Home Depot lifts profit forecast as housing market strengthens

August 16, 2016 6:07 AM EDT

The logo of Home Depot is seen in Encinitas, California April 4, 2016. REUTERS/Mike Blake

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By Sruthi Ramakrishnan

(Reuters) - Home Depot Inc (NYSE: HD) reported a 9.3 percent rise in quarterly profit and boosted its full-year earnings forecast as it kept a tight lid on costs, while benefiting from a strong U.S. housing market.

Shares of the world's largest home improvement retailer were up 1 percent at $138.42 in early trading on Tuesday.

Home Depot and smaller rival Lowe's Cos Inc (NYSE: LOW) have benefited as consumers cut back spending on items such as apparel and accessories and instead spend more on houses and renovating and redecorating their homes.

The company said there was increased demand for big-ticket items - or products that are priced above $900 - such as heating, ventilation and cooling products and home appliances and roofing.

Sales of such products rose 8.1 percent in the second quarter ended July 31, accounting for about 20 percent of total U.S. sales.

"We are encouraged by the strength of our core business as U.S. housing market continues to recover," Chief Financial Officer Carol Tome said on a post-earnings conference call.

Low interest rates and a strengthening labor market are driving the housing sector. Home resales hit more than nine-year highs in May and June. July data will be released next week.

Home Depot's expenses were lower than expected for the quarter as its multi-year plan to cut supply-chain costs helped improve inventory management and lowered transportation costs, Chief Executive Craig Menear said on the call.

The company said it expected full-year expenses to grow at about 32 percent of its sales growth rate, down from its previous forecast of about 40 percent.

The company also raised its full-year earnings forecast to $6.31 per share from $6.27.

Sales at Home Depot stores open more than a year rose 4.7 percent in the quarter ended July 31, matching the average analysts' estimate, according to research firm Consensus Metrix. Comparable sales at U.S. stores rose 5.4 percent.

The company's net income rose to $2.44 billion, or $1.97 per share, in the quarter from $2.23 billion, or $1.73 per share, a year earlier.

Net sales rose to $26.47 billion from $24.83 billion.

Analysts on average had expected earnings of $1.97 per share on revenue of $26.49 billion, according to Thomson Reuters I/B/E/S.

Shares of Lowe's, which reports quarterly results on Wednesday, were also up 0.6 percent.

(Reporting by Sruthi Ramakrishnan in Bengaluru; Editing by Anil D'Silva)

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