Home Depot increases FY profit forecasts

New York

HOME Depot Inc raised its full-year forecasts but concerns over a looming slowdown in the US housing market due to supply constraints weighed on the retailer's stock.

Shares of the No 1 US home improvement chain, which also reported higher-than-expected quarterly profit and comparable sales, fell nearly 4 per cent in morning trading on Tuesday. The Dow component's stock had risen 15 per cent this year, as of Monday's close.

The US housing market has been facing supply constraints, which has been pushing prices up. Higher lumber costs and shortages of labour and land have hampered home builders' efforts to meet the rising demand, underpinned by a strong labour market.

"As positive as the housing market has been, there is a risk that activity will wane," GlobalData Retail analyst Hakon Helgesen said in a client note.

"The latest numbers suggest that transactions are down slightly - not because demand has dropped off, but because there is a shortage of housing." Home Depot, however, allayed fears of a slowdown seeping into demand for its products, citing higher spending on home improvement.

"We expect to see continued growth in the repair and remodel market as the US has experienced solid wage growth, faster home price appreciation, and the re-emergence of first-time homebuyers," CFO Carol Tomé said on a conference call.

The retailer said it now expects full-year sales to grow 5.3 per cent, comparable sales to rise 5.5 per cent and earnings of US$7.29 per share for the year ending January.

Net income jumped 9.5 per cent to US$2.67 billion, or US$2.25 per share.

Net sales rose 6.2 per cent to US$28.11 billion, the highest quarterly sales in company history.

Analysts on average expected earnings of US$2.22 per share on revenue of US$27.84 billion, according to Thomson Reuters I/B/E/S. REUTERS