As consumers slowly dust off their wallets to purchase clothing and electronics, home improvement sales continue to lag.
Earnings reports this week show same-store sales continuing to sputter at Home Depot and Lowe's, while stores with off-price goods like TJMaxx saw improvement.
Home Depot's third quarter sales fell 8 percent, reflecting a continued malaise in the housing market triggered by a drop in home values and neighborhoods plagued by foreclosures. Roughly 38 percent of homeowners are estimated to have negative, or near negative, equity in their homes.
The home improvement sector has seen $55 billion in annual sales evaporate since 2006, noted Carol Tomé, Home Depot's chief financial officer, in an interview with The Atlanta Journal-Constitution after the chain's quarterly report on Tuesday. Home Depot still has a 20.5 percent share of what is now a $289 billion market for the last 12 months, down from $344 billion in 2006, Tome' said.
"Generally people are concerned about jobs and credit," she said. "As they look forward to 2010, they don’t see a lot of relief coming their way."
The Atlanta-based retail giant posted third quarter profit of $689 million, or 41 cents a share, down 8.9 percent from a year earlier. Sales were $16.4 billion.
Like many companies, Home Depot has held up profits by cutting costs and closing stores. The company raised its full-year earnings guidance, but not its revenue outlook.
In a conference call with analysts, Chief Executive Frank Blake said a recovery for the home improvement sector is not yet at hand. "We are still in ‘less bad' territory" compared to previous reports, he said.
In one telling sign, Home Depot said purchases of less than $50 rose 2 percent in the quarter, while big ticket purchases – $900 or above – fell by 10 percent. Lowe's reported a similar gap. The average checkout tab at Home Depot slipped to $51.89, down 7 percent from a year earlier.
On Monday, Lowe's announced earnings of $344 million, a 29.5 percent decline, on revenues of $11.4 billion, down 3 percent.
Analysts note that while decreased home improvement sales led retailers into the recession, it appears they will trail the sector coming out.
"Given that declines in home improvement demand led the overall retail space by over two years, one might have expected home improvement sales to lead in the recovery," Colin McGranahan with Bernstein Research wrote in a Nov. 2 report. "However, the opposite has occurred – home improvement declines are persisting even as core retail sales are beginning to recover."
Tomé said stagnant or falling housing prices prompt homeowners to think: " ‘Why should I if I'm not going to get a return?' If you think of [home improvement] as an investment, you'll think differently than if it’s a cost."
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