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>How Can Lowes Profit While Home Depot Records Record Losses?

>Housing-Market Downturn
Hits Home Depot’s Earnings

August 20, 2008

How can Home Depot Inc. report second-quarter net profit declines of 24% while Lowes reports gains?

Is one company run better than the other. No, probably not. HD is the world’s largest home-improvement retailer by sales, so we need more clarification to discern the stark difference. It could be HD grew the last quarters far more than Lowes despite the housing downturn and now it’s just starting to catch up with this large world-wide home supply firm.

Home Depot said it struggled to sell big-ticket items due to the slowing U.S. economy and housing market.

Average sales transactions at Home Depot fell in the traunch of sales more than $600, big ticket items. However, the small purchases, those below $25 didn’t take such a sharp hit. It shows no matter the economy, when we need something small we can afford it. But if you’re talking about adding a big air conditioner, a bigger water heater, or a tractor to cut the lawn, forget it.

Many homeowners have felt the pinch of the economy–especially high gas and rising food prices–and are waiting to make the bigger purchases until times are more favorable. That day may never come in either of these two purchase categories.

Americans had better resign themselves to higher transportation costs until something new comes along to revolutionize that industry. And as transport costs go, so go commodity prices of which food is a part.

HD Net income for the three months ended Aug. 3 dropped to $1.2 billion, or 71 cents a share, from $1.59 billion, or 81 cents a share, a year earlier. The results were well above analysts’ expectations of 61 cents a share.

Sales fell 5.4% to $21 billion. Same-store sales, or sales at stores open at least a year, declined 7.9%, hurt in part by a calendar shift.

In 4 p.m. composite trading on the New York Stock Exchange, Home Depot shares were down $1.00, or 3.7%, at $25.96.

The company said “People are postponing discretionary projects, but they are willing to spend on small repair products.”

Home Depot’s, an Atlanta-based company, reported its disappointing results one day after its smaller rival Lowe’s Cos. reported a second-quarter profit that exceeded estimates. Lowes thanked the U.S. government’s stimulus checks and strength in seasonal outdoor-product sales.

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