Home Depot Profit Drops 66% on U.S. Housing Slump
By Mark Clothier
Home Depot Inc., the largest home- improvement retailer, said first-quarter profit fell 66 percent as consumers grappling with the deepest U.S. housing slump in more than 25 years cut back on remodeling projects.
Full-year earnings may be at the low end of its previous forecast, Chief Financial Officer Carol Tome said today. Home Depot fell 4.3 percent in
Chief Executive Officer Frank Blake, who took over from Robert Nardelliprofit has declined the past seven quarters, while Lowe's Cos. earnings have fallen in five of the past six. last year, cut headquarters jobs and hired plumbers and electricians to advise consumers who have limited spending as they pay more for food and gasoline. Home Depot
‘‘The home-improvement market remains difficult, but we believe the results show that Home Depot is making early progress in its efforts to refocus,'' Chris Horvers, an analyst with Bear Stearns & Co., wrote in a research note today.
Net income decreased to $356 million, or 21 cents a share, from $1.05 billion, or 53 cents, a year earlier, on costs to close stores, Atlanta-based Home Depot said in a statement. Profit excluding some expenses was 41 cents a share, beating analysts' estimates by 4 cents.
Revenue for the three months through May 4, excluding the wholesale-supply unit Home Depot sold last year, fell 3.4 percent to $17.9 billion.
Home Depot declined $1.25 to $27.62 at 10:17 a.m. in composite trading on the New York Stock Exchange. Home Depot gained 7.2 percent this year through yesterday after falling each of the previous three years. Lowe's has also increased 7.2 percent.
‘‘These results really reflect what we're seeing in the housing market,'' Jeffrey Malcom, who helps manage $500 million at Horan Capital Management LLC in Towson, Maryland, said today in a Bloomberg Radio interview. ‘‘It's a severe recession at this point.'' Horan owned about 1.1 million Home Depot shares through March.
Twenty-one analysts estimated profit of 37 cents a share excluding some costs, the average in a Bloomberg survey. Seventeen analysts projected sales of $17.6 billion.
‘‘The housing and home improvement markets remained difficult in the first quarter; in fact, conditions worsened in many areas of the country,'' Blake said in the statement. ‘‘We will continue to invest wisely in our core retail business.''
Home Depot reiterated May 1 that profit from continuing operations for the year that ends in early 2009 is expected to drop 19 percent to 24 percent from a year earlier. Home Depot is ‘‘comfortable'' with the low end of the range, Tome said today on a conference call with analysts and investors.
Sales at stores open at least a year dropped 6.5 percent, helped by an extra week. That was less than the 7 percent decline estimated by Horvers. He recommends investors buy Home Depot shares. So-called same-store sales have declined the past two years.
The retailer said May 1 that it will eliminate 1,300 jobs, close 15 stores and scrap plans for 50 more. The moves cost Home Depot $543 million in the first quarter.
Slowing the store openings will free up $1 billion over three years, Blake said on a conference call with analysts and investors.
‘‘Home Depot is bouncing back from the problems that Nardelli passed along,'' Burt Flickinger, managing director at New York-based Strategic Resource Group, said in a Bloomberg Television interview. Blake ‘‘is doing a great job with his team in rebuilding the business for the future.''
Profit at Lowe's dropped 18 percent to $607 million, or 41 cents a share, and the retailer forecast full-year earnings that trail some analysts' estimates. Sales declined 1.3 percent to $12 billion, Mooresville, North Carolina-based Lowe's said yesterday.
Record gasoline prices that surged past $3.75 a gallon and declining home values have caused consumers to limit spending, pushing the
Sales of previously owned homes, which account for about 85 percent of the housing market, fell in March, the seventh decline in eight months. Purchases of existing houses typically trigger home-improvement spending as owners prepare for a sale and buyers paint or remodel after moving in.