Home Depot 1Q profits down by 66 percent

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 company did not update its guidance for the year.

The results, excluding the charge, beat Wall Street expectations despite a decline in overall sales and sales at stores open at least a year.

Home Depot shares fell 87 cents, or 3 percent, to $28 in pre-market trading.

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.

Home Depot has said previously that excluding one-time items it expected earnings per share from continuing operations to decline by 19 percent to 24 percent for fiscal 2008. But, in its earnings report Tuesday, it did not address those figures. In comments prepared for delivery to investors later in the morning, Chief Financial Officer Carol Tome also was not planning to mention future guidance. She planned to say that Home Depot's "prospects" would be addressed at a June 5 investor conference.

Goldman Sachs analyst Matthew Fassler said in a research note Tuesday that the lack of updated guidance could cause confusion among investors.

As for Home Depot's quarterly numbers, Fassler said "these results corroborate assessments from Lowe's results yesterday - the sector is bumping along the bottom, lagging housing turnover by several months."

Mooresville, N.C.-based Lowe's Cos. reported Monday a nearly 18 percent drop in first-quarter earnings. Lowe's lowered its guidance for the year.

Home Depot announced this month that it was putting the brakes on some of its expansion plans and said it would do what was previously unthinkable - close 15 of its flagship stores. The move, to be completed by July, affects 1,300 employees

The company reiterated its intention to open 55 new stores in the current fiscal year, though it said it had ditched its goal to open some 50 U.S. stores that have been in its new store pipeline, in some cases for more than 10 years.

Home Depot took a charge in the first quarter of $543 million. After tax, the charge was $341 million, a spokeswoman said.

Some analysts and large investors have worried in the past that as Home Depot gets bigger, it would invariably put stores in direct competition with existing stores, a practice known in the industry as cannibalization.

Home Depot in the past has justified the practice, saying it increased the company's overall market share.

Blake said when he announced the store closings that Home Depot's goal now is to "reduce cannibalization and drive higher returns."

Home Depot operates 2,258 stores in the United States, Canada, Mexico and China.

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On the Net:

The Home Depot Inc.: http://www.homedepot.com