For Home Depot, 3Q sales surge on storms

ATLANTA — Sales at Home Depot surged during the third quarter, a period marked by major rebuilding efforts after severe hurricanes struck Florida and Texas, wildfires consumed entire neighborhoods in the West and earthquakes rattled Mexico.

The Atlanta home improvement retailer is one of the inadvertent winners in the aftermath of Harvey and Irma, destructive storms that struck Texas and Florida, leaving billions in damage and shaving as much as at least one-half of 1 percentage point off annual growth for the U.S. in the same quarter.

Home Depot Inc. raised its outlook for the year.

“The devastation caused by hurricanes and wildfires has been anything but a disaster for Home Depot, with the rebuilding efforts pushing already strong sales growth even higher,” writes Neil Saunders, the managing director of GlobalData Retail. “This quarter’s 8.1 percent lift in net revenue and the 7.9 percent rise in comparables are both well above the long-run average.

The good news is that this elevated demand is likely to continue for at least a couple more quarters, which is one of the reasons Home Depot has raised its full-year guidance.”

The company attributed about $282 million in samestore sales growth to the hurricanes.

But even as cleanup and rebuilding efforts helped the chain’s sales top analysts’ estimates, expenses related to the storms reduced operating profit by $51 million. The materials that people buy in the wake of natural disasters also tend to be less profitable, Saunders said.

“Although natural disasters have had a positive impact on sales, their effect on margins has been less satisfactory,” he said.

The company earned $2.17 billion, or $1.84 per share, for the three months that ended Oct. 29. That’s 3 cents better than expected, according to a survey by Zacks Investment Research.

The company last year during the same period earned $1.97 billion, or $1.60 per share.

Revenue also rose to $25.03 billion, from $23.15 billion, to beat analyst projections of $24.52 billion.

Sales at stores open at least a year, a key gauge of a retailer’s health, rose 7.9 percent. In the U.S., they climbed 7.7 percent.

The retailer now expects 2017 earnings will rise about 14 percent from a year earlier, to $7.36 per share.

That’s about 3 cents better than industry analysts are projecting, according to

FactSet.

Revenue is now expected to be up about 6.3 percent, with same-store sales rising approximately 6.5 percent.

It remains difficult to quantify the effect of the U.S. housing market on Home Depot and its rival, Lowe’s Inc., which reports earnings next week.

Construction of new homes fell 4.7 percent in September, the biggest decline in six months, reflecting weakness in both single-family activity and apartment building. The report from the Commerce Department last

month shows construction at a seasonally adjusted annual rate of 1.13 million units, which was the sharpest decline since a 7.7 percent fall in March.

Home building has been sliding this year, but economists remain optimistic that the low level of unemployment will soon spark a rebound in sales and construction.

Even though construction activity has fallen in recent months, home building is 6.1 percent higher than a year ago.

“We’ll be listening for

commentary regarding the future impact of recent natural disasters in the US and Mexico, home-buying and home improvement spending trends among millennials, an update on [Home Depot’s] e-commerce initiatives, holiday plans and expectations, and the management’s view on the potential impact of changes to the US tax code or to NAFTA,” wrote Kate McShane, an analyst with Citigroup.