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Home Depot's Earnings Rise

May 21, 2003|From Bloomberg News

Home Depot Inc., the world's largest home-improvement chain, said Tuesday that its fiscal first-quarter profit increased 6% after new products such as John Deere lawn tractors bolstered revenue. Sales at older stores declined less than expected, sending the shares up 9%.

Net income rose to $907 million, or 39 cents a share, from $856 million, or 36 cents, a year earlier. Profit was 2 cents more than forecasts. Sales in the period ended May 4 climbed 5.8% to $15.1 billion, the firm said.

Home Depot, in contrast to rival Lowe's Cos., eased investor concern that sales growth is stalling.

Chief Executive Robert Nardelli has focused on controlling expenses since taking the helm in December 2000, while grappling to squeeze more sales out of existing stores. Home Depot is renovating stores, improving customer service and adding more name-brand merchandise.

"The results give credence to Nardelli's plan," said Brian Holland, research director at Boyd Watterson, which manages about $4.5 billion and owns 230,990 Home Depot shares. "We're giving him a lot of leeway to do a turnaround of this company."

Nardelli, 55, lacked retailing experience when he was hired from General Electric Co. to trim expenses. He eliminated a layer of management, increased inventory management and moved buying decisions away from store managers, though some of the changes were made at the expense of sales and service, analysts said.

A greater emphasis on decor, along with brighter lighting and wider aisles than in Atlanta-based Home Depot's warehouse-style stores had helped Lowe's siphon away customers and win over investors.

Nardelli sought to reverse the slide through better service and a $250-million store-remodeling program kicked off in the first quarter.

The retailer's shares have climbed 28% this year, making Home Depot the biggest gainer among the 30 companies in the Dow Jones industrial average. The stock fell 53% last year and slumped to a five-year low in January after Nardelli cut the retailer's profit forecast for a third consecutive year.

Home Depot shares rose $2.60 to $30.67, while Lowe's fell $1.30 to $39, both on the New York Stock Exchange.

Sales at stores open at least a year dropped 1.6% in the first quarter, after snowstorms and concerns about employment prompted consumers to limit spending. Analysts had predicted that same-store sales, which exclude new and closed stores, would fall as much as 4%. They dropped 6% in the fourth quarter, when the retailer posted its first decline in total revenue.

Lowe's sales at its older stores rose a less-than-forecast 0.1%, spurring a 9% decline Monday in the Wilkesboro, N.C.-based retailer's shares. That prompted some analysts to predict a larger sales decline at Home Depot.

Home Depot started running advertising in February touting improvements to customer service and is offering more brand-name items such as Antigua lighting to win back customers.

The Deere & Co. tractors, which used to be sold exclusively through company dealers, had gains of more than 10% over the lawn equipment Home Depot sold in the year-earlier period, Nardelli said. The average tractor sold for about $2,000.

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