May 19, 2004 By Harry R. Weber Ap Business Writer 3 min read

ATLANTA (AP) – The Home Depot raised its earnings forecast after it posted a 21 percent jump in first-quarter profit amid strong sales and signs that its effort to draw in customers through service improvements and store renovations is working. To keep the momentum going, the nation’s largest home improvement store chain said it plans to spend $1 billion this year to give more of its stores a brighter look and cleaner floors. It also will continue retraining employees to familiarize them with products.

The earnings results reported Tuesday show that the Atlanta-based company’s changes so far are helping increase its bottom line in an increasingly competitive market, said Eric Bosshard, an analyst with FTN Midwest Research in Cleveland.

“The payback from the efforts will last a while,” Bosshard said. “They’re putting their money really where consumers are going to see it. I think consumers are reacting to a better looking Home Depot.”

Home Depot said it earned $1.10 billion, or 49 cents a share, for the three months ending May 2, compared to a profit of $907 million, or 39 cents a share, in the same period a year ago. Excluding the effect of an accounting change, the Atlanta-based company earned $1.18 billion, or 52 cents a share.

Analysts surveyed by Thomson First Call were expecting earnings of 43 cents a share.

Revenue in the quarter was $17.55 billion, a 16.2 percent jump from the $15.10 billion it recorded a year ago.

“We have one of the strongest balance sheets in retail,” chief executive Bob Nardelli told analysts in a conference call.

Shares of Home Depot rose $1.02 to $34.49 in afternoon trading on the New York Stock Exchange.

Same-store sales – a measure that compares sales at stores open at least a year – increased 7.7 percent in the quarter.

In particular, Home Depot cited customer satisfaction surveys of over 130,000 customers showing significant progress in enhancing the shopping experience.

Over the last year, the company has given its stores a makeover with more light, cleaner aisles and more helpful employees. Home Depot plans to double to $1 billion its investment this year in its store modernization program, merchandising chief John Costello said.

The company said its average sales ticket increased 7.4 percent to $55.11 in the quarter. It saw strong gains in sales in its appliance and supply businesses.

“Our performance in the first quarter is the best illustration yet of how we executed our strategy to drive growth,” Nardelli said.

Nardelli said the company is benefiting from the trend of more people becoming interested in home improvement projects. The company is not worried about the prospect of rising interest rates and how that could affect its business, chief financial officer Carol Tome said.

“Our performance is the result of our efforts,” Tome said.

Also Tuesday, the company raised its guidance for the rest of the year. Home Depot said it expects 2004 earnings per share growth of 10 percent to 14 percent, up from its earlier guidance of 7 percent to 11 percent.

Home Depot ended the quarter with 1,740 stores in the United States, Canada and Mexico.

Last week, Home Depot announced plans to buy Home Mart, a home improvement retailer in Mexico. The deal will increase to 39 the number of stores it operates in that market.

On Monday, rival Lowe’s Companies Inc. reported an 8 percent jump in first-quarter profit on a 22 percent jump in sales. Its results also beat expectations.

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On the Net:

http://www.homedepot.com

AP-ES-05-18-04 1353EDT