Home Depot Says Price Increases Have Neutral Effec
Orlando, FL, Mar. 3--Home Depot said on Tuesday it sees price increases in materials such as steel and lumber having no long-term effect on its business.
We're seeing increases in certain
categories" such as lumber, energy and steel, John Costello, Home Depot's merchandising and marketing chief, told a conference hosted by Raymond James & Associates and broadcast on the Internet.
"But we think over time, those have a neutral impact on our business as we have an opportunity to source goods as well as or better than anybody," Costello said.
Companies in a wide range of industries have cited higher prices of commodities such as steel and copper. Steel prices have surged more than 30 percent since the beginning of the year on climbing raw material costs and strong global demand.
Prices of lumber, which represents about 7 percent of Home Depot's revenue and 8 percent of Lowe's Cos. sales, are up as much as 75 percent for the year to date, according to Lehman Brothers.
Costello said Home Depot seeks to minimize price increases to consumers from rising raw material costs. With materials such as copper and lumber, he added, the home improvement industry leader uses its buying scale to get attractive pricing.
"Our plans do not have price increases built into them in excess of what we're seeing on the raw material side," he said.
Costello also said that although price increases in areas such as energy cut into consumers' disposable income, they also give Home Depot an opportunity to sell its energy-efficient products.
At the conference the company also reiterating its guidance of a week ago projecting earnings growth 10% to 14% this fiscal year, excluding the impact of an accounting change.
Home Depot expects the accounting change, related to advertising co-op allowances received from vendors, will reduce earnings by about 5 cents a share, resulting in earnings growth of 7% to 11% including that impact, said Costello.
The company's guidance includes sales growth of 9% to 12% and modest gross margin expansion, he said. New stores are expected to boost sales by 6%, while sales at comparable stores are forecast to increase 3% to 6%, including the cannibalizing effect that nearby Home Depot stores have on sales. Home Depot's fiscal year ends January 2005.
Costello's comments echo guidance from the company a week ago, when Home Depot reported fourth-quarter and fiscal 2003 earnings. The company earned $4.3 billion, or $1.88 a share, on sales of $64.82 billion for its fiscal year ended Feb. 1.
Based on its current guidance, Home Depot would earn $2.07 to $2.14 a share, before items, on sales of about $70.65 billion to $72.6 billion, or $2.01 to $2.09 including the accounting change. Analysts, on average, forecast earnings of $2.09 a share, according to Thomson First Call.
