May 22, 2008

Housing slump hits Home Depot profit

Sector ‘bumping along bottom lagging housing turnover’

ATLANTA

The Home Depot Inc. reported a 66 per cent drop in first-quarter profit this week due to a large one-time charge and continued weakness in the housing market.

The Atlanta-based company said it earned US$356 million, or 21 cents a share, in the three months ending May 4, compared with a profit of US$1.05 billion, or 53 cents a share, a year earlier.

Excluding a charge related to store closings and the shrinking of future store growth plans, Home Depot said it earned US$697 million, or 41 cents a share.

Home Depot said revenue in the quarter fell 3.4 per cent to $17.91 billion, compared with US$18.55 billion recorded a year earlier.

Sales at stores open at least a year fell 6.5 per cent in the first quarter, Home Depot said.

Its average sales ticket was US$57.36 in the quarter, a 2.8 per cent drop from US$59.01 a year earlier.

“The housing and home improvement markets remained difficult in the first quarter; in fact, conditions worsened in many areas of the country,” chief executive Frank Blake said in a statement.

Home Depot has said previously that excluding one-time items it expected earnings per share from continuing operations to decline by 19 per cent to 24 per cent for fiscal 2008.

But, in its earnings report, it did not address those figures. In comments prepared for delivery to investors later in the morning, chief financial officer Carol Tome also was not planning to mention future guidance. She planned to say that Home Depot’s “prospects” would be addressed at a June 5 investor conference.

As for Home Depot’s quarterly numbers, analyst Matthew Fassler said “these results corroborate assessments from Lowe’s results yesterday — the sector is bumping along the bottom, lagging housing turnover by several months.”

Mooresville, N.C.-based Lowe’s Cos. reported a nearly 18 per cent drop in first-quarter earnings. Lowe’s lowered its guidance for the year.

Home Depot announced this month that it was putting the brakes on some of its expansion plans and said it would do what was previously unthinkable — close 15 of its flagship stores. The move, to be completed by July, affects 1,300 employees

The company reiterated its intention to open 55 new stores in the current fiscal year, though it said it had ditched its goal to open some 50 U.S. stores that have been in its new store pipeline, in some cases for more than 10 years.

Some analysts and large investors have worried in the past that as Home Depot gets bigger, it would invariably put stores in direct competition with existing stores.

Associated Press

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