Home Depot Profit Rises Nearly 39%

Wednesday, February 25th 2004, 12:00 am

By: News On 6

ATLANTA (AP) _ The Home Depot said a nearly 39 percent jump in fourth-quarter profit is proof its strategy to pump billions into retraining employees, improving customer service and renovating its stores is working.

The chief of the nation's largest home improvement store chain also indicated he is not worried about changes in the economy or housing market.

The earnings, announced Tuesday, beat Wall Street expectations and grew faster than the quarterly profit reported a day earlier by its chief rival, Lowe's Cos. Inc.

Home Depot said it earned $951 million, or 42 cents a share, for the three months ended Feb. 1 compared to a profit of $686 million, or 30 cents a share, in the same period a year ago.

Analysts surveyed by Thomson First Call were expecting earnings of 39 cents a share.

Sales in the quarter were $15.13 billion, compared to $13.21 billion in the year-ago period. Same-store sales _ a measure that compares sales at stores open at least a year _ increased 7.6 percent in the quarter.

``If you're in retail, there's no sweeter spot to be in than home improvement,'' chief executive Bob Nardelli told reporters during a question-and-answer session. ``We see a tremendous runway for growth going forward.''

Nardelli said the Atlanta-based company is attentive to possible downturns in the economy and housing market, but he believes the 1,707-store chain can sustain its rapid pace of growth in the future. The company plans to add 175 more stores in 2004.

``At this point, we continue to stay straight on strategy,'' he said.

In a conference call with investors, Nardelli said the company has made particular gains in several key markets, including Baltimore, Cleveland and Washington. But, he also acknowledged that there are more improvements that can be made. One area is increasing the average amount of money Home Depot takes in on each sales ticket.

``We're not even close to realizing our growth potential over the longer term,'' Nardelli said.

On Monday, Home Depot rival Lowe's reported a 28 percent rise in profit to $407 million for the three months ended Jan. 30.

Nancy Aversa, an analyst with Victory Capital Management in Cleveland, said that while the earnings news for Home Depot and Lowe's has been very good of late, a wild card for both retailers could be the performance of the economy and housing markets. That, in turn, could affect how the market perceives the companies' growth potential.

``They have a long way to go and a lot of opportunity as it relates to the company's business operations,'' Aversa said of Home Depot.

Even so, she said, ``If anything, this quarter indicated that the operating leverage that this company can generate regardless of top-line growth is pretty spectacular.''

Last month, Home Depot said it would continue its plan to lure customers with brighter stores, easier checkout and a number of new products in 2004. Home Depot has 300,000 employees and stores in the United States, Canada and Mexico.

The company has said it will spend $3.7 billion in 2004 to modernize its stores, upgrade technology and open its lot of new stores.

Home Depot also has been trying to broaden its employee base to appeal to more customers. Earlier this month, the company and the AARP formed a national partnership to recruit people older than 50 to fill jobs at Home Depot.

Full-year earnings for Home Depot were $4.30 billion, or $1.88 a share, compared to $3.66 billion, or $1.56 a share, a year ago. Twelve-month revenue was $64.82 billion, compared to $58.25 billion a year ago.

Also Tuesday, Home Depot reiterated its guidance for 2004. It said its fiscal 2004 sales growth will be 9 percent to 12 percent and full-year earnings per share growth will be 10 percent to 14 percent, excluding an accounting change. It expects its earnings per share growth for the year to be 7 percent to 11 percent including the accounting change.