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Home Depot’s profit drops 27.5 percent

The Home Depot Inc. said Tuesday its fourth-quarter profit fell more than 27 percent and a dour housing market contributed to the first annual sales decline for the retailer.
/ Source: The Associated Press

The Home Depot Inc. said Tuesday its fourth-quarter profit fell more than 27 percent and a dour housing market contributed to the first annual sales decline for the world’s largest home improvement store chain.

The Atlanta-based company said 2008 is expected to be worse in terms of sales and profits from continuing operations. It was a more gloomy outlook than the one given a day earlier by rival Lowe’s Cos., which sees improving sales on the horizon.

“We think we’ve still lost share to the market,” Chief Executive Frank Blake told analysts during a conference call.

The home improvement industry has suffered as consumers pulled back on renovations in the face of declining home values. A business-backed research group said Tuesday that consumer confidence plunged in February.

Blake, noting that last year was among the most difficult financially for Home Depot, told analysts that the company is “still too often perceived as lagging in customer service.”

Executives made clear they are moving away from strategies that they believe aren’t working, chief among them robust new store growth.

Home Depot said it plans to open only 55 new stores this year. That’s about half as many as it opened last year.

“We should be judged by the discipline we bring to executing on our key priorities and the discipline we bring to stepping away from activities that aren’t priorities,” Blake said.

Home Depot will continue to hold off on repurchasing any more of its own stock under a plan it announced in June 2007 until market conditions improve, Chief Financial Officer Carol Tome said.

The company had said it would buy back up to $22.5 billion of its shares. After repurchasing about half of those shares, it said it would take a pause.

The results for the latest quarter fell short of Wall Street expectations and shares fell 12 cents to $28.70 in early trading Tuesday.

The company said it earned $671 million, or 40 cents a share, in the three months ending Feb. 3, compared with a profit of $925 million, or 46 cents a share, in the same period a year earlier.

Earnings per share from continuing operations in the quarter were 40 cents, compared with 42 cents a year earlier.

Analysts surveyed by Thomson Financial were expecting Home Depot earnings of 43 cents a share in the fourth quarter.

Despite an extra sales week, revenue in the quarter rose only 1.5 percent to $17.66 billion, compared with $17.4 billion a year earlier. Excluding that extra week, fourth-quarter sales declined 4.7 percent compared with a year ago. Revenue for fiscal 2007 declined 2.1 percent to $77.35 billion. Spokesman Ron DeFeo said that was the first ever annual sales decline for Home Depot.

Sales at stores open at least a year declined 8.3 percent in the quarter. The company’s average sales ticket declined 2.3 percent to $54.96 in the quarter, compared with $56.27 a year ago.

Blake said 2008 will be challenging, though he said the company will continue to press on with its key priorities, which include focusing on improving its stores.

“We are focused exclusively on our retail business,” Blake said.

The company said it expects to see a total sales decline in fiscal 2008 of 4 percent to 5 percent. It also is projecting a continuing operations earnings per share decline of 19 percent to 24 percent for the full year.

For all of fiscal 2007, Home Depot said it earned $4.4 billion, or $2.37 a share, compared with a profit of $5.76 billion, or $2.79 a share, for fiscal 2006. Its $77.35 billion in full-year sales compared with $79.02 billion a year earlier.

At the end of the fourth quarter, Home Depot operated 2,234 stores in the United States, Canada, Mexico and China.

Lowe’s, based in Mooresville, N.C., reported Monday that its fourth-quarter profit dropped by a third. But it predicted that sales — while still hurt by a soft housing market — would improve slightly in 2008.