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Home Depot rebounds in Q1

Bounding back from earlier weakness, The Home Depot Inc. climbed back on track during the first quarter, recording gains in sales and profits, reversing declines during the fourth quarter of last year.

Helped by improving sales and stronger margins, earnings rose by 6.0 percent, to $907 million from $856 million. During a weak fourth quarter, by contrast, earnings had declined by 3.2 percent. Earnings per share, helped by a smaller number of fully diluted shares outstanding, rose even higher during the opening quarter, by 8.3 percent, to $0.39 a share from $0.36 a year ago.

Lifted by new-store openings, sales climbed higher by 5.8 percent, to $15.1 billion from $14.3 billion, recovering from a dip of 2.0 percent during the fourth quarter of last year. But same-store sales were on the wane, slipping by 1.6 percent, compared with a flat fourth quarter.

In a lift to the bottom line, average gross margin gained substantial strength, widening by 150 basis points, or 1.5 percentage points, to 32.0 percent from 30.5 percent a year ago. Gross margin dollars, lifted by the stronger sales and improved margins, climbed by 10.8 percent, to $4.8 billion from $4.7 billion.

But acting as a ballast and offsetting some of the margin gains, operating costs climbed higher as well, rising by 140 basis points, or 1.4 percentage points, to 22.4 percent of sales from 21.0 percent the prior year.

Still acting as an anchor and pulling cash away from the bottom line, inventories climbed sharply higher, rising four times as fast as sales and jumping up by 24.9 percent, to $9.3 billion from $7.4 billion. During the fourth quarter of last year, they rose by 24.0 percent, compared with the 2.0 percent drop in sales.

The retailer, said Bob Nardelli, chairman and ceo, is starting to pick up traction from initiatives put into place last year. "We introduced new products, increased the overall inventory levels in our stores, and introduced a cohesive, nationwide marketing program. Collectively, these initiatives helped us perform through a tough environment."

The Home Depot Inc.

Qtr. 5/4 (x000) 2003 2002 % change
a-First-quarter results include interest and investment income of $12 million, down 29.4 percent from $17 million last year.
Sales $15,104,000 $14,282,000 5.8
Oper. income (EBIT) 1,448,000 1,362,000 6.3
Net income 907,000a 856,000a 6.0
Per share (diluted) 0.39 0.36 8.3
Average gross margin 32.0% 30.5%
SG&A expenses 22.4% 21.0%


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