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Home Depot Earnings Beat, Guides High

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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 third quarter of fiscal 2013. The company’s earnings of 95 cents per share exceeded the Zacks Consensus Estimate of 89 cents, primarily due to the ongoing recovery of the U.S. housing market and strong operating performance. Moreover, the company’s quarterly earnings surged 28.4% from the comparable prior-year period earnings of 74 cents a share.

Quarterly Details

Net sales of this Zacks Rank #3 (Hold) company increased 7.4% to $19,470 million compared with $18,130 million in the year-ago quarter, primarily driven by increased comparable store sales. Moreover, net sales surpassed the Zacks Consensus Estimate of $19,072 million.

Sales, at the company’s comparable stores improved 7.4%, while comparable store sales in the U.S. stores grew 8.2%.

Gross profit increased 8.5% to $6,798 million from $6,267 million reported in the comparable year-ago quarter. Gross profit margin expanded 30 basis points (bps) to 34.9% compared with 34.6% in the third quarter of fiscal 2012.

Operating profit during the quarter jumped 32.3% to $2,293 million against $1,733 million in the year-ago comparable quarter. Operating margin expanded 220 bps to 11.8% compared with 9.6% 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 third quarter with cash and cash equivalents of $4,853 million, long-term debt (excluding current maturities) of $14,692 million and shareholders’ equity of $14,214 million. During the nine months of fiscal 2013, the company generated $5,981 million of cash from operations and deployed $6,446 million toward share buyback, $1,699 million for dividend payment and $964 million for capital expenditures.

Fiscal 2013 Outlook Raised

Bolstered by better-than-expected quarterly results and an encouraging forward outlook, Home Depot raised its sales forecast for fiscal 2013, projecting sales growth of about 5.6%, with comparable store sales gain of 7%. Earlier, the company had anticipated sales to increase 4.5% year over year, while comparable store sales were expected to increase nearly 6%.

Moreover, the company now anticipates fiscal 2013 earnings per share to grow by approximately 24% to $3.72, compared with the previous forecast of nearly 20% growth to $3.60. Furthermore, Home Depot is committed towards enhancing shareholder’s value through share repurchases and dividend payments. The company intends to repurchase an additional $2.1 billion of its common stock during the fourth quarter of fiscal 2013.

Other Stocks to Consider

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

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