Home Depot Slows Down Expansion; Still Losing Customers to Lowes

Home Depot (HD) announced it will no longer pursue the opening of about 50 U.S. stores it was planning. New store capital spending will be reduced by approximately $1 billion over the next three years. Total capital spending for the current fiscal year is projected to be about $2.3 billion, down from $3.6 billion last year. Also announced were the closing of 15 underperforming U.S. stores that do not meet the Company's targeted returns.

Home Depot reiterated that its earnings per share from continuing operations are expected to decline by 19-24% for fiscal 2008. This comes on the heels of the announcement last month of it was getting rid of the "HR Manager" position at each store in favor of a more regional model.

Home Depot needed to do this and, like the HR move, one has to wonder what took so long? For years Home Depot has needed to invest more capital in its dingy locations as it has been consistently losing market share in almost every sales category to the cleaner, brighter Lowe's (LOW) chain.

The savings from these closings ought to go directly into store remodels. If they don't, while HD will see an improvement when the economy improves, it will pale in comparison to what investors in Lowe's will see. The desertion of shoppers from HD to Lowe's will not change just because the housing market does. It will only change when HD gives them a reason to go back.


Disclosure: No position.