Home Depot Earnings Fall, Housing and Renovation Markets Remained Weak (HD)

Home Depot (HD)

Both Home Depot (HD: Charts, News, Offers) and Lowe’s (LOW: Charts, News, Offers) have been hurt by the recession and the housing market slump that made consumers weary of sinking more money into their homes. Today, Home Depot reported its fiscal third-quarter profit fell 8.9 percent to $689 million, or 41 cents a share, down from $756 million, or 45 cents a share, a year earlier. Fortunately, the shortfall beats analysts estimate of 36 cents per share, and overall, it fared much better than Lowe’s who reported 30 percent profit drop yesterday. From an economic standpoint, Home Depot is the biggest home-improvement retailer in the U.S. and is considered a bellwether for housing-related spending. Does this stronger than expected performance a sign that our economy is moving in the right direction? Or perhaps, Home Depot is executing better than its competitors and the result has nothing to do with the economy?

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Stock Analysis

Underlying the 8.9 percent earnings drop, Home Depot’s revenue fell 8 percent to $16.36 billion due to same store sales decline of 6.9 percent at stores open at least a year — a key measurement for retailers because it excludes the effect of store expansions or closings. The average checkout receipt also fell 7.1 percent to $51.89, but better than the 8.2 percent fall for the year to date and better than Lowe’s 7.5% decrease at its stores. Despite these weaknesses, Home Depot continues to invest in its infrastructure, including opening regional distribution centers to reduce shipping expenses, keep merchandise in stock, and optimize inventory, implementing new performance tracking software, improving stores and customer service to make them more appealing, and investing in consumer-research to help it captures more business from professional contractors — a group that makes up just 3% of its customer base but represents more than a quarter of sales.

Home Depot and other home-improvement retailers have faced sales declines as consumers are reluctant to spend money on do-it-yourself projects and worry over their jobs and home values. However, the U.S. housing market appears to be stabilizing after almost three-year decline. The CEO, Frank Blake said, “There is still a great deal of pressure in the housing and home improvement markets, though there are some positive signs of stabilization.” Lowe’s also indicated that it’s seeing some improvement, and said some of the worst-hit markets, such as, Florida, California, and areas of the Southwest had improved. An encouraging sign since Home Depot captures a bigger percentage of sales from those regions.

Overall, Home Depot raised its full-year earnings outlook as lower costs helped it top third-quarter expectations. For the full year, Home Depot now expects earnings per share from continuing operations of about $1.55. That would be a 9.5 percent increase from last year, better than the company’s previous expected range of flat to up 7 percent. The company didn’t raise its forecast of a sales decline of 9 percent. Although it’s too early to tell if the improvement is due in part to the economic recovery, it’s certain that Home Depot is outmaneuvering Lowe’s in this tough economic climate.

Other Stuff Related to Home Depot:

Home Depot Minted Money All The Way Through The Housing Crash — Home Depot made a mockery of the economic crisis? An interesting perspective from The Business Insider.

Home Depot (HD) – A Quick Lesson in How To Beat EPS Estimates -– The Disciplined Investor shared an opposing view, stating that to show the better than expected earnings, Home Depot had to slash $60 million in cost.

Home Depot Profit Beats Street — A straight forward report of Home Depot’s financial performance for the quarter.

More Stocks in the News:

Saks posts surprise 3Q profit on lower costs — Cost cutting is still the name of the game as Saks (SKS: Charts, News, Offers) surprised Wall Street.

Target Says Meeting Analysts’ 4Q Expectations Will Be Tough — Target (TGT: Charts, News, Offers) said it’s going to be a tough to meet the 4Q $1.12 earning per share estimate.

TECH STOCKS: Tech Stocks Off; Applied Materials To Buy Semitool — While retailer suffers, Tech stocks are doing well on the news of Applied Materials Inc. (AMAT: Charts, News, Offers) set a deal to acquire chip-equipment maker Semitool Inc. (SMTL: Charts, News, Offers).

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