Home Depot to cut 7,000 jobs

January 26, 2009 10:04:02 AM PST
Home Depot Inc. plans to eliminate 7,000 jobs while shutting down its smaller home improvement brands as the recession continues to batter the nation's housing market. Its shares climbed more than 5 percent in morning trading. The nation's biggest home improvement retailer said Monday the cuts will affect about 2 percent of its 300,000 workers and cause the Atlanta-based chain to record a $532 million pretax charge, mostly in the current fourth quarter, which ends Feb. 1.

Most of the cuts affect workers at Expo Design Centers, YardBIRDS, Design Centers and HD Bath, a bath remodeling business. Combined, the four operate about four dozen locations.

Those chains' stores will close in the next two months. Liquidation sales are set to begin Tuesday morning, executives said.

Home Depot said Expo, a high-end retailer that sells everything from throw pillows, sconces and appliances to stylish bathroom remodels and upscale kitchen makeovers, never performed well financially.

"Even during the housing boom, Expo never reached our financial goals," Chairman and Chief Executive Frank Blake said during a conference call with investors. "During the current downturn, particularly with the significant pressure on high-end decor products and services, Expo's financial performance has further deteriorated. In looking forward we don't see, even with fairly optimistic assumptions, any likelihood that Expo would generate adequate financial returns."

No Home Depot stores are affected.

Chief Financial Officer Carol Tome said the company is finalizing its 2009 outlook and doesn't expect to close any Home Depot stores or make further job cuts during the year.

"In that plan, we see no need to close any of our core stores," she said. "We believed we right-sized the company for the size of the biz we had."

Home Depot's announcement came as the National Association of Realtors said sales of existing homes posted an unexpected increase last month. The better-than-expected results showed sales of existing homes rose 6.5 percent to an annual rate of 4.74 million in December, from a downwardly revised pace of 4.45 million in November.

Buyers were taking advantage of dramatically lower prices, especially in distressed markets like much of California, Florida and Nevada, where foreclosures have swamped the market.

Home Depot's plans also include 2,000 cuts to non-store jobs, including 500 workers in its corporate headquarters, while freezing the pay of its officers.

Home Depot said it would record an additional $163 million in pretax fourth-quarter charges along with a $55 million post-tax charge related to the 2007 sales of HD Supply.

Stifel Nicolaus analyst David Schick told investors in a research note Monday that he was maintaining his "buy" rating on Home Depot.

"We see the announcements as largely positive," he wrote in a research note, adding that the Expo Design Centers would likely remain unprofitable for at least the next five years. "It is incongruous for (Home Depot) to run that business in the hope of long-term growth while trimming and optimizing the core business."

The retailer also updated its 2008 guidance, saying it expects sales to fall 8 percent for the year while profit tumbles 24 percent when it releases fourth-quarter and full-year results on Feb. 24. Neither figures take into account the charges announced Monday.

Analysts expect the company to earn 16 cents per share on revenue of $14.8 billion for the fourth quarter, while earning $1.73 per share on $71.5 billion for the full year. In 2007, Home Depot earned $4.4 billion, or $2.37 per share, on revenue of $77.35.

The chain said it expects sluggish sales to continue into 2009 and plans to reduce capital spending by about $1 billion. It will open 12 stores in 2009 but hasn't provided further sales or earnings guidance.

Home Depot shares climbed $1.13, or 5.2 percent, to $22.85 in midday trading Monday.

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