Home Depot Beats Street Estimates

Posted on November 18th, 2008 in Daily Stock Market / Economic News - The Real Story, Mr Mortgage's Personal Opinions/Research

I have been watching HD for a while now thinking about adding this issue long in my retirement account believe it or not.  Before you say I am crazy, remember that most of those foreclosed homes that now make more than 50% of all sales in the bubble states need a good amount of repair before the new owner moves in or rents the home.

You should see what owners do before they leave. A few things I have seen is a) concrete flushed down the toilets b) dead racoons sheetrocked behind the walls c) all appliances, countertops and lighting fixtures removed d) all electrical and plumbing systems removed e) all windows removed.

This stuff can be high ticket and even though home sales are far lower in number than during the bubble years, the number of properties sold that need repair may be much greater.

The only thing I have yet to get my arms around is their credit exposure. They do a lot of financing and many who used credit to finance home improvement projects over the past few years will not feel like paying that debt given their home price is down 50%. If they lose their home to foreclosure, the same goes. While HD will have a ton of new business due to the foreclosure crisis, they may still have dues to pay due to past business. -Best Mr Mortgage

Home Depot Profit Falls But Beats Wall St View

* Q3 EPS of 45 cents vs. 39-cent estimate

* Stands by full-year profit forecast

* Steeper drop in full-year sales expected

* Stock rises 3 percent premarket (Adds analyst comment, byline)

Source: Reuters 10-18

6 Responses to “Home Depot Beats Street Estimates”

  1. I can understand the stripping of appliances, lighting, etc. as they may have some value (real or perceived) to the former occupants.

    But, at the risk of sounding naive, are there many people sheetrocking racoon corpses or otherwise trashing the “systems” part of the house?

    While I know there are some bitter people out there, given the amount of effort some of the described sabotage takes and the level of feeling that effort implies, I’d have thought we’d have seen bigger protests to all these non-bailouts from the (as one poster here calls ’em) “sheeple.”

    Any additional thoughts?

    MM, FWIW, I hear that HD (and Lowe’s, for that matter) have really tightened up their own financing programs (which were at one time–may no longer be–outsourced) up here in the SF Bay Area.

  2. MM, I understand your logic and it makes sense to me as well. But, HD had geared-up for massive growth in the remodel business over the last 5 years and now they are very likely to have way too much capacity. Even with all the REO’s needing some rehab. I’ve been in a number of REO’s lately, and they have not spent much of anything on them. So it may be the investors or new owners that will need to spend. But it a recession economy, how much are they willing to drop on a house?

    I used to rehab REO’s in the early 1980’s and I rememeber that most were not terrible. But the dead animals and trashed bathrooms and kitchens do stand-out in my mind. But that was maybe 25% of them.

  3. I appraise or used to appraise homes for a living and can tell you that most of the “trashed” REO’s come from the lower socio-economic areas and those in middle to upper class areas are usually just locked up and lights turned off before the banks take them. There is another problem you failed to mention…that is where vandals steal the copper, appliances, and HVAC systems for resale. This has been HUGE in Atlanta and with the economic cricis worsening with mounting job losses, look for this to spread to a town near you. Note-heard on the radio recently that shoplifting has increased dramatically….at GROCERY stores. That is a tell tell sigh of what is coming down the pike. Stay safe all…..and I would suggest investing in a large breed of dog like a German Shepherd od Rotweiller.

  4. This is a tough one – at least as far as dedicating retirement funds. Ah, ‘retirement’. I wonder just how many of us are going to ‘retire’ as opposed to being retired…

    Oh well.

    Something tells me that ‘big box’ is going to undergo a transformation (‘down-sizing’ perhaps?), into smaller boxes…

    I think it’s important to keep in mind the transformation we’re going through right now. It’s a bit fast and large to digest when you’re in the middle of it. Given time to settle in however (say about by tax time next year), most will come to the realization that this ain’t no ordinary downturn with the usual, predictable results as in times past. I’m just waiting for the new fashions to come out with ankle-length dresses as the ‘nuvoux’ trend…

    Recessions (Depressions) have a way of localizing. Very much the antithesis of ‘Corporatizing’ if that makes sense.

    Big & impersonal – in times of economic and subsequent social upheaval, have a way of reverting to the quaint & personal. Mom & Pop. Country story, etc.

    Now M.M.’s got a valid point in that these distressed properties will need fixing up, no doubt. But whether or not that’s going underpin HD’s raison d’etre is another matter. They didn’t erect these 100k’ buildings as primary providers of here & there home fixer-uppers. Home Depot was a poster-child for the borrow & spend (phony as Schiff would say) economy that is now crumbling under our feet.

    To keep the lights on and make the payroll at a Home Depot requires fuel that only huge residential (and commercial) build-outs can provide. Aren’t we about done building out?

    Am I wrong? We’ll see.

    Peace –

    C.C.

  5. When you talk about Home Depots credit exposure, are you talking about their consumer credit card?

  6. There are 18 home depots within 50 miles of my house, not couting the Lowes etc. I don’t know if HD will survive (this many stores cannot) but it’s way to early to make a bet on thier stock going up. Just my opinion.

    RG

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