Home Depot Inc boosted its forecast for the year after a strong spring selling season, but investors questioned the strength of sales trends for the home improvement industry during the rest of 2010.
The news from the top U.S. home-improvement chain came a day after rival Lowe's Cos gave a disappointing profit forecast for the remainder of the year.
Both companies said they viewed 2010 as a transitional period for the industry, with a full-scale recovery seen taking even longer. Their shares extended losses from Monday, with Home Depot down 0.7 percent and Lowe's off 0.6 percent.
It is like choosing (between) a blue gumball and an orange gumball. They both taste really the same, Barclays analyst Michael Lasser told Reuters of the difficulty in setting a preference for one of the companies in the current market.
A report on Tuesday showed U.S. housing starts touching a 1-1/2 year high in April, but a drop in permits to a six-month low suggested the housing market recovery will remain slow.
We are not anywhere near back to kind of peak spending or the type of buying habits we saw in 2005, 2006, said Edward Jones analyst Robin Diedrich.
In its first quarter, Home Depot's net income rose to $725 million, or 43 cents a share, from $514 million, or 30 cents a share, a year earlier.
Excluding items, the profit was 45 cents a share, beating the analysts' average forecast of 40 cents.
Sales rose 4.3 percent to $16.86 billion, exceeding Wall Street expectations of $16.37 billion. Same-store sales for the first quarter were up 4.8 percent, with sales at its U.S. stores open for at least a year up 3.3 percent.
Home Depot raised its forecast for net earnings from continuing operations to $1.88 a share from $1.79. Analysts were expecting $1.87 a share.
For the full year, Home Depot expects sales to increase about 3.5 percent, up from a prior view of a 2.5 percent rise.
The sales outlook appears to us as only reflecting the first-quarter performance, suggesting the outlook for the rest of the year was unchanged, UBS analyst William Truelove said.
NO CLEAR RECOVERY FOR BIG-TICKET SPENDING
Both chains had a strong springtime sales as people spruced up lawns and gardens and sought to benefit from a federal stimulus for energy-efficient appliances, but the average sales receipt at both companies was still down.
Home Depot has yet to see a clear recovery in its professional business segment or big-ticket discretionary home projects such as special-order kitchens.
Sanford C. Bernstein analyst Colin McGranahan said Home Depot's forecast was much better than Lowe's. Lowe's had given a lackluster second-quarter outlook and the mid-point of its full-year forecast was below his expectations.
McGranahan has a market perform rating on both Home Depot and Lowe's and said the two companies' shares were already pricing in the recovery.
(Reporting by Dhanya Skariachan; Editing by Dave Zimmerman and Maureen Bavdek)