The Home Depot (HD - Free Home Depot Stock Report), the world's largest home-improvement retailer, has reported solid fiscal second-quarter (ended July 29th) results. Earnings came in at $1.01 a share, a nickel better than our estimate and 17.4% higher than the year-earlier tally. Sales of $20.57 billion were roughly in line, though slightly below, our $20.80 billion call and increased 1.7% from the comparable 2011 figure. Meanwhile, comparable-store sales climbed 2.1%, while comps in the United States increased 2.6%. Not surprisingly, unseasonably warm weather in the April period pulled some sales forward, as many people got a jump on outdoor and seasonal projects. Nonetheless, management indicated that it experienced “continued demand for core products” in the July interim. All told, investors appeared pleased with the retailer's results, and the stock moved moderately higher in early morning trading.

July-quarter results were driven by a number of factors, including growth in the company's professional business. Sales were boosted by maintenance and repair items, as well as home decor products (paint, rugs, flooring, etc.). Some overall improvement in the housing market and stability in a number of the hardest hit markets, like California and Florida, also helped. In terms of profitability, the gross margin expanded 17 basis points, thanks to supply chain improvements and a more favorable product mix. Additionally, operating expenses fell on an absolute basis and as a percentage of sales. Finally, stock repurchases aided earnings per share.

Looking ahead, management's expectations for the second half of fiscal 2012 appear to be largely unchanged. Indeed, the company continues to look for full-year top-line growth of 4.6%, which would put sales somewhere in the area of $73.6 billion. Meanwhile, its new earnings-per-share forecast of $2.95 seems to just incorporate the second-quarter beat, as the new figure is $0.05 above the previous expectation. Overall, while the housing market appears to be firming, if unevenly, The Home Depot's results will likely be tied more closely to U.S. GDP growth than any housing-specific metrics.

We have added $0.08 to our full-year fiscal 2012 earnings estimate, which now stands at $2.95 a share. Our forecasts do not factor in material improvement in the housing market in the near term, though this sector of the economy could provide a tail wind if it continues to pick up. All told, we still like this blue chip for conservative investors. Capital appreciation potential is not head turning, but it is more attractive on a risk-adjusted basis and well defined. Factoring in the well-covered dividend adds to this high-quality issue's appeal, in our view.

About the Company: The Home Depot, Inc. operates a chain of 2,255 retail building supply/home improvement “warehouse” stores across the United States and in Canada, Mexico, and China. The company's average store size is around 105,000 square feet indoor, plus 24,000 additional square feet in its garden centers. The Home Depot's product lines include building materials, lumber, floor/wall coverings, plumbing, heating, electrical, paint and furniture, seasonal and specialty items, and hardware and tools.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.