Home Depot and Sears predict poor sales

Home Depot and Sears predict poor sales
By Jonathan Birchall in New York
Copyright The Financial Times Limited 2007
Published: July 10 2007 10:15 | Last updated: July 10 2007 12:23


Home Depot and Sears Holdings - two of the three largest US retailers - have both issued gloomy earnings forecasts that in part reflect the impact on their businesses of the downturn in the US housing market.

Home Depot, in an earnings update following its agreement to sell its HD Supply wholesale business, said it expected its earnings per share to fall 15 per cent to 18 per cent from a year earlier, to a range of $2.30 to $2.36 a share, down from $2.79 per share in its last fiscal year.

The retailer said it had previously forecast a 15 per cent fall in earnings, excluding the contribution of its HD Supply wholesale business, which it is selling for $10.5bn to private equity investors.

Sears Holdings, which owns Kmart and Sears stores, said disappointing sales of home appliances - which tend to respond to the health of the housing market - had contributed to a disappointing current quarter. The retailer’s Kenmore appliances are the top-selling US home appliance brand.

The company, which had not previously issued earnings guidance, said it expected earnings of between $1.06 and $1.32 per share - against analysts’ expectations of earnings around $2.12. per share.

Aylwin Lewis, chief executive, said Sears’ performance also reflected its own particular problems, as the company formed out of the 2005 merger of Kmart and Sears continues an effort to improve its operations.

”Although we believe our business has suffered from many of the same factors that have led other retailers to announce disappointing results and lowered expectations, our recent performance underscores our ongoing need to become more relevant to consumers while improving our discipline around expense management,” he said in a statement.

Carol Tome, Home Depot’s chief financial officer, said the second largest US retailer - behind Wal-Mart - expected the housing market “to remain challenging for the rest of 2007 and into 2008” and that the company would continue to focus on reinvestment for the long-term health of its business “understanding that it will put short-term pressure on earnings”.

The home improvement chain also said it now expected 2007 total retail sales to decline by 1 percent to 2 percent and same-store sales to fall by mid-single digits, having previously forecast total sales growth of 0 per cent to 2 per cent.

The company also said it was launching a tender offer for 250mn shares for between $39 and $44 a share, or up to $11bn - roughly half of the $22bn buyback it announced last month, as part of a new focus on returning cash to shareholders.

Home Depot’s shares rose less than one per cent to $40.49. Sears Holdings’ shares fell almost 7 per cent to $159.56.