Home Depot is ready, but shoppers aren't yet

The retailer has made headway in cutting costs and improving service, but customers have yet to return in force.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Jennifer Reingold, senior writer

frank_blake.03.jpg
CEO Frank Blake has led an effort to cut costs at Home Depot, but remains concerned about the economy.

NEW YORK (Fortune) -- Investors may be looking to improved performance by home-improvement retailers as a barometer of the economy, but those results may say more about the retailers than about consumers.

First came Lowe's (LOW, Fortune 500) announcement on Monday that first-quarter earnings per share reached 32 cents, which far exceeded expectations. Along with CEO Robert Niblock's suggestion that the worst may be over in the housing market, the results helped send the Dow Jones average up 2.9% on Monday. Today, Home Depot (HD, Fortune 500) followed, beating analyst expectations with quarterly earnings up 44%, including restructuring charges, to $514 million. But if you read between the lines, it becomes clear that anyone betting on a near-term economic recovery shouldn't hold their breath.

Home Depot's numbers were largely a function of improved expense and inventory controls, part of its restructuring under CEO Frank Blake, rather than a true pickup in demand. Store revenues declined 10.2%, compared with sales from stores that were open during the same period last year.

"We are concerned about accelerating rates of foreclosures," Blake said on a conference call with analysts and reporters, "particularly in the western part of the country." One in every 54 households in California, he says, is in foreclosure, the highest number ever. Add that to today's report of a 12.8% decline in housing starts in April, and it becomes clear that hope may be trumping reality when it comes to ending a recession.

In Blake's words, "getting to 'less bad' is not the same as getting to recovery." (See a recent Q&A with Blake.) "Our markets, and the consumer in general, remain under pressure." Customers tend to be focusing on routine maintenance projects rather than the renovating and redecorating that would drive higher levels of spending.

That said, the company is seeing steady improvement in Blake's long-term effort to boost inventory controls, as well as customer service, which had taken a dive before he took over in early 2007. "We were impressed with the company's strong inventory management and expense control," wrote Citigroup analyst Deborah Weinswig, who rates Home Depot a buy.

Home Depot has recently retrained all of its store employees and has focused on trying to improve in-store responsiveness. It seems to be working, as evidenced by internal service surveys, which have show consistent improvement and in the past quarter rose nearly eight percentage points in favorability.

All that, however, doesn't matter much if there are too few customers to serve. "We are controlling what we can control," CFO Carol Tome said on the conference call. Sounds like that's as good as it's going to get until consumers can be persuaded that the worst of the recession is over. To top of page

Company Price Change % Change
Bank of America Corp... 16.15 0.00 0.00%
Facebook Inc 58.94 0.00 0.00%
General Electric Co 26.56 0.00 0.00%
Cisco Systems Inc 23.19 -0.02 -0.09%
Micron Technology In... 23.91 0.00 0.00%
Data as of Apr 17
Index Last Change % Change
Dow 16,408.54 -16.31 -0.10%
Nasdaq 4,095.52 9.29 0.23%
S&P 500 1,864.85 2.54 0.14%
Treasuries 2.72 0.08 3.19%
Data as of 8:01am ET
More Galleries
50 years of the Ford Mustang Take a drive down memory lane with our favorite photos of the car through the years. More
Cool cars from the New York Auto Show These are some of the most interesting new models and concept vehicles from the Big Apple's car show. More
8 CEOs who took a pay cut in 2013 Median CEO pay inched up 9% in 2013 to $13.9 million. But not everyone got a bump last year. Here are eight CEOs who missed out. More
Sponsors
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.