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.
 |
| 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. 
-
The retail giant tops the Fortune 500 for the second year in a row. Who else made the list? More -
This group of companies is all about social networking to connect with their customers. More -
The fight over the cholesterol medication is keeping a generic version from hitting the market. More -
Bin Laden may be dead, but the terrorist group he led doesn't need his money. More -
U.S. real estate might be a mess, but in other parts of the world, home prices are jumping. More -
Libya's output is a fraction of global production, but it's crucial to the nation's economy. More -
Once rates start to rise, things could get ugly fast for our neighbors to the north. More
