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Sustained housing slump slams Home Depot

The Home Depot Inc. reported a 66 percent drop in first-quarter profit Tuesday due to a large one-time charge and continued weakness in the housing market.
/ Source: The Associated Press

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 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.

Its shares fell $1.50, or 5.2 percent, to $27.37.

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.

Home Depot’s bottom line reflects the concern of many Americans about the declining value of homes and the rising cost of filling up a gas tank.

Fewer people are putting money into their homes and Home Depot is selling fewer appliances, special-order kitchens and other big-ticket items.

Mooresville, N.C.-based Lowe’s reported Monday a nearly 18 percent drop in first-quarter earnings. Lowe’s lowered its guidance for the year.

“We certainly see — on the general market side — more risks than opportunities through the remainder of the year,” Home Depot Chief Executive Frank Blake told analysts during a conference call Tuesday.

Its first-quarter earnings results, excluding a charge related to previously announced store closings and the shrinking of future store growth plans, beat Wall Street expectations despite a decline in overall sales and sales at stores open at least a year.

The Atlanta-based company said it earned $356 million, or 21 cents a share, in the three months ending May 4, compared with a profit of $1.05 billion, or 53 cents a share, a year earlier.

Excluding the one-time charge, Home Depot said it earned $697 million, or 41 cents a share.

Analysts were expecting earnings of 37 cents a share excluding one-time items.

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. She did not elaborate. Home Depot plans to address investors at a conference on June 5.

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?”

Home Depot announced this month that it was putting the brakes on some of its expansion plans and said it would do what was previously unthinkable — close 15 of its flagship stores. The move, to be completed by July, affects 1,300 employees

The company reiterated its intention to open 55 new stores in the current fiscal year, though it said it had ditched its goal to open some 50 U.S. stores that have been in its new store pipeline, in some cases for more than 10 years.

Consumer sentiment and the U.S. housing market will need to improve before Home Depot can rebound.

Asked when that might happen, Tome said, “We don’t really know.”