The Home Depot Inc., which recently reported its first annual sales decline, will shutter 15 underperforming U.S. stores, eliminating 1,300 jobs, and will cut back on store expansion plans.
The Atlanta-based home improvement retailer said the moves will cost it $586 million in charges, $547 million of which will be recognized in the first quarter of fiscal 2008. It hopes the revised expansion plan and store closures will improve free cash flow, provide stronger returns for the company and allow it to invest in existing stores.
Home Depot (NYSE: HD) will shutter stores in Fort Wayne, Ind.; Marion, Ind.; Frankfort, Ky.; Opelousas, La.; Cottage Grove, Minn.; East Brunswick, N.J.; Saddle Brook, N.J.; Rome, N.Y.; Bismarck, N.D.; Findlay, Ohio; Lima, Ohio; Brattleboro, Vt.; Beaver Dam, Wis.; Fond du Lac, Wis.; and Milwaukee, Wis.
The closing stores represent less than 1 percent of the company’s existing store portfolio, but will impact some 1,300 employees. The closings will cost Home Depot a $186 million charge, which includes $11 million in inventory markdowns and $8 million in severance.
For the current fiscal year, Home Depot said it plans to open 55 new stores, including 36 new stores in the United States. Starting in the 2009 fiscal year, Home Depot plans to grow square footage by about 1.5 percent per year.
However, the company will no longer open 50 U.S. stores that have been in its new store pipeline, in some cases for more than 10 years. Home Depot will record a charge of $400 million related to capitalized development costs and ongoing obligations associated with those future store locations.
“Closing a store is always a difficult decision because it affects both our people and our communities,” said Frank Blake, Home Depot chairman and CEO. “But, as with our decision to slow future store growth, this is the right decision and will bring long-term benefits to our associates and to our shareholders. We put our real estate projects through a tight capital efficiency model. This model prioritizes locations that make the most efficient use of capital, reduce cannibalization and drive higher returns. By building fewer stores, in the best locations, and making sure our existing stores are profitable, our company will be in a much stronger competitive position.”
Aggregate new store capital spending will be slashed by about $1 billion over the next three years.
“This is a continuation of our disciplined approach to capital allocation that we outlined last year,” Blake said. “We will invest in our core retail business, in this case our existing stores, which drive our most profitable sales. Our capital efficiency model will also provide improved returns for our shareholders through dividends and share repurchases.”
Home Depot said its total capital spending for the current fiscal year is still projected to be about $2.3 billion, down from $3.6 billion last year.
The weak housing market gave Home Depot its first annual sales decline and lowered profit by about 24 percent in 2007. It posted net income of $4.4 billion on $77.3 billion in sales in 2007, compared with net income of $5.8 billion on $79 billion in sales in 2006.
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