Home Depot Optimistic Amidst Foreclosed Homes for Sales

Home Depot Inc., considered the world’s biggest home-improvement retailer, provided a more optimistic profit forecast at a meeting of financial analysts this week, despite the continuing effects of foreclosed homes for sales.

The company said that it now expects its annual earnings per share to fall by only 20 to 26 percent compared to the previous fiscal year. In May, Home Depot expected its earnings per share to fall by 26 percent to approximately $1.32 per share.

Recently, financial analysts interviewed by Thomson Reuters expected Home Depot’s earnings per share decline to be $1.40.

The company also hopes that a home improvement market correction will help it to reach its long-term operating profit margin target of around 10 percent.

Despite the company’s optimism, Home Depot is still concerned about the pace and density of foreclosed homes for sales, according to Carol Tome, the retailer’s chief financial officer. She pointed out the reality that about 26 percent of Home Depot outlets are in seven states hit by the accelerated pace of foreclosed homes for sales in the first quarter of this year.

Tome also added that Home Depot’s same-store sales levels in states where the pace of foreclosed homes for sales slowed down ranged from flat to slightly above average sales in the first quarter. She also said that the signals they are seeing in relation to foreclosed homes for sale are mixed.

Along with other retailers selling home improvement products, Home Depot has been struggling with declining sales as homeowners delay their purchases of new home appliances and their home repair and improvement projects to cope with the economic downturn.

To increase sales, Home Depot has implemented further customer service improvements and has launched in-store workshops to cater to do-it-yourself customers. Recently, it held an earthquake preparedness workshop in its California outlets.

Home Depot hopes that these initiatives and the expected home improvement market correction will enable it to reach its profitability target. Analysts contend that the amount of time to reach the target is crucial for the company.

Barclays Capital analyst Michael Lasser said that the most significant variable driving Home Depot’s margin is its leverage from strong comps.

Comps refer to same-store sale comparisons and can help analysts determine the sales performance of a company’s brand and the contribution of stores to overall company revenues.

With Home Depot’s shares recently down by 0.21 percent at $24.29, the retailer is hopeful it can survive the effects of foreclosed homes for sales.

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