Home Depot
Plans More Closings

MARY ELLEN LLOYD & ANN ZIMMERMAN / Wall Street Journal 2may2008

 

Mindfully.org note: 

Where else can terrible news be spun into good news? Of course we have President Bush, but we're referring to Wall Street. It's an amazing place, filled with far too much optimism at present. About Home Depot's plans an analyst stated that it was "the right strategy for a mature retailer." And Home Depot stocks went up.

By the time this year is up, we think that places like Home Depot won't have enough customers to survive. Just think about the price of fuel, which is a part of each bit of material in the store. An OPEC minister recently said he sees the price of oil going to $200 per barrel. That would bring the price of gas at the pump to $7 per gallon and higher. This lifestyle is starting to get expensive, isn't it? An equal problem is the war, or rather wars that are raging. Something has to give, and very soon. We see depression coming.

Home Depot Inc. announced plans for more store closings and a more-rigorous pullback on new-store openings, the do-it-yourself retailing giant's latest efforts to boost profitability and free up cash for dividends and share repurchases.

Atlanta-based Home Depot is halting plans to open about 50 U.S. stores that have been in its pipeline, some for more than 10 years, and will close 15 underperforming stores over the next seven weeks. As many as 1,300 employees could lose their jobs; a spokesman said the company will try to place as many staffers as possible in other stores. The company has a total of 331,000 workers.

The changes will result in a $586 million charge against earnings, nearly all of it in its fiscal first quarter. In the year-earlier quarter, ended April 29, Home Depot posted net income of $1.05 billion.

The moves come amid increasing saturation in the home-improvement retail market and little expectation of a quick rebound in the U.S. housing market, which has discouraged many homeowners from taking on home-improvement projects.

The slowing economy has led many retailers to throttle back on growth plans or close stores this year. Women's apparel chain AnnTaylor Stores Corp. delayed plans for a fall opening of a new concept catering to baby boomer women. J.C. Penney Co. recently announced it will open 36 stores this year, down from the 50 initially planned.

Home Depot rival Lowe's Cos., the Mooresville, N.C., chain, said it was delaying the opening of 20 stores this year, mostly in California and Florida. It plans to open a total of 120 stores in 2008 and hasn't announced any plans for deceleration going forward. The chain has 1,550 stores.

Because of saturation in the home-improvement retail market, analysts expect that when the housing market picks up, Home Depot to grow new stores at a 1.5% rate, down from 2.5% this year and 4.9% in 2007. Home Depot now has 2,258 U.S. stores.

Wall Street wasn't totally surprised by the news, and reaction was positive. "We continue to think the combination of lower store growth and capital expenditures, offset by continued spending on stores and associates, is the right strategy for a mature retailer," retail analyst Colin McGranahan of Sanford C. Bernstein & Co. wrote in a report.

As of 4 p.m. New York Stock Exchange composite trading, shares of Home Depot were up $1.07, or 3.7%, to $29.87.

The company confirmed its forecast for fiscal 2008 earnings per share from continuing operations to decline by 19% to 24%.

source: 1may2008

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