The homebuilding sector collapse has been longer and deeper than even the most pessimistic expected. Prices continue to fall and foreclosures keep rising. With so much supply on the market, the end does not seem near.
The result of the carnage will be a change in behavior that always comes with crisis. The biggest trend I see happening will be with respect to new construction, or, shall we say, the lack thereof.
Homebuilders are operating at historically low levels, meaning less supply on the market. But the assumption that demand for new homes will magically reappear once that supply dissipates is erroneous. Instead, look for homeowners to focus on making do with current stock.
The beneficiary of that new dynamic will be Home Depot (NYSE: HD), the home improvement giant. HD has been in the doldrums for some time, including underperformance during the great bull run in housing.
That said, the stock appears to have taken its medicine. Shares held up relatively well during the credit crisis, bottoming at $20 level. Though growth is no longer what it was, the company is still profitable.
Shares rallied Monday on the news that the company would be cutting some 7,000 jobs and closing its Expo Design Center stores. The company is sharpening its focus on core stores and looking to rid itself of any distractions.
The cuts will result in pre-tax charges exceeding $500 million, with nearly $400 million being expensed in the yet-to-be-released fourth-quarter results. Such a strategy of getting the bad news out in big chunks makes sense given the state of the economy.
Fourth-quarter results, to be released in late February, will be weak. Now the headline number will be even weaker.
The one concern I would have over this news is that the timing might indicate that the fourth quarter will be worse than expected. Analysts estimate that Home Depot will make a profit of 16 cents per share.
If the job cuts were the result of missing expectations, then one might suspect that HD is at risk for posting a break-even quarter or worse. If it's worse and the company announces that they lost money during the period, shares may take one more trip to its lows.
That said, investors may look past this quarter to future benefits of operating with lower expense. Making the cuts and taking the charges today is a smart decision by the company.
Louis Navellier's PortfolioGrader Pro, which rates Wall Street stocks, rates HD a B or Buy.
Jamie Dlugosch is a contributor to InvestorPlace.com.
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Reader Comments (Page 1 of 1)
1-27-2009 @ 1:22PM
D. Lillie said...
If Home Depot wants to rebuild ,it should start with two things.....first, go back to your roots and hire competent and knowledgeable sales clerks. I don't need someone who just stands and looks at the display. Don't believe me, just go in and ask a technical question on electrical stuff or ask for something as basic as hardware cloth. Secondly, HD probably has one of the worst websites on the internet with the dumbest search capabilities I have seen anywhere. Another company trying to rest on it's reputation..............
1-29-2009 @ 8:20AM
Glad 2B X-Depot said...
Ethics, NO Home at the Depot!
Home Depot is out of stock when it comes to the ethical treatment of employees.
Home Depot over the past year or so has been under fire for unsafe and illegal workmanship from its "At Home Services" division, sending known sex offenders to people’s homes to perform services, improper handling of hazardous waste and declining overall customer service ratings has recently come under fire regarding its hiring practices and unethical, retaliatory and discriminatory treatment of employees.
On numerous occasions managers have lied to prospective employees, inflated potential earnings and advancement opportunities and covered up such misdeeds with intimidation and threats of termination. Managers would tell prospective employees what they want to hear just to get “aprons on the floor”.
Home Depot publicly claims to treat all employees fairly and with respect touting its “Core Values” and “Code of Ethics” all the while operating in a manner largely foreign to these two codes. Employees are required to wear a wheel-shaped embroidered badge attached to their trademark orange aprons promoting the Home Depot “Core Values”. It is referenced on Home Depot’s website and in the company’s annual report which is sent to stockholders and potential investors stating how Home Depot treats all employees fairly and with respect.
However when you speak to the hundreds, perhaps thousands, of employees who have experienced less than fair treatment at the hands of Home Depot’s management, you find the “Code of Ethics” and “Core Values” are nothing more than a marketing ploy. Posted online, printed in literature, displayed on large posters in the employee lounges and virtually stapled to the aprons of the workforce, the “Core Values” are everywhere except in the actual day to day running of the company.
