Losses keep on coming for Home Depot

If the plumbing aisle at the local Home Depot store has seemed busy, there’s a good reason.

Homeowners are focusing more on fixing the leaky faucet than overhauling the bathroom, Home Depot’s top executive told Wall Street analysts Tuesday.

Without high-end sales on items like Jacuzzi tubs and tile —- which flew out of the store when the housing market was booming —- the world’s largest home-improvement retailer is suffering.

Atlanta-based Home Depot on Tuesday reported a 25 percent drop in second-quarter earnings. It made $1.2 billion in the three months ended Aug. 3, compared to $1.6 billion in the same period a year ago.

It was the eighth consecutive quarter of losses for the retail giant.

In the call with analysts, Home Depot CEO Frank Blake was blunt. Credit is constrained. The cost of goods is high. And the country is not yet out of a historic downturn in the housing market.

“As we look forward into the second half of the year, we see continued pressure in our markets,” Blake said. “We remain cautious about our market in the back half of this year and into the first half of 2009.”

In an interview with The Atlanta Journal-Constitution, Chief Financial Officer Carol Tome said because of these “uncertainties” the company expects annual sales to decline 5 percent and earnings per share to drop 24 percent.

A senior retail analyst for investment banking firm Edward Jones said Home Depot executives are being too pessimistic.

Stephanie Hoff, who is based in St. Louis, thinks Home Depot leaders are “just being conservative. It does look like sales are starting to move in the right direction.”

The home-improvement retailer reported second-quarter sales of $21 billion, down 5.4 percent year-over-year.

Per-share earnings for Home Depot were 71 cents, compared to 81 cents a year ago.

Still, it was better than analysts’ consensus of 61 cents per share.

“The expectation was the results were going to be awful,” said Joe Magyer, senior analyst at Alexandria, Va.-based investment firm the Motley Fool.

Home Depot still is a company “throwing off billions” in cash flow, he said. “It’s not floundering by any means.” Magyer owns Home Depot stock.

Blake, the chief executive, said Home Depot got a boost from the federal government’s economic stimulus package. He estimated the infusion of about $600 per person rang up to about $300 million in sales during the quarter.

On Monday, rival Lowe’s, based in Mooresville, N.C., reported net earnings of $938 million for the quarter, a 7.9 percent decline. Lowe’s second-quarter sales increased by 2.4 percent to $14.5 billion. Lowe’s credited the tax rebate and the spring home-improvement season for its better-than-expected results.

Tome, Home Depot’s CFO, said that while Lowe’s numbers were better, much of Lowe’s sales were seasonal. It got about 40 percent of second quarter sales from its garden department; Home Depot’s garden sales were 20 percent, Tome said.

Home Depot’s stock closed Tuesday at $25.96, down $1.

 ELIZABETH LANDT / Staff
NET EARNINGS 
Home Depot's profit dipped for the eighth consecutive quarter 
as sales of big-ticket items have cooled with the housing market. 
A quarter-by-quarter comparison:    
Q1 
'06: $1.86 bil.
'07: $1.05 bil.
'08*: $356 mil.

Q2 
'06: $1.5 bil. 
'07: $1.59 bil. 
'08: $1.2 bil. 

Q3
'06: $1.49 bil. 
'07: $1.09 bil. 

Q4
'06: $925 mil. 
'07: $671 mil. 
*Includes a one-time charge of $543 million because of store closings.
Source: Home Depot filings