Home Depot Inc
After seeing its sales hit by the housing market slump and resulting recession, Home Depot said economic indicators signal the worst of the U.S. housing correction has passed.
Home Depot, which has been upgrading service and products in its stores to win back market share from rival Lowe's Cos Inc
Shares of Home Deport were up 9 cents to $24.44 in afternoon trading, paring gains of as much as 77 cents, or 3.2 percent, earlier on Wednesday.
The company's year-to-date performance in 2009 was ahead of plan, Home Depot Chief Financial Officer Carol Tome told a meeting with analysts which was also webcast.
The company said it plans to step up efforts to improve its distribution network by introducing more rapid deployment centers and more marketing campaigns targeting Hispanic communities.
Home Depot said its supply chain was not the best and had more room for improvement.
We are playing a bit of catch-up, a company executive told the analyst meeting.
From appointing more bilingual staff to making items easier to locate in aisles, Home Depot plans a renewed focus on customer service at its stores.
Home Depot said its strategic initiatives and a revival of the home improvement market will allow it to achieve an operating margin of about 10 percent and a return on invested capital of about 15 percent.
Earlier this year, Home Depot announced plans to freeze officers' salaries and close certain specialty outlets to save money.
The Atlanta-based company, which shed about 7,000 jobs earlier this year, cut operating expenses 16.4 percent in the first quarter, which ended on May 3.
Credit Suisse analyst Gary Balter said Home Depot's message was that it would achieve better operating margins at similar productivity levels through better expense management and vendor relationships.
Home Depot could also benefit from pricing power and much better inventory and markdown management, Balter said in a note. He backed his outperform rating on the stock.
Home Depot expects earnings per share from continuing operations to be flat to down 7 percent this year, compared with its previous forecast of a 7 percent decline.
Based on a profit of $1.37 per share in the fiscal year that ended on February 1, that means a forecast of $1.27 to $1.37, compared with the average Wall Street estimate of $1.33.
On an adjusted basis, the company expects earnings per share from continuing operations to fall by 20 percent to 26 percent, compared with its previous forecast of a 26 percent decline. That yields a forecast of $1.32 to $1.42 a share, compared with the analysts' average estimate of $1.41 and last year's profit of $1.78.
Home Depot still expects sales to fall by about 9 percent this year, with sales at stores open at least a year down in a high-single-digit percentage range. It expects gross margins to be flat to slightly higher.
(Additional reporting by Jessica Wohl; Editing by Derek Caney, Lisa Von Ahn, Tim Dobbyn)