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Home Depot's 1Q Earnings Surge

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The world's largest home improvement retailer, The Home Depot Inc. (HD - Free Report) ushered fiscal 2013 on a positive note, reporting stronger-than-expected earnings in the first quarter. The company’s earnings of 83 cents per share handily exceeded the Zacks Consensus Estimate of 78 cents, primarily due to the recovery of the housing market. Moreover, the company’s quarterly earnings surged 22.1% from the comparable prior-year period earnings of 68 cents a share.

Quarterly Details

Net sales of this Zacks Rank #2 (Buy) company increased 7.4% to $19,124 million compared with $17,808 million in the year-ago quarter, primarily due to the seasonal timing shift caused by the additional 14th week in the fourth quarter of fiscal 2012. Sales, at the company’s comparable stores, improved 4.3%, while comparable store sales in the U.S. stores grew 4.8%. Moreover, net sales surpassed the Zacks Consensus Estimate of $18,587 billion.

Gross profit increased 8.0% to $6,679 million from $6,183 million reported in the comparable year-ago quarter. Gross profit margin expanded 20 basis points (bps) to 34.9% compared with 34.7% in the first quarter of fiscal 2012.

Operating profit during the quarter jumped 22.2% to $2,094 million against $1,714 million in the year-ago comparable quarter. Operating margin expanded 130 bps to 10.9% compared with 9.6% in the year-ago quarter. The improvement in operating margin was driven by robust sales performance and effective cost management.

Balance Sheet and Cash Flow

Home Depot, which competes with Lowe’s Companies Inc. (LOW - Free Report) , ended the first quarter with cash and cash equivalents of $4,337 million, long-term debt of $11,460 million and shareholders’ equity of $16,393 million. During the quarter, the company generated $2,697 million of cash from operations and deployed $2,196 million toward share buyback, $577 million for dividend payment and $278 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 2.8%, with comparable store sales gain of 4%. Earlier, the company had anticipated sales to increase by 2% year over year, while comparable store sales were expected to increase nearly 3%.

Moreover, the company now anticipates fiscal 2013 earnings per share to grow by 17% to $3.52, compared with the previous forecast of nearly 12% growth to $3.37.

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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