Home Depot Sees Growth Ahead ... Later
Retailer Home Depot repeated Thursday that per-share profit could drop as much as 24 percent this year, but projected earnings per share would grow in double-digit percentages annually when the U.S. housing market rebounds.
"We see more negatives than positives for the remainder of this year," Home Depot Chairman and Chief Executive Frank Blake told the home improvement retailer's analyst meeting.
Sales at stores open at least a year, an important retail measure, will log their worse showing this year in the second quarter, the company said.
These sales were down 6.5 percent in the first period.
The second quarter is typically one of the strongest for Home Depot as consumers spruce up homes in warmer weather.
But the crumbling U.S. housing market has compounded troubles as higher food and gasoline prices put more pressures on customers.
Lower housing sales, falling home values and tighter credit have curbed demand for the big-ticket renovations that powered Home Depot's growth during the housing boom.
The retailer also commented that credit scores were weakening among holders of its private-label credit card.
Home Depot said it was more comfortable with the low end of its previous forecast calling for a 19 percent to 24 percent decline in per-share earnings.
Once markets stabilize, Home Depot expects per-share profit to rise in the double digits on a percentage basis, fueled by changes it is making to improve customer service and lower operating costs at its stores.
It added that sales should rise 3 percent to 5 percent annually when markets recover.
The retailer's shares were up 3 percent on the New York Stock Exchange.
Home Depot's quarterly profit has fallen for the past seven quarters amid the weak housing market and rival Lowe's Cos Inc has posted three straight quarterly profit declines.
"Calling the recovery in our market remains an exercise of uncertainty," said Blake, who was named to Home Depot's top job after Robert Nardelli resigned under fire in early 2007.
Emphasis on Pros
The retailer, which has stepped up store maintenance and staff training, also said it was reducing "unproductive" promotions and would look to better service professional customers who typically spend more than do-it-yourselfers.
Home Depot said it would focus on improving aging stores that most drive its earnings and sales growth and cut spending on new outlets.
The retailer has more than 650 stores that are over 10 years old and these stores as a group are almost 20 percent more productive than the company average.
Last month, the retailer said it would close about 15 underperforming U.S. stores and scrap plans for about 50 U.S. stores that had been in new-outlet pipeline.
Stores opened after 2008 were expected to deliver "double-digit returns," it added.
Atlanta-based Home Depot has more than 2,260 stores in the United States, Mexico, Canada and China.
Home Depot also said it would refocus its home services business that installs products such as windows and carpeting, focusing less on growing it.
"Our customers have a need for a 'Do-It-For-Me' solution, but if we can't effectively execute, we'll be more interested in serving the pro who does it for our customer than in providing the service ourselves," Blake said.
The company also said it would lower distribution costs by rolling out more rapid deployment centers from the three it currently operates, to allow products to arrive at stores faster.
By 2011, the retailer expects the centers to benefit gross margin.
Home Depot shares were up 84 cents, or 3.1 percent, to $28.02 in early afternoon New York Stock Exchange trading, while Lowe's was up 70 cents, or 2.9 percent, at $24.74.
Home Depot shares have fallen about 28 percent in the past year, while Lowe's is off about 24 percent.