By AP Business Writer
updated 8/15/2006 11:14:07 AM ET 2006-08-15T15:14:07

The Home Depot Inc., the nation’s largest home improvement store chain, reported Tuesday a 5.3 percent jump in second-quarter earnings on a strong rise in sales. However, it said its earnings growth for the year will be at the low end of its previous guidance.

Still, its shares rose as the company said it would invest $350 million more during the second half of the year to accelerate its store modernization program. The company also began reporting same-store sales again. Its previous decision to stop reporting the common retail metric, which compares sales at stores open at least a year, caught some on Wall Street by surprise.

The results for the recent quarter beat Wall Street expectations, when a one-time tax charge is excluded.

“We think the quarter was pretty much as expected, with slowing sales offset by good cost controls and share buybacks,” Banc of America Securities analyst David Strasser wrote in a research note.

He added that the increased spending on stores is a good idea considering “that had been a concern for many investors that Home Depot was pulling labor off the floor.”

Chief Executive Officer Bob Nardelli said in a conference call with investors that he was pleased with the results, though he noted that higher oil and gas prices and rising interest rates have put pressure on consumers.

“Therefore, we see a challenging second half,” Nardelli said of the last six months of the year.

He added, “We believe discretionary dollars will become repair and maintenance dollars.”

The Atlanta-based company said it earned $1.86 billion, or 90 cents a share, for the three months ended July 30, compared with a profit of $1.77 billion, or 82 cents a share, for the same period a year ago.

Excluding the tax charge, Home Depot reported earnings of $1.93 billion, or 93 cents a share.

Analysts surveyed by Thomson Financial were expecting earnings of 92 cents a share in the second quarter.

Revenue in the second quarter rose 16.7 percent to $26.03 billion, compared with $22.31 billion recorded a year ago.

The company said it saw growth in average sales ticket across most merchandise categories. In the second quarter of fiscal 2006, Home Depot increased its average ticket by 4.2 percent to $59.98.

For the first six months of the year, Home Depot said it earned $3.35 billion, or $1.60 a share, compared with a profit of $3.02 billion, or $1.40 a share, for the same period a year ago. Six-month revenue rose 15 percent to $47.49 billion, compared with $41.28 billion recorded a year ago.

Going forward, Home Depot said based on the current economic environment and its reinvestment program, the company believes its fiscal 2006 sales and earnings-per-share growth will be at the low end of its previous guidance. In January, it had said it expected full-year sales growth of 14 percent to 17 percent and full-year earnings growth of 10 percent to 14 percent.

Home Depot said it plans to do several things to improve its stores, including increasing the availability of its employees, completing self-checkout terminals in all stores and adding customer service callboxes in selected stores. It also is introducing a 24-hour customer service hotline.

“You will see more associates in the store than in prior fall seasons,” Nardelli said.

Same-store sales decreased .2 percent in the second quarter, Home Depot said. The company’s decision to start reporting the metric again resulted from “valuable feedback” from investors and analysts, spokesman Jerry Shields said.

Home Depot operates 2,079 stores in the United States, Canada and Mexico.

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