Home Depot sees Christmas in the Spring

The world’s largest home improvement chain is doing some work on its own bottom line. After reporting sales less than analysts expected, Home Depot is banking on higher demand after winter storms and premium products to increase the bottom line.

Dhanya Skariachan wrote for Reuters that the retailer is predicting higher demand as people make repairs after a tough winter:

Winter storms and record cold in much of the United States hurt Home Depot’s (HD.N) fourth quarter sales of everything from lumber to building materials.

But the world’s largest home improvement chain expects to benefit this spring when Americans begin to repair snow damaged homes and gardens.

“We know firsthand that many homeowners have some major repairs ahead of them which suggest we should have a great spring selling season,” Chief Financial Officer Carol Tome said on Tuesday, adding that sales at stores open at least a year were up so far in February despite harsh winter weather.

The comments came after Home Depot missed sales estimates and relied on tight cost controls to beat profit estimates in the fourth quarter, which ended February 2.

Some Wall Street analysts said the retailer held up pretty well in the quarter plagued by inclement weather in its key U.S. market and weakness in the Canadian currency.

The Wall Street Journal’s story by Shelly Banjo and Michael Calia led with the addition of high-end products as a way to make more money:

Home Depot Inc. is adding more upscale items to its lineup, as its customers show a willingness to splurge on their homes.

The giant home-improvement retailer said sales of premium products have posted four straight quarters of growth. The results highlight the growing divergence between chains that can cash in on wealthier shoppers who benefit from rising home and stock prices, and retailers like Wal-Mart Stores Inc. that cater to lower-end customers and are suffering because of reductions in federal food stamp outlays and unemployment benefits.

Home Depot’s customers are spending more. The number of shopping trips where customers spent more than $900 increased by 5.5% in the three months ended Feb. 2, compared with a 2.5% increase for tickets under $50. Those bigger tickets helped sales excluding newly opened or closed stores rise 4.9% in the U.S.

“We want to make sure we have products across the entire price spectrum, but we are adding on the higher end and also adding products with innovation that would come with a premium price,” Chief Financial Officer Carol Tomé said in an interview.

To that end, Home Depot this spring will introduce a higher-end patio furniture line, a new gourmet barbecue system and a toilet seat that comes with an integrated LED light. It is also adding new products at lower price points

Kyle Stock pointed out in a Bloomberg Businessweek story that the retailer also held sales in various markets in the spring, much like the after Thanksgiving sales of other retailers:

The marketing masochists at Home Depot (HD) are again trying to make Black Friday happen in the spring. As if one day a year of bleary-eyed shopping rugby isn’t enough. Nothing cultivates commerce like a ginned-up shopping holiday—so the thinking goes—and this one is even more random than the post-Thanksgiving scrum. Americans don’t give gifts en masse every spring, and other retailers don’t respond with similar blanket deals.

Home Depot doesn’t even hold its spring sales event on the same day, choosing to play it out over several weeks “on a market-to-market basis based on climate by geography.” Sounds festive, right? That’s like Santa canvassing the southern hemisphere in July. Still, never underestimate the American consumers’ demand for a killer patio and a lush lawn. Home Depot’s mantra: “Spring is our Christmas.” May through July is always the company’s busiest period.

There’s plenty of evidence that Home Depot’s Black Friday push will pay off handsomely this year. For one, rising home prices have spurred consumer confidence and emboldened do-it-yourselfers to tackle bigger, more expensive projects. Home Depot said purchases greater than $900 were up 5.5 percent in the recent quarter as shoppers splurged on appliances and flooring. “The housing market is in the early innings of a recovery,” Robin Diedrich, an analyst with Edward Jones, told Bloomberg. Indeed, Home Depot estimates home sales and price appreciation will add 2 percentage points to its sales growth this year.

The New York Times pointed out in a story by Elizabeth A. Harris that earnings for the retailer were mixed, beating expectations but not by much:

Home Depot’s profits were higher than expected, at 73 cents a share, while analysts surveyed by Thomson Reuters were expecting earnings of 71 cents a share. Sales at stores open at least a year rose 4.4 percent over the same period last year.

Overall sales, however, dropped 3 percent over last year, from $18.2 billion to $17.7 billion. (This year’s fourth quarter contained one week less than the same quarter last year.) This year-over-year comparison was an especially difficult measure for the company because last year included a significant bump in sales because of Hurricane Sandy. Carol B. Tomé, Home Depot’s chief financial officer, said the company had $255 million in fourth-quarter sales last year that came with the rebuilding efforts.

Home Depot estimated that the company lost $100 million in sales during January because of the weather, because although its stores sell more snow-clearing equipment and heaters during storms, traffic falls considerably.

The weather was a good and bad point for the retailer since it kept people from getting to stores in the quarter, but will likely prompt them to spend more in the spring. Investors seemed to like what they heard in the earnings report, sending the stock up 4 percent on the news.