Home Depot , the world's largest home improvement store chain, reported a 28% drop in fourth-quarter profit despite a modest 4% gain in overall sales. However, sales at stores open at least a year fell in the quarter.
Home Depot cited in part a slowing home improvement market amid a continued slump in the housing sector.
The quarterly results were in line with Wall Street expectations, when expenses related to severance payouts to former Home Depot Chief Executive Robert Nardelli and four other executives who left the company in the final fiscal quarter of 2006 are excluded.
Nardelli abruptly left the company on Jan. 3, after heavy criticism about his hefty pay package and the company's lagging stock price. Nardelli, who spent six years at the helm, will receive a severance package of about $210 million under terms of his employment.
Nardelli's replacement, Frank Blake, promised investors during a conference call Tuesday that the company would rededicate itself to improving the helpfulness and knowledge of its employees, bettering the shopping environment at its stores, enhancing its products and catering more to professional customers.
"These are straightforward priorities and a reasonable question would be, 'Haven't you always been working on these?''' said Blake, 57, who joined the company in 2002 and was vice chairman of the company's board.
He insisted it would be different under his watch, though he did not provide specifics on how Home Depot would meet the priorities he laid out. He said details would be provided at the company's annual investor conference on Feb. 28.
The Atlanta-based company said it earned $925 million, or 46 cents a share, for the three months ending Jan. 28, down from $1.29 billion, or 60 cents a share, for the same period a year ago. Excluding 4 cents a share of expense related to executive severance, the company earned 50 cents a share, in line with the Thomson Financial consensus estimate.
Sales rose 4% from the same quarter a year ago to $20.27 billion, below expectations for sales of $20.8 billion. And sales at stores open at least a year -- a key metric for retail performance -- fell 6.6% for the fiscal fourth quarter.
Total sales in its retail segment declined 2% in the quarter, though sales in its HD Supply unit, which it is considering shedding, grew more than 64 percent in the quarter, reflecting sales from acquired businesses.
Home Depot said its average sales ticket in its retail segment fell to $56.27 in the fourth quarter from $57.20 in the same period a year earlier.
Possible Sale of Supply Business
Blake said some people might question why Home Depot would consider selling HD Supply, which caters to contractors, homebuilders and other business customers, when the unit is doing so well.
"We are past, present and future a retail business," Blake said. He added, "If we can create more shareholder value now through a sale or otherwise, then that's what we will do."
For all of fiscal 2006, Home Depot said it earned $5.76 billion, or $2.79 a share, compared to a profit of $5.84 billion, or $2.72 a share, for the same period a year ago. Twelve-month revenue rose to $90.84 billion, compared to $81.51 billion recorded for all of the previous year.
At the end of the fourth quarter, Home Depot operated 2,147 stores in the U.S., Canada, Mexico and China.
Home Depot lost market share in several key product categories in the fourth quarter, according to Blake. There was softness in big ticket items such as special order kitchens and flooring, while there was improvement in sales of appliances, said Craig Menear, Home Depot's senior vice president of merchandising.