Home Depot, Lowe’s Q1 Earnings Drop

By Steve Smith -- TWICE, 5/20/2008

New York — The Home Depot took a much larger earnings hit in its fiscal first quarter than rival Lowe’s, reporting a decrease of 66 percent compared with the same time last year.

Consolidated net earnings for Home Depot for the quarter, ended May 4, was $356 million, down from $1.046 billion for its fiscal first quarter last year. Lowe’s reported yesterday that its net earnings were down 17.9 percent to $607 million for its fiscal first quarter, ended May 2, down from the previous year’s $739 million in earnings.

Home Depot said the 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 chain reported consolidated net earnings of $697 million.

Sales for the first quarter totaled $17.9 billion, a 3.4 percent decrease from the first quarter of fiscal 2007, reflecting negative comp-store sales of 6.5 percent, offset in part by sales from new stores. 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.

In his prepared statement with the report, Frank Blake, chairman/CEO, blamed the slow housing and home-improvement markets for Home Depot’s problems in the quarter. “In fact, conditions worsened in many areas of the country.”

He added that the chain’s decision to “close stores and remove planned stores from our pipeline demonstrates our commitment to disciplined capital allocation. This discipline and reinvestment in our existing stores will benefit our shareholders, associates and customers.”

At the end of the first quarter, the chain operated a total of 2,258 retail stores, which included 1,970 The Home Depot stores in the United States (including the Commonwealth of Puerto Rico, the territory of the U.S. Virgin Islands and the territory of Guam), among its operations.

In reporting its first-quarter numbers on Monday Lowe’s also blamed its lower earnings and flat sales for its fiscal first quarter that ended May 2, on the housing market, as well as higher fuel and food costs.

Sales for the quarter declined 1.3 percent to $12.0 billion, down from $12.2 billion in the first quarter of 2007. Comp-store sales for the first quarter declined 8.4 percent.

Robert A. Niblock, Lowe's chairman /CEO commented, “The generally poor economic outlook, including well-known housing pressures, rising food and fuel prices and a more negative employment picture eroded consumer confidence and impacted discretionary purchases for the home.”

Niblock also said in a prepared statement, “Fiscal 2008 will be a challenging year on many fronts, but we remain focused on what we can control and will continue managing for long-term success and pursuing opportunities as they arise in the current environment.”

During the quarter, Lowe's opened 20 new stores. As of May 2, Lowe's operated 1,554 stores in the United States and Canada, representing 176.4 million square feet of retail selling space, an 11.1 percent increase over last year.