Store closings knock Home Depot earnings down
First-quarter net earnings at the nation’s largest home channel retailer fell 66 percent to $356 million from $1.05 billion in the same period last year.
The significant drop in net earnings was due to a one-time charge of $543 million, stemming from the retailer’s plan to close 15 stores and take 50 previously planned new stores off the docket.
Additionally, Home Depot saw a same store sales drop of 7.3 percent.
Net sales fell 3.4 percent to $17.9 billion from $18.56 billion in the same period last year.
“The housing and home improvement markets remained difficult in the first quarter; in fact, conditions worsened in many areas of the country,” said Frank Blake, Home Depot chairman and CEO, in a statement. “We will continue to invest wisely in our core retail business to earn our customers’ confidence and ensure the long-term health of our business.” During the company’s earnings call with investors, Blake said the plan to slow store growth is expected to free up $1 billion over the next three years.
Blake also characterized the plan to close stores and curtail store growth as a disciplined approach to capital allocation, adding, “This discipline and reinvestment in our existing stores will benefit our shareholders, associates and customers.”
Craig Menear, executive vp merchandising, said Home Depot experienced negative sales growth across all departments, except lawn and garden. Most regions were down, but some strength was recorded in the Ohio Valley region, as well as in the company’s Canada, Mexico and China operations, all of which experienced comp store sales growth.
The retailer is planning to concentrate on grabbing market share in several key product categories, namely ceramic tile, faucets and bath fixtures, Menear said.
Chief financial officer Carol Tome said the company at the moment was more comfortable with numbers on the lower-end of the retailer’s full-year guidance for profit from continuing operations. The company currently expects that profit to drop by between 19 and 24 percent year-over-year. Tome also noted that the company took a broad look at its store base in determining which 15 stores in the country to close ??three of those stores were less than three years old, she said.
Check back at homechannelnews.com for coverage of the Home Depot annual meeting of stockholders, slated for May 20.
Lowe’s comp-store sales down 8.4 percent
Like most home channel companies struggling with low consumer confidence and a downtrodden housing market, Lowe’s recorded a weaker fiscal first quarter, according to financial results released today.
Earnings declined 17.9 percent to $607 million, down from $739 million in the same period last year. Sales fell 1.3 percent to $12 billion from $12.2 billion in last year’s first quarter.
Comparable-store sales declined a full 8.4 percent.
“The challenging sales environment we have been experiencing for the past six quarters continued into the first quarter of 2008, and increasing financial pressures on consumers resulted in top-line sales that fell below our plan,” said Robert Niblock, Lowe’s chairman and CEO, in a statement.
Niblock said the “generally poor economic outlook,” alongside housing pressures, rising fuel costs, a “more negative employment picture” and higher food prices all contributed to weak consumer confidence that hurt the retailer. Those negative factors also hurt “discretionary purchases for the home,” he said.
Still, “Lowe’s continued to gain market share in the quarter, and diligent expense control helped us achieve respectable earnings in spite of the headwinds facing the industry,” Niblock said.
In the first quarter, Lowe’s opened 20 new stores. As of May 2, the retailer operated 1,554 stores in the United States and Canada.
In the second quarter, the company said it expects to open 23 new stores. Lowe’s projects a sales increase of about 1 percent in the second quarter, alongside a comparable-store sales decline of 6 percent to 8 percent.
IKEA to go digital in ‘Sims’ game
IKEA has stumbled upon a unique promotion opportunity, with the announcement the Swedish home goods retailer will now offer furnishings in the virtual life video game “Sims 2.”
The game allows users to take charge of virtual people, and in the new version of the program by EA Inc., consumers in North America, Europe and Asia will also be able to “buy” virtual IKEA items for their game characters, including furniture, storage items and wall art.
The additional software package, which will retail for around $20, will be available in late June.
Privately owned IKEA currently operates more than 230 stores in 24 countries.