Home Depot Inc., the world’s largest home improvement retailer, Tuesday reported a 19 percent rise in first-quarter earnings as sales to professionals expanded, but its shares fell 4 percent on softness in sales at the core retail stores.
“While we continue to gain momentum with average ticket, we were disappointed with the overall retail sales,” Chairman and CEO Robert Nardelli said during a conference call. He cited weakness in flooring and seasonal goods.
Sales at retail stores, which account for about 90 percent of total sales, were up 5.7 percent, including 23 stores opened during the quarter.
Earnings for the first quarter ended April 30 rose to $1.48 billion, or 70 cents a diluted share, from $1.25 billion, or 57 cents a share, a year earlier. Analysts, on average, expected 67 cents a share, according to Reuters Estimates.
Total sales rose 13 percent to $21.5 billion. Home Depot said it would no longer report comparable-store sales, a retail gauge that measures sales at stores open at least a year.
Sales at Home Depot Supply, the division that provides products to home builders and other professionals, more than tripled, helped by the March acquisition of Hughes Supply.
As the maturing retailer opens fewer U.S. stores, it is stepping up a push into professional markets and homeowner and online services to fuel earnings and compete with faster-growing rival Lowe’s Cos..
While retail stores account for most of Home Depot’s sales and operating profit, the professional division is growing more rapidly. In the first quarter, profit at the stores was up 15 percent, while profit at the supply division rose more than fivefold.
Deutsche Bank analyst Michael Baker said in a research note that the quarterly retail sales were “somewhat soft,” likely because of bad weather on the West Coast and lower lumber prices.
Home Depot said it was planning product resets to improve flooring sales, nothing that revamped departments perform better.
The $3.2 billion purchase of Hughes Supply, which provides a vast range of building products to cities, builders and industrial customers, more than doubled the size of the Atlanta retailer’s professional division. The acquisition was Home Depot’s largest to date.
In the quarter, the average purchase rose 4.3 percent to $60.75 as Home Depot gained market share in appliances and began selling more brands of lawn tractors. Installation sales of countertops, doors and other products were up 8.5 percent.
Average weekly sales per store fell 2.8 percent, and capital spending fell 14 percent, Home Depot said.
Shares of Home Depot, a component of the Dow Jones Industrial Average, were down $1.50 to $39.00 in early trading on the New York Stock Exchange, while Lowe’s was down 36 cents at $62.88. Home Depot trades at about 12.8 times expected earnings for the current fiscal year, compared with about 15.6 times for Lowe’s.