Home Depot outperforms; future looks bright

Nailed it!

Home Depot delivered a strong quarter and raised guidance for the second time in three months as timely promotions and renewed focus on cheaper products helped it gain market share from rival Lowe's (LOW).

In the second quarter, Home Depot's same-store sales increased 4.3% globally, including a 3.5% rise in U.S. same-store sales, making it the ninth consecutive quarter that it has outshone its smaller rival. Home Depot has been quicker to cut costs than Lowe's, and in some cases has benefited as housing markets have improved in regions where it has a heavy presence.

Meanwhile, Lowe's reported weaker-than-expected quarterly sales and slashed its full-year outlook on Monday. Home Depot beat estimates on quarterly profit as demand picked up for seasonal goods after a soft start to the spring selling season. Earnings were $0.86 on revenue of $20.23 billion while analysts were expecting $0.83 per share on $20 billion.

In recent months, Home Depot has shifted focus to cheaper products like faucets and paint to increase shopper traffic as homeowners have stayed away from bigger renovations and expensive items such as appliances in a weak U.S. economy. It reported a 1.1% rise in the number of customer transactions in the second quarter, while the average ticket rose 3.3% to $54.04.

Looking ahead, Home Depot again lifted its full-year earnings outlook, calling for $2.34 a share, up from its May forecast of $2.24 a share. Credit Suisse remains bullish on the stock given that same-store sales run well ahead of GDP growth and that the chain’s second half outlook implies that sales trends will modestly strengthen. The brokerage added that Home Depot is set up for significantly stronger earnings when the housing sector stabilizes.

Home Depot (HD: NYSE : US$33.12), Net Change: 1.66, % Change: 5.28%, Volume: 28,656,106

Canaccord Genuity Inc. is a global investment banking and institutional brokerage firm. Their website is www.canaccordgenuity.com.

For disclosures of any equities mentioned here please see: http://www.canaccordgenuity.com/en/ODD/pages/disclosures.aspx

About the Author

Canaccord Genuity Inc. is a global investment banking and institutional brokerage firm. Their website is www.canaccordgenuity.com.

For disclosures of any equities mentioned here please see: http://www.canaccordgenuity.com/en/ODD/pages/disclosures.aspx.

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