Home Depot May Post First Annual Decline in Sales
February 25, 2008 - Home Depot Inc., the world’s largest home-improvement retailer, tomorrow may report its first annual sales decline after the worst U.S. housing slump in more than 25 years sapped demand for cabinets and appliances.
Sales for the year may have fallen 1.5 percent, the first drop since the Atlanta-based chain sold shares to the public in 1981, based on the average estimate of 18 analysts surveyed by Bloomberg. Home Depot may say that fourth-quarter profit tumbled 20 percent to $741 million, or 43 cents a share, according to the survey.
Chief Executive Officer Frank Blake’s yearlong attempt to revive sales at the chain’s 2,238 stores has failed amid a decline in housing prices and home sales. Blake, who took over after Robert Nardelli’s ouster in January 2007, hasn’t stopped a decline in customer satisfaction and market share losses to Lowe’s Cos.
“Home Depot has said they’re trying to close that gap from the customer service standpoint, and I have no doubt it’s putting money into that effort,” said Walter Todd, who helps manage $800 million in assets for Greenwood Capital Associates LLC. “I just don’t think it’s working.” Todd’s firm holds shares of Lowe’s, the second-biggest home-improvement company, and doesn’t own Home Depot.
Sales probably dropped to $77.9 billion in the year ended Feb. 3 from about $79 billion in 2006, excluding revenue from the wholesale division Home Depot sold in August.
Blake declined to comment, according to spokesman Ron DeFeo.
Same-Store Sales
Fourth-quarter revenue may have risen to $18 billion from about $17.4 billion, according to the average estimate of 15 analysts surveyed by Bloomberg. Sales at stores open at least a year probably fell 7 percent, said David Schick, an analyst with Stifel Nicolaus & Co. in Baltimore. He estimated an annual drop of 6.5 percent, the second straight yearly decline in so- called same-store sales, the industry’s benchmark sales measure.
Home Depot increased 1 cent to $27.78 at 9:44 a.m. in New York Stock Exchange composite trading. The stock has climbed 3.1 percent this year before today, outperforming the 2.6 percent loss by the 87-member Standard & Poor’s 500 Consumer Discretionary Index. Home Depot is 60 percent below its 1999 peak of $68.75.
Blake, 58, pledged to spend $2 billion last year to improve stores and customer service by cleaning up bathrooms, polishing floors and re-striping parking lots. He hired plumbers and electricians at $30 an hour to give customers professional advice.
Growing Gap
The gap between Home Depot and Lowe’s in the University of Michigan’s annual survey of customer satisfaction widened last year. Home Depot fell to 67 from 70 out of a possible 100 points, matching its lowest total. Lowe’s rose to 75 from 74. In 2006, Home Depot gained 3 points to 70 and Lowe’s dropped 4 to 74.
Blake also sold Home Depot’s wholesale unit, HD Supply, in August for $8.5 billion, abandoning a strategy to expand beyond retail and make the company less dependent upon home sales. Some investors said the push came at the expense of the retail stores.
The depressed housing market has hurt both Home Depot and Lowe’s. Home Depot’s net income has declined for five straight quarters through Oct. 28. Lowe’s has reported lower profit for three of the prior four quarters.
Sales of previously owned homes, which account for about 85 percent of the U.S. market, fell more than forecast in December, capping the biggest yearly slump since 1982 and the first decline in prices since the Great Depression, the National Association of Realtors said last month.
Home Purchases
Purchases of existing homes trigger home-improvement spending, as sellers ready a house for the market and buyers paint and remodel.
Mooresville, North Carolina-based Lowe’s said today that fourth-quarter net income decreased to $408 million, or 28 cents a share, from $613 million, or 40 cents, a year earlier. While profit exceeded the average estimate of analysts by 3 cents, sales unexpectedly fell to $10.4 billion.
Following is a summary of quarterly revenue and profit expectations for Home Depot based on Bloomberg surveys. Per- share earnings are in cents, sales are in billions of dollars.
Home Depot May Post First Annual Decline in Sales
By Mark Clothier | Bloomberg