Home Depot (HD) Gets Dragged Beneath The Waves

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It was impossible for Home Depot (HD) to post good earnings. It relies too much on the troubled housing industry.

But, its earnings were cut by a huge amount, a signal that home building and upgrading may be much worse than thought and that the downturn in those business could be longer and harder than imagined.

HD said that had fiscal 2008 first quarter net earnings of $356 million, or $0.21 per diluted share, compared with $1.0 billion in the same quarter last year. Revenues for the first quarter totaled $17.9 billion, a 3.4 percent decrease from the first quarter of fiscal 2007.

The big retailer repeated that it would cut stores locations and drop plans for some new stores.

HD is something of a canary in a coal mine. If its is doing so poorly, housing is doing as bad or worse. If housing is not recovering, the rate of mortgage defaults is likely to rise. There will also be a further decreases in consumer spending because home values have fallen so far.

If mortgage issues are still growing, then big banks and brokerages could be facing larger write-downs in securities tied to mortgages.

Home Depot. For want of a nail, the kingdom was lost.

Douglas A. McIntyre