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Home Depot’s quarterly profit up 23 percent

The Home Depot Inc., the nation’s largest home improvement store chain, reported a more than 23 percent jump in fourth-quarter profit on a solid increase in sales.
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Sales at Home Depot stores open at least a year, an important retail measure, were up 5.5 percent.John Amis / AP file
/ Source: Reuters

Top home improvement retailer Home Depot Inc. said Tuesday quarterly earnings rose a better-than-expected 23 percent, the biggest rise in two years, on strong sales of everything from kitchen countertops to building materials to paint.

The company raised its revenue growth forecast for the year, citing the expected finalization of its $3.2 billion acquisition of construction materials provider Hughes Supply Inc.

“In the face of rising interest rates and all the rhetoric about slowing housing, the fact that Home Depot’s results are accelerating is quite impressive,” said Scott Mlynek, a portfolio manager with Fifth Third Asset Management, which owns Home Depot stock.

“For such a discounted valuation, Home Depot is providing exceptional top-line and bottom-line growth,” Mlynek added.

Net income rose to $1.29 billion, or 60 cents a share, in the fourth quarter ended Jan. 29, from $1.04 billion, or 47 cents a share, a year earlier.

Analysts’ average forecast was 56 cents a share, according to Reuters Estimates.

Home Depot, which has spent years investing in store renovations, staff training and technology upgrades such as self-checkout stations, said sales rose about 16 percent to $19.5 billion, helped by acquisitions.

Sales at stores open at least a year, an important retail measure, were up 5.5 percent, their best performance of the year. The company cited growth in installations and strong sales at its core warehouses and the Home Depot Supply division, which caters to builders and other contractors.

“My guess is that warm weather in January caused people to go out and work on their houses,” said Keith Davis, an analyst with Farr Miller Washington.

Demand picked up across many product categories, including appliances, paint and kitchen and bath. The average sale rose to $57.20 in the quarter, up 5.7 percent from a year earlier, helped by upscale tools and other products.

Growth plans
As new-store growth slows -- Home Depot expects to open about 110 stores this year, compared with 179 in 2005 -- the retailer is stepping up its move into new markets to fuel growth and compete with rival Lowe’s Cos. Inc., which is expanding to big U.S. cities.

Home Depot last month moved to more than double the size of its supply division, which currently accounts for 5 percent of total sales, with the bid for Hughes Supply. The retailer is also poised to boost online sales with new catalogs featuring upscale furnishings.

“It was a natural fit for Home Depot to move into the contractor/supply area,” said Mlynek, the Fifth Third portfolio manager.

The Atlanta retailer expects sales growth of 14 percent to 17 percent for 2006, compared with a previous forecast of a 9 percent to 12 percent sales rise. Per-share earnings are expected to grow 10 percent to 14 percent this year.

The fourth-quarter results were the best of the year for Home Depot, and the profit rise was the highest since the 2003 fourth period, when earnings rose 39 percent.