Nation’s biggest home retailers respond to rough climate: Home Depot plans fewer openings in ’08

Home Depot will open fewer stores in 2008, a cautionary measure following a rough-and-tumble past year and an unclear sales environment in the year to come.

“I believe we’ll look back on 2007 as one of the most difficult years ever for the Home Depot financially,” said CEO Frank Blake in the company’s fourth-quarter conference call with investors. “But I also believe we’ll look back on it as one of the most important years for the long-term health of the business.”

Year-end earnings were down 23.7% to $4.4 billion.

Year-end sales were down 2% to $77.35 billion.

Comp-store sales were down 6.7% for the year.

85 new stores were opened in 2007.

Blake went on to say the company will open 55 new stores this year, with just 35 of those stores planned for the United States. The other 20 stores will be opened internationally, but Home Depot spokes woman Jean Niemi said, “We have not broken that number down (by country).”

Addressing investors on Feb. 26, Blake highlighted Mexico specifically as a growth opportunity, while remaining ambiguous about future plans in China.

“We continue to see opportunities in Mexico,” he said. “We really haven’t even started to roll out China. We’ve stayed with the initial dozen stores from a year ago, just working through that business model. So, we haven’t really even put on the table yet what’s in a new store growth plan for China.”

Last year, the company opened 85 new stores—15 of those were international locations.

“Our international businesses performed very well in 2007,” Blake noted. “Mexico posted double-digit comps for the year. Canada had positive comps and China has posted positive comps since were branded our stores last summer.”

But overall for the company, comparable store sales were down for the year, 8.3 percent compared with last year’s fourth quarter. For the full year, comparable-store sales fell by 6.7 percent.

In many ways, the fourth quarter’s poor sales environment took the company by surprise, Blake said. Home Depot had expected conditions to improve in the fourth quarter, but the downturn in the housing market and other consumer financial woes proved to be too tough an obstacle this winter.

“Markets that had been soft, like California and the Northeast, remained soft, and markets that had been relatively strong, like the Southwest and the Midwest, weakened,” Blake said.

Home Depot saw earnings fall 27.5 percent in the fourth quarter to $671 million from $925 million last year. Sales were up 1.5 percent to $17.66 billion from $17.4 billion last year. The fourth quarter consisted of an additional week as well—14 weeks compared with 13 weeks last year.

For the full year, Home Depot recorded earnings of $4.4 billion, down 23.7 percent from $5.76 billion last year. Sales for 2007 were $77.35 billion, down 2 percent from $79 billion in 2006.

Craig Menear, executive vpmerchandising for Home Depot, said seasonal merchandise was the lone category to post positive comps in the fourth quarter.

“Fireplace, heaters and power equipment posted positive comps for the quarter in every region of the country except more temperate climates,” said Menear. Holiday items also soared, with “double-digit comps across the country.”

Still, Home Depot plans to stop carrying some seasonal and specialty categories that strayed too far from the norm—namely pet care products and Halloween merchandise.

“My team knows that they need to make the tough calls in driving resources back to the core home improvement categories,” said Menear.

Additional initiatives have been taking place on the supply chain side of the retailer. The company opened two new rapid deployment centers in the Atlanta and Chicago metro areas—eventually, the retailer hopes to transition much of its distribution to those streamlined centers.

The results at those new distribution centers have been positive, said Mark Holifield, senior vp-supply chain, including “better in-stock at the stores, reduced lead times, improved shipment integrity and improved inventory turnover.”

At the end of the quarter, Home Depot operated a total of 2,234 retail stores in the United States, Mexico, Canada and China.