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Housing Slump Has Ripple Effect

[Aug 24, 2007.]


More evidence is emerging that the current housing slump is having a ripple effect across the nation's economic spectrum. Home Depot, the company that's earned a reputation as a handyman's best friend, is the latest entity to fall victim to falling housing prices.

Home Depot has recorded a nearly 15% drop in its 2nd quarter profit margin. Company officials have said that the retail chain is cutting by nearly half its plan to repurchase up to $22.5 billion in company stock if a deal involving its HD Supply unit collapses. However, any reduction in the stock repurchase proposal remains subject to board approval. Home Depot intends to close the sale of HD Supply by the end of 2007.

For a period of three months ending in July, the company earned $1.59 billion, or 81 cents per share. That's compared to $1.86 billion, or 90 cents a share, during the same period last year. Meanwhile, its store sales dropped 5.2% during the 2nd quarter of 2007. A company official conceded that this is a difficult time for Home Depot; however, Home Depot apparently is not losing market share as quickly as it has previously.

The retail chain runs 2,200 stores in North America and China and is considered to be a force to be reckoned with in the home improvement industry. Company executives expect additional grim financial news in the immediate future. Earnings per share from continuing operations are expected to drop 12% to 15% for fiscal year 2007, while consolidated earnings per share are expected to drop 15% to 18% for fiscal year 2007.

Because of difficulties in the housing market, fewer people may be in the market for housing-related products. Therefore, the troubles in real estate appear to be having a direct impact on Home Depot's profit margin. The U.S. housing market is not expected to recover until sometime in 2008.

Julie Ann Amos
August 24th 2007

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