The Home Depot "Index"

Home Depot Inc. said Tuesday that fourth-quarter profit fell a sharper-than-expected 27% after the declining housing market hurt demand for its building and home goods supplies and the outlook for 2008 remains “challenging.”

Declining housing and credit markets have hurt consumers’ appetite for home supplies provided by Home Depot and rival Lowe’s, which said Monday that profit dropped 33%, with sales at stores open at least a year declining 7.6%.

To reduce costs, Home Depot said in January it would cut 10% of its headquarters staff, following moves to slow the pace of its stock buybacks and advertising-spending growth. The company, however, said it remains committed to $2.3 billion in capital spending this year. Home Depot has spent money on projects to make stores cleaner and brighter and improve customers’ experience after it lost market share to Lowe’s and other competitors.

What to make of this?

  • DIY retail sales will most likely continue to crawl. Of course, this is no surprise since lawn & landscape services have increased in recent years to offset declining DIY sales due to more DIFM (do-it-for-me) purchases.
  • Growers who sell to Home Depot and Lowe’s will still need to offer differentiated programs as usual — and pay particular attention to shrinkage and gross margin on a store-by-store basis.
  • Landscape service firms need to ratchet up the marketing efforts — especially emphasizing the return on investment from lawn & landscape improvements (see earlier posts).
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