By Michael Rudnick
ATLANTA–Major appliances were a bright spot for The Home Depot during an otherwise difficult third quarter.
"In a shrinking appliance market, we continue to gain share this quarter building on gains that we've seen for the past few years," said Craig Menear, The Home Depot's executive vice president of merchandising, during the company's third-quarter earnings call. The retailer achieved a 12.4 percent unit market share in the category for the quarter, compared with 10.7 percent in the year-ago period and 11.7 percent in the second quarter of 2007.
The premium white goods segment was a strong sales driver within the category for The Home Depot. "Customers continue to be pleased with the innovation, style and design we are offering in appliances and products like the GE Cafe and LG Kitchen series--both high-end suites of kitchen appliances," Menear said. GE launched its new mass premium restaurant-inspired Cafe series earlier this year and LG completed its kitchen offering this year, as earlier reported by HFN.
The kitchen department at The Home Depot was the only area of the store that saw positive sales growth for the quarter, which was driven by appliances, Menear said. Overall sales fell 3.5 percent to $18.9 billion from $19.6 billion on a 6.2 percent same-store sales decline for the third quarter that ended Oct. 28.
The major appliances uptick had something of a negative impact on the retailer's bottom line. "We gave up roughly 54 basis points of margin due to a higher penetration of lower-margin products like appliances," said Carol Tome, executive vice president and chief financial officer, during the earnings call. The Home Depot's net income for the third quarter dropped to $1.09 billion, or 60 cents a share, from $1.49 billion, or 73 cents, in the prior-year period.
Home Depot's overall sales picture going forward is not quite as bright as that forecasted for major appliances. The company expects continued softness in the housing and credit markets, and officials said the company will hold off on its recapitalization plan until the credit market loosens up a bit. The Home Depot has completed about half of the $22.5 billion recapitalization it announced in June.
The retailer scaled back its forecast for the year. "It turns out, we weren't pessimistic enough," Chief Executive Officer Frank Blake told financial analysts in a conference call last week, stating that Home Depot now expects to post negative comparable-store sales of 6 to 7 percent for the year, and an overall decline of 11 percent in profit from continuing operations from last year. In September, it targeted a 7 percent to 9 percent profit decline.
"We are facing a tough environment as housing indicators continue to deteriorate," Blake said in a statement.
The Home Depot, in anticipation of the economic cooldown that is occurring now, late last year kicked off an initiative to remerchandise stores and reset displays. As part of the initiative the retailer added appliance mezzanines to select locations increasing selling space for the category. One analyst who could not be identified asked during the third-quarter call if The Home Depot was gaining appliance share via the addition of these mezzanines. An unidentifiable company official responded by saying that it has helped to boost share, but noted that it is a very limited initiative that is not anticipated to grow much more.
