By Mike Caggeso
Associate Editor
The Home Depot Inc. (HD) reported a 66% decline in first-quarter net earnings, the result of what Chief Executive Officer Francis Blake called "worsened" housing and home improvement markets.
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Net earnings for the biggest home-improvement retailer in the United States decreased to $356 million, or 21 cents a share, down from $1.05 billion, or 53 cents a share, the company earned during the same period last year.
Home Depot's earnings report soured markets yesterday (Tuesday), which opened lower on the news.
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"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 The Bear Stearns Cos. Inc. (BSC), wrote in a research note today, Bloomberg reported.
Some of those refocusing efforts include closing doors. Earlier this month, Home Depot announced that it will shut down 15 of its core retail stores in a move that will curb operating costs and affect 1,300 employees. The announcement came 7 1/2 months after company CEO Blake said there were no plans to close any core retail stores.
The stores to be closed include: three in Wisconsin, two in Ohio, two in New Jersey, two in Indiana and one each in Kentucky, Louisiana, Minnesota, North Dakota, New York and Vermont.
The company also plans to delay expansion plans, saving $1 billion over the next three years, Blake said on a conference call.
"Home Depot is bouncing back from the problems that (former CEO Robert) Nardelli passed along," Burt Flickinger, managing director at New York-based Strategic Resource Group, said in a Bloomberg Television interview.
Flickinger said that Blake "is doing a great job with his team in rebuilding the business for the future."
Though Home Depot didn't lower its full-year forecast, Chief Financial Officer Carol Tome said earnings could be at the low end of its forecast.
Such wasn't the case for its rival, Lowe's Cos. Inc. (LOW), which after reporting an 18% decline in first-quarter profit, lowered its full-year outlook. The No. 2 home-improvement retailer in the United States said it expects a per-share profit of $1.45 to $1.55 for the year. Previously, its outlook for the fiscal year ending Jan. 30 was pegged at $1.50 to $1.58 a share.
"The external pressures facing our industry will likely persist throughout 2008," said Chief Executive Robert Niblock on a conference call.
Indeed, Home Depot and Lowe's have a litany of problems in the near future. Gasoline prices are above $3.75 a gallon. Consumer confidence is at its lowest level in almost 28 years, according to Reuters/University of Michigan preliminary index of consumer sentiment released May 16.
Specific to the housing industry, sales of previously owned homes (which comprises 85% of the housing market) fell again in March, the seventh decline in eight months. Those homebuyers are reliable customers for both Home Depot and Lowe's, as they often buy their homes with renovations and remodeling in mind.
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Lowe's profit falls 18%, hurt by housing market