Housing recovery, unseasonable weather drive Home Depot results

Home Depot Inc (HD.N), the No. 1 U.S. home improvement chain, reported better-than-expected quarterly sales, boosted by an improving housing market and unseasonably warm weather in the holiday quarter.

Shares of the company, which also raised its quarterly dividend by 17 percent and announced a $5 billion share buyback plan, rose 3.2 percent to $126.80 in premarket trading on Tuesday.

Home Depot has benefited from low interest rates and growth in jobs, wage and credit that prompt consumers to spend more on improving their homes.

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Warmer-than-average weather during the holiday period also helped Home Depot drive sales across a number of outdoor categories as outdoor activities carried on for much longer, Carter Harrison, an analyst at research firm Conlumino, said.

Sales at stores open for more than a year rose 8.9 percent in the United States in the fourth quarter ended Jan. 31. Analysts on average had expected sales to rise 5.3 percent, according to research firm Consensus Metrix.

Home Depot has bucked a broader retail trend of disappointing holiday quarter sales as customers spend more on big-ticket items such as home improvement and automobiles, instead of discretionary items such as apparel.

Department store operators Macy's Inc (M.N) and Kohl's Corp (KSS.N) also blamed unusually warm weather for their performance in the quarter as it led to a pile-up of inventory of coats, boots and gloves and higher discounting.

"Home Depot remains a beacon of strength in an increasingly bumpy macro and retail backdrop," Morgan Stanley analysts wrote in a note, raising their price target by $10 to $145.

Smaller rival Lowe's Cos Inc (LOW.N) reports results on Wednesday. The two companies dominate the home improvement market and are seen as leading indicators for the health and revival of the U.S housing market.

Atlanta-based Home Depot said it expected 2016 sales to grow by 5.1-6.0 percent, which translates to $93.03-$93.83 billion. Analysts on average were expecting $93.12 billion. Comparable sales are expected to grow 3.7-4.5 percent, the company said.

Net earnings rose 6.6 percent to $1.47 billion, or $1.17 per share, in the fourth quarter. Net sales rose 9.5 percent to $20.98 billion.

Analysts on average had expected earnings of $1.10 and sales of $20.39 billion, according to Thomson Reuters I/B/E/S.

Home Depot raised its quarterly dividend by 10 cents to 69 cents per share.

(Reporting by Yashaswini Swamynathan in Bengaluru; Editing by Shounak Dasgupta and Don Sebastian)

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