Home Depot (HD) Crushes Lowe's (LOW) With a Strong Fourth Quarter

Home Depot (HD: Analysis) recently impressed investors after it posted stronger than expected fourth quarter earnings, after an improving U.S. housing market and sales related to Hurricane Sandy boosted its top and bottom line growth. Home Depot earned 68 cents per share, or $1.0 billion - up 36% from the 50 cents per share, or $774 million, it reported in the prior year quarter.

Thomson Reuters analysts had expected the company to earn 64 cents per share. Earnings excluded a charge for store closures in China. Revenue increased 13.9% to $18.2 billion, also topping the consensus estimate of $17.7 billion.

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Same-store sales rose 7% globally (United States, Canada, Mexico and China) and 7.1% in its U.S. stores. Home Depot's same-store sales have now easily outpaced its primary rival Lowe's (LOW: Analysis) same-store sales for 15 consecutive quarters. Lowe's posted far weaker same-store sales growth - 1.9% worldwide and in the United States.

According to Euromonitor International, Home Depot owns 19% of the U.S. home improvement market, while Lowe's trails at 16.7%.

Analysts believe Home Depot used lower prices and improved customer service to steal market share away from Lowe's over the past three months. Home Depot's sales were also boosted by more centralized distribution centers, a shift of more employees to customer service jobs, and a return to more locally targeted marketing and merchandising.

CEO Frank Blake has also cut costs faster than Lowe's in the trying years following the housing collapse and the financial crisis of 2007-2009. During the crisis, sales at Home Depot's established stores plunged 20% in hard-hit Florida and California.

However, Home Depot's revenue has been boosted in recent quarters by robust sales of U.S. single-family homes. A commerce department report revealed that sales of single-family homes surged to a four year high in January, while the supply of houses dropped to its lowest level since March 2005. New York and New Jersey were Home Depot's strongest regions, primarily due to the damage done by Hurricane Sandy. Home Depot also reported recovering housing markets in Florida, California and Arizona. Home Depot's sales to professional contractors rose along with consumer sales.

Home Depot followed up its strong fourth quarter results with an optimistic forecast for fiscal 2013, which started on February 4. The company expects same-store sales to rise 3% in 2013, along with 2% growth in sales. After share repurchases, Home Depot expects to earn $3.37 per share for 2013 - a 12% increase from the previous year. Home Depot also raised its quarterly dividend 34% to 39 cents per share, and also approved a $17 billion stock buyback plan to replace its previous one.

In America, Home Depot's future is completely dependent on strength in the housing market. CFO Carol Tome remained cautious regarding the market. "While recovering, we do not believe the housing market will fully recover in 2013," she stated. "Some may say that this is a conservative view - we would agree. But we would rather plan conservatively."

Shares of Home Depot trade at 16.93 times forward earnings, with a 5-year PEG ratio of 1.21. The stock is currently trading at 52-week highs.

Other News About HD
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Can Lowe's Remain a Market Leader? Can Lowe's make a comeback against Home Depot? Can Google Girl Save Yahoo? Can Mayer revive Yahoo's flagging fortunes?

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Published on Feb 28, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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