HD Home Depot Inc

By Dave Sebastian 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (February 26, 2020).

Home Depot Inc. posted higher profit for its latest quarter, a sign of health for the U.S. economy following lackluster sales reports from other retailers in recent weeks.

Its finance chief also said the company is adequately stocked for the current period despite the effect the coronavirus epidemic is having on global supply chains

"We feel good about where we stand with respect to product for the first quarter," Richard McPhail said in an interview.

He said Home Depot sources 30% of its products from other countries, mostly from China, but that it is still too early to determine whether supply-chain disruptions would materially affect the company's financial performance.

The home-improvement retailer on Tuesday reported net income of $2.48 billion, or $2.28 a share, for its fiscal fourth quarter, which ended Feb. 2. Analysts polled by FactSet had expected $2.10 a share. Profit in the year-earlier period was $2.34 billion, or $2.09 a share.

Home Depot said sales for the latest period declined 2.7% to $25.78 billion, roughly in line with analysts' expectations. The Atlanta-based company said the extra week of operations in the year-earlier period contributed about $1.7 billion in sales.

Sales at physical and online outlets that had been open for more than a year rose 5.2% for the period, ahead of the 4.7% rise analysts were expecting. The company had missed same-store-sales expectations for the previous four quarters, according to FactSet.

On one less week, the number of customer transactions fell 6.4% from a year earlier, but the average amount each customer spent rose 4.1% and sales per retail square foot rose 2.8%. Operating expenses fell 5.6% to $5.33 billion for the quarter.

Home Depot shares, which have risen about 24% in the past year, were off less than 1% Tuesday, while the Dow Jones Industrial Average slumped for a second day in a row on mounting fears over the epidemic's spread outside of China.

Home Depot's domestic business remains resilient to risks such as coronavirus and the trade war, and customers in coming months could shift their discretionary spending to home improvement from travel plans, especially outside the U.S., CFRA Research analyst Kenneth Leon said in a note to clients.

During its latest quarter, Home Depot saw some benefit from refunds on tariffs imposed on certain Chinese goods that were subsequently exempted, Ted Decker, the executive vice president of merchandising, said on a call with analysts. He said luxury vinyl plank flooring was a major Home Depot category that had been subject to tariffs.

Home Depot affirmed its financial outlook for the current fiscal year. It expects per-share earnings to grow about 2% to $10.45 on same-store-sales growth of about 3.5% to 4%. It also raised its quarterly dividend by 10% to $1.50 a share.

The company, which operates about 2,300 stores, expects to open six new stores during the year.

Mr. McPhail said on the analyst call that the guidance assumes the U.S. economy will grow slightly less than 2% this year and a boost to demand from rising home prices and housing turnover.

"The economy is strong, and the U.S. consumer is healthy," Mr. McPhail said.

Average home prices in major U.S. metropolitan areas rose 3.8% in 2019, accelerating from an annualized increase of 3.5% the prior month and 3.3% in October, according to the S&P CoreLogic Case-Shiller National Home Price Index. The pace marks a full eight years of price increases in homes for sale.

"Home-improvement sales will benefit from low rates on mortgages and home-equity loans, rising home prices, and a growing market in 2020 home sales," Mr. Leon said.

Write to Dave Sebastian at dave.sebastian@wsj.com

(END) Dow Jones Newswires

February 26, 2020 02:47 ET (07:47 GMT)

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