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Yesterday about Lowe's (LOW) I said "I thought earnings would have been worse". Today, after Home Depot's (HD) I am thinking "wow, that bad?"
The Home Depot reported Q1 consolidated net earnings of $356 million, or $0.21 per diluted share, compared with $1.0 billion, or $0.53 per diluted share, in the same period in fiscal 2007 (60% drop). These results reflect a nonrecurring charge of $543 million due to the recently announced closing of 15 stores and removal of 50 stores from the future growth pipeline. Excluding this nonrecurring charge, the Company reported consolidated net earnings of $697 million, or $0.41 per diluted share (22% drop).
Now, there are times that "charges" are just that and can be discounted. This is not one of those times. Consider store sales experienced a drop of 6.5 percent. Due to the 14th week in the fourth quarter of 2007, first quarter benefited from a seasonal timing change that added approximately $536 million to sales. Taking this extra week of sales out would decrease net income by another $10 million or another penny per share.
Home depot has been late in enacting cost cutting moves whether it be stores closings or operational ones. With housing looking to rebound not until next year, investors ought to expect more of both.
If you believe that Home Depot's service issues are behind it, think again.
Unlike Lowe's, Home Depot seems to be consistently playing catch up. There does not seem to be a plan here just a reaction to events. This all began last year with the sale of the Supply unit and the announced and now canceled share repurchase.
Until some type of plan emerges, I will be avoiding shares. Even if macro conditions do improve, management has not shown any ability to run things in a specific direction.
Disclosure ("none" means no position):None
