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Home Depot Likes High Oil

Updated from 7:53 a.m. EDT

Rising fuel prices, a bugbear for most of the retail sector, are helping Home Depot (HD - Get Report), the remodeling giant that reported a surge in second-quarter earnings Tuesday and guided the rest of the year higher.

The Atlanta-based retail chain earned $1.55 billion, or 70 cents a share, in the three months ended Aug. 1, up about 18% from earnings of $1.30 billion, or 56 cents a share, last year. Sales rose 11% to $19.96 billion, while same-store sales increased 4.8%, helped by sales of power tools and appliances.

Excluding items, Home Depot earned 71 cents a share in the most recent quarter. Analysts surveyed by Thomson First Call had been expecting earnings of 64 cents a share on sales of $20.17 billion.

Executives said on a conference call that while higher gas prices probably crimped the urge to leave the house, they gave homeowners more incentive to weatherproof and economize.

"If in fact higher fuel prices are affecting the consumers, they're doing it in a fashion that's supportive for us," said Chief Executive Bob Nardelli. "Housing turnover has been significant in the last two years ... People are doing more improvement projects. I think we're benefiting from it."

Said John Costello, vice president of merchandising and marketing: "The consumer is more interested than ever in the range of Energy Star products from appliances to digital thermometers to insulation."

Still, he noted, "We will see some impact on the consumer side" from higher gas.

Nevertheless, for all of 2004, the company now expects year-over-year earnings growth of 14% to 17%, up from previous guidance of 10% to 14%. It left intact its 2004 sales growth estimate of 10% to 12%.

Shares of Home Depot, which jumped about 3% Monday on a similarly strong earnings report from rival Lowe's (LOW - Get Report), were up another $1.35, or 4%, to $35.33 in Tuesday's session.

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