Home Depot profit tops estimates on cost cuts

Reuters
The entrance to The Home Depot store is pictured in Monrovia, California
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The entrance to The Home Depot store is pictured in Monrovia, California August 13, 2012. REUTERS/Mario …

By Dhanya Skariachan

(Reuters) - Home Depot Inc reported a higher-than-expected quarterly profit on Tuesday as it kept a tight lid on costs to offset weak sales, sending shares in the world's largest home improvement chain up 3 percent.

Some Wall Street analysts said the retailer held up pretty well in a quarter plagued by inclement weather in its key U.S. market and weakness in the Canadian currency.

Home Depot also faced tough comparisons with the year-ago period when Superstorm Sandy-related repair and rebuilding boosted sales.

While overall sales missed analysts' expectations, sales at Home Depot stores open at least a year rose 4.4 percent, including a 4.9 percent rise at its U.S. stores.

Overall sales fell 3 percent to $17.70 billion, missing the analysts' estimate of $17.91 billion. The fourth quarter, which ended on February 2, had one week less than the prior-year period.

RBC Capital Markets analyst Scot Ciccarelli said he was cheered by retailer's sales at its established stores and recommended Home Depot over rival Lowe's , due to report results on Wednesday.

Other analysts worried whether the sales weakness at Home Depot indicated the recent U.S. housing recovery was losing steam.

Severe cold weather and a shortage of houses on the market had pushed U.S. home resales to an 18-month low in January.

"We believe weather had a modest impact, but affordability remains stretched, household formation soft and younger people are not in the market due to higher education debt," wrote Janney analyst David Strasser, who has a "neutral" rating on the company.

Home Depot shares rose as high as 3 percent in pre-market trading before easing back to trade up 2.4 percent at $79.75.

COST CUTS

Home Depot was faster to cut costs than its smaller rival Lowe's Cos Inc during the most recent U.S. recession.

It has particularly gained from its move to have more centralized distribution centers. It managed to cut total operating costs by 4 percent in the quarter.

Net earnings were $1.01 billion, or 73 cents a share, compared with $1.02 billion, or 68 cents a share, a year earlier. Analysts were looking for a profit of 71 cents a share, according to Thomson Reuters I/B/E/S.

Some analysts had raised concerns about inclement weather hurting traffic to its stores in the United States in December and January.

For the current fiscal year, the company expects earnings of $4.38 a share on sales growth of about 4.8 percent. It sees same-store sales, or sales at stores open at least a year, rising about 4.6 percent.

(Reporting by Dhanya Skariachan; Editing by W Simon and Sophie Hares)

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