ATLANTA - The Home Depot Inc. reported a 66 percent drop in first-quarter profit Tuesday due to a large one-time charge and continued weakness in the housing market.
The results, excluding the charge, beat Wall Street expectations despite a decline in overall sales and sales at stores open at least a year.
The Atlanta-based company said it earned $356 million, or 21 cents a share, in the three months ending May 4, compared with a profit of $1.05 billion, or 53 cents a share, a year earlier.
Excluding a charge related to store closings and the shrinking of future store growth plans, Home Depot said it earned $697 million, or 41 cents a share.
Analysts were expecting earnings of 37 cents a share excluding one-time items.
Home Depot said revenue in the quarter fell 3.4 percent to $17.91 billion, compared with $18.55 billion recorded a year earlier.
Sales at stores open at least a year fell 6.5 percent in the first quarter, Home Depot said.
Its average sales ticket was $57.36 in the quarter, a 2.8 percent drop from $59.01 a year earlier.
“The housing and home improvement markets remained difficult in the first quarter; in fact, conditions worsened in many areas of the country,” Chief Executive Frank Blake said in a statement.
So American consumers are cutting back on their home improvement projects, resulting in Home Depots' huge 66 percent drop in first-quarter profits. Toss in a slumping housing market, where Americans are also not buying and refinishing homes, and you've got another tell-tale sign of a bad recession looming here in the U.S. (If we're not already in one right now). And it is not just Home Depot that is suffering here. Lowe's is also reporting an 18 percent drop in first quarter earnings saying that consumers are cutting back on renovation spending due to "the face of falling home values, tighter credit requirements and higher prices for basic items such as food and gasoline." So the do-it-yourself home renovation industry is now hurting.
Let us go to a second MSNBC story, titled Soft sales, higher costs dent Target’s profit:
MINNEAPOLIS - With first-quarter profits down 8 percent and the economy in a funk, Target is emphasizing the “pay less” part its “Expect More, Pay Less” slogan.
The nation’s second-largest discount retailer said softer-than-expected sales and higher costs caused the profit decline for the quarter that ended May 3, although the results beat Wall Street expectations.
With consumers tightening their belts, Target President and Chief Executive Gregg Steinhafel said on a conference call that Target is responding by stressing sale prices more in its advertising, especially the 50 million newspaper circulars it puts out, as well as with sale items at the end of its aisles.
“We’re just very mindful that the consumer is very cash-strapped right now and is looking for good values. They’re looking for more sale merchandise, and we are responding,” he said.
The company said profit margins declined slightly from last year because sales grew faster in low-margin categories, which generally includes food and essentials like paper towels.
“As gas and food prices continue to rise and housing markets slow, consumers are facing increased financial pressure and reducing their spending, especially in discretionary categories.”
Steinhafel said shoppers are increasingly buying replacement pillows and sheets rather than a whole new set. In its lawn and patio items, consumers are buying new seat cushions rather than all-new lawn furniture.
Target reported a profit of $602 million, or 74 cents per share, in the three months ended May 3, down from $651 million, or 75 cents per share, during the same period last year. Revenue rose 5 percent to $14.8 billion. Analysts surveyed by Thomson Financial expected a profit of 71 cents per share. on revenue of $14.92 billion.
Sales at established stores fell 0.7 percent. Retail profits not counting interest and taxes fell 2 percent to $959 million.
Again, consumers are slowing spending on household items, due to the rising food and gas prices. Instead of purchasing whole bedroom sheet sets, consumers are picking different pillows and sheet sets in order to save money. With the lawn furniture, consumers are purchasing seat cushions, rather than whole lawn sets. It is almost bargain-basement sales shopping that has caused Target to revamp their marketing strategy in the face of an 8 percent drop in first-quarter profits. I should point out that Wal-Mart's first-quarter profit rose 6.9 percent, but the retailer cautioned that second-quarter sales will be "between flat and up 2 percent." Wal-Mart is also stuck in a situation where American consumers are cutting back on spending, and are shopping for the bargains. It is rather interesting that Wal-Mart's first-quarter profit rose by 6.9 percent, while Target's first-quarter profit fell by 8 percent, however Wal-Mart has shown itself to be especially successful in reducing store costs, while keeping prices especially low. However, the higher food and energy costs will still hurt Wal-Mart, as their second-quarter sales are predicted to be flat. Target is also feeling the pinch, as I would imagine that they are also attempting to control costs, and provide low prices to keep Americans coming into their stores. I don't think Target can compete with the brutal efficiency that Wal-Mart has, but I would expect that Target's second-quarter sales will also probably be flat, or perhaps post a negative drop of a couple percentage points. Either way, the American consumer is getting worried over the looming U.S. recession, the increased food and energy costs, the continuing lousy housing market, and possibly even a deteriorating job market. And these American consumers are responding to these economic challenges by cutting back on their spending.
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