< Return to Bears page

Subprime crisis has slowed housing market, demand for HD goods lowered

The housing market has experienced a significant slowdown in growth. Home Depot's revenues depend heavily on the housing market because many consumers use home equity lines of credit to finance home-improvement projects. As home values fall, lenders are now cutting off home equity lines of credit for some borrowers.

Simple fact: Lots of bad mortgages, and corresponding foreclosures mean that folks aren't likely to go out and buy that circular saw and loads of 2x4s for that 2nd story home extension. Expectations had been lowered tremendously for Home Depot on a year over year basis and the company only grazed by when using typical Wall Street accounting math.

Earnings fell over 60%, from $1Billion to $356Million ($0.21/share) and at the top line, Revenue fell from $18.5Billion to $17.9Billion. While Revenue was generally in line with expectations it took adjustments for Home Depot to match profit expectations. Since expectations were $0.37/share on a non-adjusted basis, HD revealed that it in fact would've had a more profitable quarter if it didn't take a charge for closing stores and filing away plans for future openings. Accounting for these charges, HD would've earned $0.41/share and would have beaten expectations by 4 cents. So why the 5% drop in the stock today? Investors surely can't blame oil's run to $130 a barrel for everything! Well, it's because of the fact that a company like Home Depot, which has an increasingly aggressive competitor in Lowe's (LOW) nipping at its heels, is closing stores (15 in the latest quarter) and putting the kibosh on new store plans (50 stores scrapped).

As economic conditions deteriorate and the housing market continue to be weak, demand for HD goods will remain low as long as consumers forego non-necessities.

Wikinvest © 2006, 2007, 2008, 2009. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.