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Home Depot warns on 4Q
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January 19, 2001: 10:28 a.m. ET
Lagging building materials prices, slowing economy unhinge earnings
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NEW YORK (CNNfn) - For the second time in three months, Home Depot warned Friday that its fiscal fourth-quarter earnings will fall short of analysts' lowered expectations as the weakening economy and slumping building materials prices cut into sales and profits.
The company, which is a component of the Dow Jones industrial average, also warned it expects the same factors to persist in the first half of 2001.
Atlanta-based Home Depot, the No. 1 U.S. home improvement retailer, said it now expects fourth-quarter earnings of 20 cents a share, below the 24 cents a share consensus forecast of analysts surveyed by First Call. The company earned 25 cents a share in the year-earlier quarter.
 Home Depot also lowered its full-year profit projections for the period ending Jan. 28 to $1.10 a share.
Shares of Home Depot (HD: Research, Estimates), which have been nearly halved from their 52-week high of $70, slumped $2.12, or nearly 5 percent, to $42.13 in trading Friday.
The company also anticipates flat sales at stores open at least a year in the fourth quarter, compared with its previous estimate for a 4 percent increase in comparable-store sales.
During a conference call with Wall Street analysts Friday, CEO Robert Nardelli, who has been at the post for 45 days after leaving General Electric (GE: Research, Estimates) said an unprecedented 10-percent-off sale during the 2000 holiday season did help drive sales, but narrowed margins, which cut into profitability.
"The tough economy has put tremendous pressure on fourth-quarter sales performance and increased competition for share of the consumers' wallets," CEO Bob Nardelli said. "While home improvement is a high priority for our customers, they are also facing immediate and dramatic pressures in a number of areas, including record cold weather and rising energy costs, investment losses, higher interest rates and increasing consumer debt levels."
Check out how other retail stocks are doing
Nardelli also warned that first-half profit in 2001 could be affected if those problems persist.
"We expect that many of the same economic factors affecting sales in the current quarter will persist in the first half of fiscal 2001," Nardelli said.
A year ago, Home Depot was flying high with sales and profits, the undisputed leader in home improvement. It was doing so well, that it won a listing as a Dow component.
But as 2000 progressed, the economy began slowing in the wake of numerous interest rate hikes by the Fed, rising energy prices and the resulting slowdown in consumer spending hurt the chain as well as most other retailers.
Retailers saw sales and profits erode particularly in the second half and fourth-quarter, which includes the all-important holiday season, as the slowing economy, higher gas and oil prices and severe weather caused a further slowdown in consumer spending.
Even without the margin-eroding 10 percent discount during the holidays, Nardelli said comparable-store sales growth at Home Depot steadily declined from November to January.
On Oct. 12, Home Depot warned it would miss both third- and fourth-quarter estimates, but did not disclose numbers. Wall Street analysts subsequently lowered their fourth-quarter estimates to 27 cents a share from 31 cents a share, according to First Call.
However, as concerns about the slowing economy grew along with a general decrease in consumer spending, including home improvement spending, analysts lowered their estimates three more times until leveling out at 24 cents a share on Dec. 22.
Nardelli, 52, was named the new chief at Home Depot after being passed up at GE to succeed outgoing CEO Jack Welch. At GE, Nardelli served as vice president of the company's power systems business.
He succeeds Arthur Blank, a co-founder of Home Depot, as president and CEO of the chain.
Since taking over the top spot, Nardelli has been visiting many of the company's 1,123 stores including Home Depot, EXPO Design Centers, Villager's Hardware stores and one Home Depot Floor Store outlet.
He told analysts during Friday's conference call that he continues to visit stores and review the company's product mix in an effort to free up cash and space by weeding out sluggish-selling items. 
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