After home improvement retailer Lowe's Cos. (NYSE: LOW) posted a 33.4% decline in its fourth-quarter profit yesterday, it was its main competitor Home Depot Inc. (NYSE: HD)'s turn to step up to the plate and impress Wall Street. As Trey Thoelcke discussed, the world's largest home improvement store chain managed to top estimates only once in the past six quarters, and current earnings numbers were not too encouraging either. Home Depot reported that its quarterly profit slipped more than 27% to $671 million as the slumping U.S. housing market brought the first annual decline for the company's sales. The retailer posted earnings of 40 cents a share, falling short of analyst estimates for a profit of 43 cents a share.
Looking at revenue, Home Depot saw an increase of 1.5% to $17.66 billion, up from $17.4 billion a year earlier, as the largest U.S. home-improvement retailer benefited from an extra week during the quarter. Excluding that, sales would have dropped 4.7%. Analysts forecast revenues of $18 billion for the quarter, according to Thomson Financial.
Continued consumer fears over the weak housing market and credit crisis put a curb on their spending on building and home goods supplies, resulting in an 8.3% decline in the company's same-store sales. Average sales ticket also dropped by 2.3% to $54.96, compared with $56.27 a year ago.
Despite posting lower-than-expected earnings, Frank Blake, the company's Chief Executive, stated that Home Depot's progress on its "key priorities" during the past year "set the foundation for the long term health." Blake anticipates a "challenging" environment through 2008 whose pressure could bring a decline of 4% to 5% for total sales, and a loss between 19% and 24% for full year continuing operations earnings. Analysts had forecast a drop of 7% to $2.11 a share for full-year profit.
Effects of the weak housing and credit markets are becoming more an more visible in earnings coming from companies that are directly affected by consumers' weak appetite for home supplies. Although Home Depot plans to cut costs by reducing the number of new stores, it is not too clear how the company will manage to improve customers' experience and gain back the lost ground. The obstacles may be even bigger as worries over a possible recession seem to be far from over.
Eliza Popescu is a financial writer for the online investment advisory service Investor's Observer.
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