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Home Depot Q2 Earnings Beat Estimates

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The world's largest home improvement retailer, The Home Depot Inc. (HD - Free Report) reported better-than-expected results for the second quarter of fiscal 2013. The company’s earnings of $1.24 per share exceeded the Zacks Consensus Estimate of $1.19, primarily due to the recovery of the housing market in the U.S. Moreover, the company’s quarterly earnings surged 22.8% from the comparable prior-year period earnings of $1.01 a share.

Quarterly Details

Net sales of this Zacks Rank #2 (Buy) company increased 9.5% to $22,522 million compared with $20,570 million in the year-ago quarter, primarily driven by increased comparable store sales, strong sales of seasonal items and improved housing market. However, Home Depot’s top line was negatively impacted due to the calendar timing shift caused by the additional 14th week in the fourth quarter of fiscal 2012 resulting in one less week of spring sales in the reported quarter.

Sales, at the company’s comparable stores, improved 10.7%, while comparable store sales in the U.S. stores grew 11.4%. Moreover, net sales surpassed the Zacks Consensus Estimate of $21,722 million.

Gross profit increased 9.9% to $7,721 million from $7,026 million reported in the comparable year-ago quarter. Gross profit margin expanded 13 basis points (bps) to 34.28% compared with 34.16% in the second quarter of fiscal 2012.

Operating profit during the quarter jumped 17.5% to $3,018 million against $2,569 million in the year-ago comparable quarter. Operating margin expanded 91 bps to 13.40% compared with 12.49% in the year-ago quarter. The improvement in operating margin was driven by improved gross margin and effective cost management.

Balance Sheet and Cash Flow

Home Depot, which competes with Lowe’s Companies Inc. (LOW - Free Report) , ended the second quarter with cash and cash equivalents of $3,419 million, long-term debt (excluding current maturities) of $11,450 million and shareholders’ equity of $15,478 million. During the first half of fiscal 2013, the company generated $4,718 million of cash from operations and deployed $4,346 million toward share buyback, $1,143 million for dividend payment and $599 million for capital expenditures.

Fiscal 2013 Outlook Raised

Bolstered by better-than-expected quarterly results, Home Depot raised its sales forecast for fiscal 2013, projecting sales growth of about 4.5%, with comparable store sales gain of 6%. Earlier, the company had anticipated sales to increase 2.8% year over year, while comparable store sales were expected to increase nearly 4%.

Moreover, the company now anticipates fiscal 2013 earnings per share to grow by approximately 20% to $3.60, compared with the previous forecast of nearly 17% growth to $3.52. Furthermore, Home Depot is committed towards enhancing shareholder’s value through share repurchases and dividend payments. The company intends to repurchase an additional $2.2 billion of its common stocks in the remaining period of fiscal 2013.

Other Stocks to Consider

Other stocks worth considering in the home improvement retail industry are Lumber Liquidators Holdings Inc. (LL - Free Report) , which has a Zacks Rank #1 (Strong Buy), and Builders FirstSource Inc. (BLDR - Free Report) that carries a Zacks Rank #2 (Buy).

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