Home Depot's Profit Boosted by Housing Recovery

Home Depot, the No. 1 U.S. home improvement chain, reported better-than-expected quarterly sales, helped by a rise in demand amid an improvement in the housing market.

Shares of the company, which also raised its quarterly dividend by 17 percent and announced a $5 billion share buy back plan, rose 2.6 percent to $126.04 in premarket trading on Tuesday.

Sales at stores open for more than a year, or same-store sales, rose 8.9 percent in the United States in the fourth quarter ended Jan. 31. Analysts on average had expected sales to rise 5.3 percent, according to research firm Consensus Metrix.

Home Depot has benefited from rising home prices, combined with job, wage and credit growth that has prompted consumers to spend more money on improving their homes.

U.S. single-family home sales surged to their highest level in 10 months in December indicating better job and wage growth which in turn support a favorable home spending backdrop.

Home Depot has bucked a broader retail trend of disappointing holiday quarter sales as customers spend more on big-ticket items such as home improvement and automobiles, instead of discretionary items such as apparel.

Smaller rival Lowe's also expected to perform along similar lines.

Atlanta-based Home Depot said it expected 2016 sales to grow by 5.1-6.0 percent, which translates to $93.03-$93.83 billion. Analysts on average were expecting $93.12 billion. Comparable sales are expected to grow 3.7-4.5 percent, the company said.

Net earnings rose to $1.47 billion, or $1.17 per share, in the quarter, from $1.38 billion, or $1.05 per share, a year earlier.

Net sales rose to $20.98 billion.

Analysts on average had expected earnings of $1.10 and sales of $20.39 billion, according to Thomson Reuters I/B/E/S. Home Depot also raised its quarterly dividend to 69 cents per share from 59 cents per share.

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Shounak Dasgupta)