home Depot profits rise on repair trends
Home Depot (HD) reported net income in the second quarter jumped 14.3% on sales growth of 4.2% in a signal that more homeowners are remodeling their homes rather than buy new ones.The hardware store chain is also seeing an increased demand for rental property repair supplies. The gain was driven by a rebound in seasonal business, increased spending on storm-related repairs, and a strengthening in the company's core business. Diluted earnings per share for the Atlanta-based company rose 19.4% to 86 cents a share from 72 cents a year earlier. Core merchandising segments such as hardware, tools, building materials, and electrical supplies helped buoy Home Depot’s financials in the three months ended July 31, said CEO Frank Blake in a conference call Tuesday. "We were also encouraged that soft housing markets like California, Florida, Arizona, and Nevada were positive in the quarter," he said. Those core purchases are indicative of a focus on repairs and renovation, a point Blake touched on in a comment to analysts. "We have seen a decline in the percent of the population that owns homes, but people who rent also do upgrades," he said. "There's actually a lot of wear and tear on rental units and we can fill some of that need." While Home Depot profit outpaced growth in U.S. gross domestic product of just 1.3% in the second quarter, the company’s business is generally correlated with the economy’s performance, said Blake. Although real residential fixed investment grew 3.8% in the second quarter, he painted a bleak picture of the outlook for housing through the rest of the year, noting that starts, turnover and pricing all remain depressed. “We do not expect any meaningful improvement in the housing market for the back half of 2011 and events here and across the globe would suggest that there are more risks to the downside than the upside on GDP growth,” said Blake. Even so, the company expects its fiscal 2011 sales to increase 2.5% from 2010, and diluted earnings per share to rise 16% for the year to $2.34. Write to Liz Enochs.