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Home Depot and Lowe's Get Hammered

Written By Brian Hicks

Posted May 20, 2008



It was earnings season for the two biggest home improvement retailers in the nation this week and to put it mildly, they both got hammered.

Nailed by a slowing economy and a housing market that continues to drop, Home Depot and Lowe’s both reported substantial declines in sales.

First up was Lowe’s. Yesterday the second largest home big box reported an 18% drop in its first quarter results as same store sales fell a whopping 8.4%.

“The challenging sales environment we have been experiencing for the past six quarters,” said Robert Niblock, Lowe’s chief executive, “continued into the first quarter of 2008, and increasing financial pressures on consumers resulted in top-line sales that fell below our plan,”.

That led the company to go one step further and lower its full year guidance.

Niblock summed up the bad quarter this way.

“The generally poor economic outlook, including well-known housing pressures, rising food and fuel prices and a more negative employment picture, eroded consumer confidence and impacted discretionary purchases for the home,” he said.

Meanwhile, Home Depot’s earnings turned out to be more of the same.

From AP by Harry R. Webber entitled: Sustained slump in housing cuts into Home Depot 1Q

“The Home Depot Inc. doesn’t know if stimulus checks making their way to potential customers are enough to improve its fortunes this year, the company said Tuesday as it reported a 66 percent drop in first-quarter profit.

The challenge for Home Depot, like its smaller rival Lowe’s Cos., is a slumping U.S. housing market. Seventy percent of Home Depot sales come from homeowners, while the other 30 percent come from professionals such as contractors, according to the company. Eighty-nine percent of its stores are in the U.S., where home foreclosures are accelerating around the country.

The world’s largest home improvement store chain did not give detailed guidance for the remainder of fiscal 2008, saying only that it was “more comfortable” with the low end of its previous expectations.

Home Depot said revenue in the quarter fell 3.4 percent to $17.91 billion, compared with $18.55 billion recorded a year earlier.

Sales at stores open at least a year fell 6.5 percent in the first quarter, Home Depot said.

Home Depot has said previously that excluding one-time items it expected earnings per share from continuing operations to decline by 19 percent to 24 percent for fiscal 2008. But, in its earnings report Tuesday, it did not address those figures. Chief Financial Officer Carol Tome told analysts that she’s “more comfortable” with the low end of the prior guidance.

Tome said in an interview with The Associated Press that part of the uncertainty about the rest of the year is that the company doesn’t know whether people will spend the money from their economic stimulus checks, save it or use it to pay off debt.

High gas prices are pinching consumers, making them think twice about whether they should spend their rebate checks at a store, Tome said.

“Many people in our country are asking that question,” she said. “Is now the right time? Can we afford it? Will we get the right return from our investment?”

Now those are some interesting questions aren’t they?

Here’s a better one. What exactly would you call stimulus checks that didn’t get spent buying more junk?

I’d call it a $150 billion exercise in stupidity.

But hey what do I know. My appliances are avocado green and the only thing in my kitchen stainless steel is the sink.