Home Depot Inc stood by its sales outlook and raised its profit forecast for the year despite a slow start to the spring selling season, making some investors choose the home improvement chain over rival Lowe's.

Lowe's meanwhile cut its forecast for the year after missing sales and profit estimates in the first quarter.

Home Depot continues to outperform Lowe's on both a sales and operational basis. Our thesis has been that Lowe's should be able to close this gap with Home Depot over the next several quarters, but frankly we have yet to see that progress, RBC Capital Markets Scot Ciccarelli said.

Home Depot's forecast also soothed some concerns about demand in the world's largest economy and reassured investors that the slow start to the season was mainly because of bad weather in many parts of the United States.

The customer is back maintaining their home, maybe stepping out a little bit in terms of investing in their home, Home Depot's Chief Financial Officer Carol Tome told Reuters.

Many other analysts also picked Home Depot over its smaller rival, citing better merchandising, advertising and execution.

Home Depot's consistent television message of low-price leadership and a friendlier shopping experience is leading to market share gain, Wall Street Strategies' Brian Sozzi said.

Credit Suisse analyst Gary Balter said Home Depot is well positioned to see earnings upside when the segment gets stronger.


A colder-than-usual spring eroded demand for outdoor products and kept shoppers away in many parts of the United States. Both chains are up against strong numbers from last year when a first-time home buyer tax credit and a federal stimulus for energy-efficient appliances boosted demand.

Non-weather-related products in categories such as electrical, tools and kitchens performed well even as garden product sales fell, Chief Executive Officer Frank Blake said.

Home Depot's net income rose to $812 million, or 50 cents a share in the first quarter that ended on May 1, from $725 million, or 43 cents a share, a year earlier. Analysts expected 49 cents a share, according to Thomson Reuters I/B/E/S.

Lower expenses were the biggest reason for the better-than-expected profit. The numbers prompted Home Depot to boost its full-year earnings outlook even as it just backed its sales forecast. Its shares were up 1 percent on Tuesday.


Home Depot and Lowe's have found it harder to sell their wares to homeowners. Many shoppers have stayed away from expensive renovations as housing prices fall. Data on Tuesday showed that the housing recovery will be slow. U.S. housing starts fell 10.6 percent in April.

Home Depot's sales fell 0.2 percent to $16.82 billion, missing the average analyst estimate of $17.02 billion. Sales at Home Depot stores open at least a year fell 0.6 percent, with those at U.S. stores declining 0.7 percent.

Home Depot still expects fiscal-year sales to be up about 2.5 percent. It forecast earnings of $2.24 a share, excluding future stock repurchases, up from a prior forecast of $2.20. (Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn, Dave Zimmerman and Robert MacMillan)