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Home Depot earnings down in Q2, but still strong

BY HBSDEALER Staff

Home Depot reported second-quarter financial results, showing net earnings fell 15 percent to $1.59 billion from $1.86 billion a year ago. Sales fell slightly, down 1.8 percent to $22.2 billion from $22.6 billion last year.

CEO Frank Blake said the company performed in line with financial expectations, despite a challenging housing market and competitive selling environment. In a statement, Blake expressed some pessimism on selling conditions in the coming year, but added the company is attempting to find valuable investment opportunities to drive growth in a down market.

“We believe the housing and home improvement markets will remain soft into 2008. We will continue to invest thoughtfully for the long-term health of the business,” Blake said.

Earnings in the company’s HD Supply unit, which the company has agreed to sell to a group of private investors, were lower in light of a hefty tax charge. Earnings fell 59 percent to $66 million from $161 million last year at HD Supply, including a tax charge of $60 million related to the disposition of the division. Home Depot now is listing HD Supply as a discontinued operation.

The company announced last week it is renegotiating the sale of HD Supply to investor groups Bain Capital Partners, Carlyle Group and Clayton, Dubilier and Rice. The negotiations could result in a lower sale figure than the earlier agreed-upon $10.3 billion. The company also modified its plan to buy back 250 million shares for between $39 and $44, amending the figure to between $37 and $42 per share in light of current financial market conditions.

“The company is in discussions with respect to the restructuring of the sale of HD Supply and is carefully watching today’s turbulent financial markets,” said a statement from Home Depot. “The company will continue to assess financial market conditions and the impact of any restructured HD Supply transaction, or failure to complete that transaction, on its overall recapitalization plan and on the terms of the tender offer part of that plan.”

At the end of the second quarter, Home Depot operated about 2,200 retail stores, including 1,923 in the United States, 157 stores in Canada, 63 stores in Mexico and 12 stores in China.

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Lowe’s lays off 205 at Florida distribution center

BY HBSDEALER Staff

Lowe’s has laid off 205 workers at an Osceola County, Fla., distribution center, according to an article in the Orlando Sentinel.

The job cuts account for about 20 percent of the total work force at the distribution center, which saw growth during the housing boom in Florida and increased demand for building materials because of hurricanes in the region. A spokesperson for Lowe’s told the newspaper the company sought other solutions outside a reduction in force and noted that the distribution center now employs about 700 people.

The distribution center supplies 96 retail stores in Florida and southern Georgia. At the company’s last earnings call, Lowe’s noted difficult year-over-year comparisons with hurricane-affected regions of the Gulf Coast and some Florida markets. Gulf Coast areas most impacted by Hurricanes Katrina and Rita reported negative 23 percent comparable-store sales.

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Comparable-store sales fall at Sears

BY HBSDEALER Staff

Sears Holdings announced today that domestic comparable-store sale for its second quarter fell 4.3 percent at Sears stores and 3.8 percent at the company’s Kmart stores. The company will release its official second-quarter results by Aug. 30.

Sears said it anticipates second-quarter net income of between $170 million and $185 million. Last month, the company forecast net income in the range of $160 million to $200 million. The company reported net income of $294 million in last year’s second quarter.

Since that earlier forecast, “the company has experienced higher markdowns, most notably within seasonal apparel categories,” according to a press release from Sears.

Sales fell “across most categories,” the company said, with some increases in consumer electronics, women’s apparel and footwear. The company saw a second-quarter pre-tax gain of $15 million from items including bankruptcy-related settlements and insurance recoveries on claims filed for property damaged by hurricanes during fiscal 2005.

Sears Holdings’ CEO Aylwin Lewis said while the company recognized the slowdown in the housing market contributed to declining sales, “we are disappointed with our second-quarter results.”

“We will work hard to improve our financial performance going forward,” Lewis said.

The company also said its board of directors approved a plan to buy back up to $1.5 billion of stock.

Sears is the fourth largest home channel retailer in the United States, according to HCN’s Top 500 list of home channel retailers, with 2006 home improvement sales of $10.7 billion.

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