27 January 2009

HD: New Charges in the Fourth Quarter of 2008

Home Depot, Inc., announced it will discontinue its EXPO Design Center business, putting 7000 jobs at risk.  The company also provided information regarding its results in the fourth quarter of fiscal 2008, which will end on 1 February 2009.

We used the figures in the announcement to revise our previously posted look-ahead earnings model for the quarter.

The Home Depot, Inc. (NYSE: HD) is the largest retailer of do-it-yourself merchandise, which includes building materials, home improvement supplies, and lawn and garden products.  The company competes fiercely with Lowe's (NYSE: LOW) and a multitude of smaller hardware and lumber retailers.

The EXPO stores "offer products and services primarily related to design and renovation projects."

To account for store closure-related asset impairments, severance pay, and other related expenses, Home Depot indicated that it would recognize a pre-tax charge of $390 million in the fourth quarter.  Additional charges totaling $142 million are anticipated in future quarters.

Separate from the EXPO decision, Home Depot announced that it would record an after-tax $55 million charge "related to the working capital dispute" resulting from the sale of the HD Supply business in 2007.  And, there will be an additional $163 million pre-tax charge to reflect the reduced value of its investment in HD Supply.

Home Depot had invested $325 million for a 12.5 percent equity stake in HD Supply.  Home Depot has also guaranteed $1.0 billion of HD Supply debt.

With the three new charges added to our model, we now expect a Net Loss of $46 million (-$0.03/share).  We had previously expected Net Income of $360 million ($0.21/share) for the quarter.

Actual results for the quarter will be reported on 24 February 2009.

Please note that the tabular format below, which we use for all analyses, can and often does differ in material respects from company-used formats.  A common difference is the classification of income and expenses as Operating and Non-Operating.  The standardization is simply for convenience and to facilitate cross-company comparisons.


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