A former Home Depot employee, terminated in August of 2007, has documented his twenty plus months of employment with Home Depot as a trip through hell. From day one he was lied to only to have the lies covered up with threats, sham investigations, intimidation and wrongful termination. To date he has spent numerous hours to clear his name and has filed a lawsuit against Home Depot to hold them accountable for their unethical and abusive treatment.
The suit alleges the Plaintiff, a former employee of Home Depot Store #0257 in St. Petersburg, FL, had been subjected to harassment, threats, retaliation, and wrongful termination while employed by the Defendant.
Federal Case # 8:2008cv01878
Plaintiff alleges the Defendant(s) demonstrated a pattern of abuse and retaliation that spanned the period of time during which the Plaintiff was employed by the Defendant. The Plaintiff has assembled a significant amount of evidence in support of his claim that these were deliberate actions and not a case of an isolated 'misstep' by a rogue manager having a 'bad day'.
At present the case implicates numerous members of management including Store Managers, Human Resources Managers, District Store and Human Resources Managers, Regional Human Resources Managers, Employment Practices Manager and CEO/Chairman of the Board Francis S. Blake, (others may be named upon discovery).
Home Depot states in its Affirmative Defenses:
“If any improper, illegal or retaliatory act was taken by any Home Depot employee against Plaintiff, it was outside the course and scope of employee’s employment, contrary to Home Depot policies, and was not ratified, confirmed, or approved by Home Depot. Thus, any such actions cannot be attributed or imputed to Home Depot.”
“Any improper, illegal or retaliatory actions by any Home Depot employees were independent, intervening and unforeseeable acts that were not ratified, confirmed, or approved by Home Depot and thus cannot be attributed or imputed to Home Depot.”
“Home Depot did not have actual or constructive knowledge of any of the alleged retaliatory acts alleged in Plaintiff’s Amended Complaint at any time material to his Amended Complaint.”
Plaintiff asserts the multitude of evidence will prove it was in fact several unethical acts committed by many managers over a sustained period of time and all incidents were reported numerous times to human resources, store management and upper management. This was a deliberate pattern of abuse, harassment and retaliation that was all fully known by management from store level up to and including the CEO/Chairman of the Board as is documented in the numerous e-mails between the Plaintiff and Francis S. Blake, CEO and Chairman of the Board, Home Depot U.S.A., Inc.
Evidence including the above referenced e-mails, employer documents, government documents, medical documents, forged documents, recordings and schedules will demonstrate a clear pattern of abuses resulting in harassment, sham investigations, cover-ups, retaliation and wrongful termination.
It is suspected the Defendant(s) committed other civil wrongs or illegal activities relevant to this case. Said suspected wrongs are expected to be uncovered during the discovery phase of the case which is expected to include the serving of a Subpoena on several members of Home Depot management including the CEO and Chairman of the Board, Francis S. Blake.
Other issues plaguing Home Depot employees include cover-ups regarding flagrantly flawed tracking of employee performance, inequity in rewards and scheduling practices, unfair application of a disciplinary attendance “point system”, retaliation, harassment and discrimination. Additionally, hardworking, dedicated employees are subjected to a hostile work environment fostered by store management and unchallenged by upper management up to and including CEO/Chairman of the Board Francis S. Blake.
Home Depot’s hollow promise of ethical treatment for all employees misleads potential employees into thinking they will get a fair deal if they accept a position at Home Depot. These empty promises mislead employees, investors and customers by talking the talk of ethics without actually walking the walk.
Although Home Depot maintains it’s position as a “work at will” company, it’s aggressive and public representation as a company that cares about it’s workforce and it’s public promotion that it maintains and upholds a “Code of Ethics” does potentially create an implied employment contract.
At the very least, Home Depot’s promise of ethical treatment creates an expectation by employees, or prospective employees, that they will be treated fairly and they will be allowed to do their jobs without fear of harassment, retaliation or wrongful termination should they choose to believe the soon to be proven lies of Home Depot's “Code of Ethics”, “Core Values” and “No Retaliation Policy".