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No Improvement for Home Depot, Lowe's


Economic downturn knocks a hole in hardware sales.

The slumping housing market continues to take a bite out of home improvement - and there's no immediate relief in sight.

Consumers are pressed by high gasoline and food prices, leaving less cash to upgrade the kitchen or bathroom.

Home Depot (HD) and Lowe's (LOW) have already taken a hit.

Home Depot, the sector leader, said second-quarter 2008 sales fell to $21 billion, a 5.4% decline from the same quarter a year ago. Comparable store sales declined 7.9%, but were offset in part by sales from new stores.

Home Depot's net earnings fell to $1.2 billion, or $0.71 per share, compared with $1.6 billion, or $0.81, for the same period a year ago.

Lowe's, Home Depot's chief rival and the number-2 home improvement chain, said second quarter earnings fell 7.9%.

Lowe's said comparable stores sales in the second quarter fell 5.3%, but ringing cash registers at new stores boosted overall sales about 2.1%, to $14.5 billion from $14.2 billion. However, earnings per share fell about 4.7%, to $0.64 from $0.67.

The outlook won't improve in the fall and winter, typically slow seasons for the home improvement business.

Most analysts don't see a sector turn around until 2009 at the earliest; some believe the home improvement market will remain slack until 2010.

Both retailers launched new promotions, but backed away. The move is almost certain to reduce sales in the short-term, but the cost of the promotions made the sales of little long-term value to the retailers.

Home Depot had cut carpet instillation for an entire house to $99 from $199. It also waived interest payments for as much as a year on purchases of at least $299 on its proprietary credit card. Neither promotion goosed sales.

Lowe's boosted the price of its whole-house carpet instillation by $50 to $249 after the promotion cut into profits in the first and second quarters.

"We continue to see pressure on our market and the consumer generally," Frank Blake, Home Depot's CEO, said in a prepared statement.

Robert A. Niblock, Lowe's CEO, offered a similar downbeat view.

"Our sales results for the quarter, while better than our forecast, reflect the realities of the continuing macro economic pressures on our industry...We believe our second quarter sales benefited from the economic impact of the fiscal stimulus ax rebates. Unfortunately, weakness in bigger ticket projects continues, particularly in markets most impacted by the housing downturn."

That would be California and Florida.

However, economic strife is no match for Wal-Mart (WMT). The world's largest retailer reported increased second quarter sales thanks to price cuts and an assist from tax rebate checks.

The forecast for home improvement sector: No immediate miracles.

Lowe's expects total sales to increase about 1% in 2008, despite opening about 120 new stores. Home Depot expects 2008 sales to decline about 5% and earnings to drop about 24%.
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