Home Depot raises full-year profit forecasts; "The worst of the correction is behind us," CEO Blake says

Home Depot raises full-year profit forecasts; "The worst of the correction is behind us," CEO Blake says
Home Depot, the world's largest home-improvement retailer, raised its profit forecasts for 2009 as it improved customer service and merchandise assortment and lowered costs. CEO Frank Blake said at the company's analyst and investor conference Wed. that the "worst of the correction" in the housing market is behind after private fixed residential investment as a percentage of the GDP reached 2.7% in the 1st-Q, its lowest level in 60 years, compared to an average of 4.8% in the same period. "Our performance has correlated fairly closely with this indicator over the last several years. It suggests - as we planned - we should see sequential improvement in our same-store sales performance - though still only "less bad" - through the year," he said. The Atlanta-based it estimated its per-share profit to be flat to - 7%, with adjusted profit declining by 20% to 26%. That compared to its previous guidance of profit falling 7%, with an adjusted-basis drop of 26%. It said it still expects sales to decline by 9% with comparable-store sales expected to fall in the high-single-digit percentage. Gross margin is expected to be flat to slightly positive. Shares of Home Depot, a Dow component, rose 1.4% to $24.68 in early trading while the broader S&P Retail Index erased an earlier gain. Home Depot's smaller rival Lowe's shares rose 1%. "Higher guidance reflects a more favorable outlook for the housing market in 2009 & disciplined expense control, as well as improved execution on its merchandising and supply chain initiatives," said Citigroup analyst Deborah Weinswig. Home Depot said it plans to achieve an operating margin of about 10% & a return on invested capital of 15%. The forecasts were given as the company hosts its investor & analyst conference in Atlanta Wed.. Home Depot in May reported a better-than-expected 44% rise in profit as store closing costs fell. The company, alongside smaller rival Lowe's Cos., has also benefited from consumers growing their own gardens and taking on small repair and remodel jobs in the recession to help save money, analysts said. Both retailers said consumers remained cautious on big ticket construction & discretionary spending. Itt said foreclosure rates in CA, one of its top markets, saw a pick up in 1st-Q. Home Depot's improved customer service, shut stores & cut prices on hundreds of products among its 40,000-product lineup. The retailer's also been able to use tools to better control inventory & reduce discounts. To improve efficiency, it is shipping more merchandise from new regional distribution centers, instead of directly from its suppliers, as it has done in the past. Marketing spending also is shifting to digital media & TV & radio ads, which generate better returns, it's said. To spur discretionary spending, Home Depot introduced promotions like installing carpets for $139 or giving consumers more savings on items such as kitchen cabinets when they spend more.