August 17, 2012

Home Depot sees signs of improving housing market

The Home Depot Inc. is feeling more optimistic about the recovery of the housing market after customers spent more on sprucing up their homes in the second quarter.

The country's biggest home-improvement retailer said Tuesday that strong cost controls and healthy sales of paint, bathroom accessories and kitchen installations helped lift its net income by 12 percent during the period.

The Atlanta-based company boosted its full-year outlook, citing its performance so far this year.

In a conference call with investors, Chairman and CEO Frank Blake noted that some of the strongest growth in the latest quarter came from the markets that were hit hardest in the downturn, such as California and Florida.

"These are encouraging signs of stabilization in the housing market," Blake said.
He also noted that the housing market is now a contributor to the country's gross domestic product, rather than a drag. Another positive sign for Home Depot: the Commerce Department said Tuesday that Americans boosted their spending at retail businesses in July by the largest amount in five months, as spending increased on furniture and building materials, among other items.

Still, the housing market is still a long way from returning to its heyday before the recession. Home Depot's net sales in the quarter rose just 2 percent from a year ago and came in short of Wall Street expectations. And although the company lifted its earnings-per-share forecast, it didn't update its outlook that sales for the year would grow by 4.6 percent.

When the housing market is weak, companies such as Home Depot struggle because new construction slows and contractors don't spend as much on supplies. Homeowners also pull back on projects, such as kitchen or bathroom renovations.

Although customers still aren't spending as much on their homes as during the housing bubble, Home Depot said it saw signs of improvements in key areas.

Overall, revenue at stores open at least a year rose 2.1 percent, which was slower than the 4.3 percent growth last year. The company noted that the warm winter pulled sales of many seasonal items, such as gardening products, into the first quarter.

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