Home Depot earnings slide 19%

By Don Hogsett -- Home Textiles Today, 2/26/2001 12:00:00 AM

ATLANTA -Hard hit by weakening margins, higher costs and flattening same-store sales, The Home Depot, one of the nation's blue-chip, benchmark retailers, said that fourth-quarter profits dropped by 19.6 percent, to $465 million from $578 million last year.

Given a lift by rapid expansion-the opening of 204 new stores last year-sales advanced by 14.1 percent, to $10.5 billion from $9.2 billion. But set back by price erosion in lumber and building materials, same-store sales were flat at the world's largest home improvement retailer, the parent of EXPO Design Center and more recently Villager's Hardware stores.

Same-store sales were trimmed by 2 percent just by the impact of price deflation in lumber products, "which reached an eight-year low in the quarter," according to the retailer. In addition to the lower pricing, the sales comparison was also hurt by the absence this year of sales demand for Y2K-related products, which spurred sales higher in the second half of 1999.

With pricing under heavy pressure, average gross margin contracted by 120 basis points, to 30.7 percent from 31.9 percent a year ago. Acting as a further drag, costs climbed sharply higher, rising by 180 basis points, to 23.5 percent from 21.7 percent the previous year. Measured in absolute dollars, costs shot up by 23.4 percent, far outpacing the 14 percent increase in sales.

Also climbing faster than sales, inventories rose by 19.4 percent, to $6.6 billion from $5.5 billion.

Concerned about the near-term outlook, Robert Nardelli, ceo, said during a conference call with analysts he expected sales to remain flat to slightly negative during the first quarter. "We have not yet seen the impact of interest-rate cuts in our sales. Therefore, caution is in our outlook."

The Home Depot Inc.