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Shares of The Home Depot (HDFree Home Depot Stock Report) climbed modestly after the world's largest home-improvement retailer announced fiscal first-quarter (ended May 3rd) results that were generally in line with expectations and raised its guidance. Sales of $20.891 billion rose 6% from a year earlier and were just a touch below our forecast, which called for the top line to come in at an even $21 billion. While weather in the period was not perfect, it was better than conditions experienced in the same period last year, making for a more normal spring across much of the country, according to management. This benefited sales of garden and seasonal items. Ongoing recovery in the housing market also helped, and categories that outperformed included lighting, plumbing, decor, and appliances. Strength was broad based geographically, and sales to professional customers, online revenues, and big ticket purchases were all healthy, as well. In sum, comparable-store sales rose 6.1% in the April term (up 7.1% in the United States), while the number of customer transactions, average ticket, and sales per square foot notched year-to-year gains of 4.6%, 1.8%, and 5.9%, respectively.

Looking below the top line, the gross margin was nearly flat, climbing four basis points in the quarter. Also helping matters were a 73-basis-point reduction in SG&A expenses as a percentage of sales and a nine-basis-point dip in depreciation and amortization charges. A lower share count also aided per-share comparisons. All told, GAAP earnings clocked in at $1.21 a share, although this included a $0.05 gain from the settlement of a tax audit. On an adjusted basis, the bottom line jumped 21% from a year earlier and was a penny ahead of our $1.15 estimate.

Looking forward, we expect The Home Depot's momentum to continue in the near term, likely driven by modest GDP growth and a possibly accelerating recovery in the housing market. Company-specific initiatives, such as building a more formidable online and mobile presence to create a seamless shopping experience across a variety of channels, have been well received, as have efforts to court professional customers. To wit, management stated that it was “pleased” with the company's performance in May.

One headwind is the strong U.S. dollar, which hurts results in Mexico and Canada when converted back into greenbacks (unfavorable currency movements sapped $234 million from sales in the April term). Nonetheless, the retailer's outlook was upbeat. Comparable-store sales are now expected to rise 4.0%-4.6% for the whole of fiscal 2015, versus prior guidance for a 3.3%-4.5% gain. Meantime, the top line should climb some 4.2%-4.8%, up from 3.5%-4.7%, resulting in GAAP share earnings of $5.24-$5.27, not $5.11-$5.17. The low ends of these ranges assume that the U.S. dollar remains at current foreign exchange levels. These estimates could also be impacted by costs related to last year's data breach, although such expenses only came to $7 million in the April period. As a result of all these factors, we now look for The Home Depot to earn $5.20 a share this fiscal year (on an adjusted basis), up from our prior forecast of $5.17. This would represent a 14% increase from fiscal 2014. Meantime, our top-line call remains at $86.9 billion, and we continue to like Home Depot stock for investors looking for a stake in the housing market. Those with a conservative bent should find these shares even more appealing given their top mark for Safety (1) and the company's excellent Financial Strength rating (A++).

About the Company: The Home Depot, Inc. operates a chain of 2,270 retail building supply/home improvement “warehouse” stores across the United States, Canada, and Mexico. The company's average store size is around 104,000 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.