Strong sales help Home Depot outshine Lowe's

Improvements in the U.S. housing market and sales tied to Hurricane Sandy helped Home Depot Inc report a higher-than-expected quarterly profit and outshine rival Lowe's Cos Inc for the 15th straight quarter.

The results prompted the world's largest home improvement chain to forecast higher sales and earnings per share for the current fiscal year.

Home Depot also raised its quarterly dividend by 34 percent to 39 cents a share and approved a $17 billion stock repurchase program to replace its previous authorization. Its shares rose 6.1 percent to $67.80 in morning trading.

The news came the day after Lowe's gave a fiscal-year operating margin outlook that analysts said did little to inspire confidence in its turnaround or in the U.S. housing market.

Even Home Depot played it safe when commenting on housing.

"While recovering, we do not believe the housing market will fully recover in 2013," said Chief Financial Officer Carol Tome. "Some may say that this is a conservative view - we would agree. But we would rather plan conservatively."

Better pricing and customer service have helped Home Depot take market share from Lowe's, analysts have said.

The industry leader has also benefited from having more centralized distribution centers and from recent efforts to shift more employees to jobs where they serve customers directly. A return to more locally targeted marketing and merchandising has also helped.

"From an operating standpoint, the company continues to fire on all cylinders," Janney Capital Markets analyst David Strasser said.

Home Depot said it expected sales to rise about 2 percent and sales at stores open at least 12 months to increase about 3 percent in this fiscal year, which began on February 4.

Tome said the U.S. housing recovery would contribute 100 basis points of the company's anticipated same-store sales rise.

Strasser said the same-store sales forecast was only modestly better than projected U.S. gross domestic product and could prove conservative due to the strengthening housing market and continued market share gains.

Home Depot has 19 percent of the U.S. home improvement market, while Lowe's holds 16.7 percent, according to Euromonitor International.

Home Depot forecast fiscal-year earnings per share of $3.37 after stock repurchases, up about 12 percent from the previous year.

Strasser said that outlook, which is below his $3.50-a-share estimate, was also conservative. He has a "neutral" rating on the company's stock, which at Monday's close had climbed about 36 percent over the past year, because of its valuation.

HOUSING HEALS ... SLOWLY

Under Chief Executive Officer Frank Blake, Home Depot was quicker than Lowe's to cut costs in the years after the housing collapse.

A bubble in the U.S. housing market was at the core of the 2007-2009 financial crisis, which started the same year that Blake became CEO. During the housing downturn, Home Depot's sales at established stores fell more than 20 percent in such markets as Florida and California.

In recent quarters, the company has gotten a boost as housing markets have rebounded in regions where it has a heavy presence.

Sales of new U.S. single-family homes surged to their highest level in 4 1/2 years in January, and the month's supply of houses on the market was the smallest since March 2005, a report from the Commerce Department showed on Tuesday

New York and New Jersey were Home Depot's best-performing regions in the fourth quarter ended on February 3, mainly because of Sandy-related repair activity. The company also continued to see a recovery in Florida, California and Arizona, Blake told investors.

"The path to recovery will resemble a gradual thawing process," he said.

The company's sales to professional contractors rose on par with those to consumers, in yet another sign of healing in the housing market.

Net earnings rose to $1.0 billion, or 68 cents a share, from $774 million, or 50 cents a share, a year earlier.

Excluding a gain from adjusting a charge for China store closures, the company earned 67 cents a share, while analysts on average expected a profit of 64 cents, according to Thomson Reuters I/B/E/S.

Sales rose 13.9 percent to $18.2 billion, beating the analysts' average estimate of $17.7 billion.

Sales at Home Depot's stores open at least a year rose 7 percent, including a 7.1 percent increase at its U.S. stores. This was the 15th straight quarter when its same-store sales outpaced those at Lowe's, which had posted a 1.9 percent rise worldwide and for the United States.

(Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn)