ATLANTA (Reuters) - Retailer Home Depot Inc (HD.N), which has been battered by the slumping housing market, on Thursday said it plans to close 15 underperforming U.S. stores and will curb future openings, sending its shares up more than 5 percent.
The home improvement industry leader said it will scrap plans to open about 50 U.S. stores that had been in its new-store pipeline. New-store spending will be cut by about $1 billion over the next three years.
“We applaud these moves, given an industry we believe is nearing saturation, with a scarcity of attractive new locations,” Standard & Poor’s Equity analyst Michael Souers said in a research note.
Others called Home Depot’s strategy a prudent way to conserve cash in the tough U.S. economy.
“Demand will remain somewhat depressed for the next several years, especially in the U.S.,” said Zahid Siddique, a building products analyst with Gabelli & Co. “I don’t think there’s really any incremental benefit from opening these new stores.”
Home Depot expects a charge of about $586 million tied to the store closures and new-store pullback, with about $547 million pretax to be recognized in its first quarter. Excluding this charge, the company reiterated that per-share profit is still expected to fall as much as 24 percent for the year.
Many retailers are slowing store growth and cutting capital spending as recession worries and higher prices for gasoline and food lead consumers to halt spending. On Wednesday, Starbucks Corp (SBUX.O) said it would slash its U.S. coffee-store openings through 2011.
The crumbling U.S. housing market has compounded troubles for Home Depot and smaller rival Lowe’s Cos (LOW.N), which have both posted weaker profits as falling home values, slower sales and tighter credit curbed demand for big-ticket renovations.
Atlanta-based Home Depot has stepped up investments to upgrade existing stores and hire more trade specialists under Frank Blake, who took over as chief executive when Robert Nardelli resigned under criticism in early 2007. The retailer sold its HD Supply wholesale distribution business last year to focus on improving store performance.
Home Depot is also fighting to win back market share as Lowe’s challenges its dominance by expanding to bigger U.S. cities and Canada.
“We will invest in our core retail business, in this case our existing stores, which drive our most profitable sales,” Blake said in a statement.
The retailer said it still plans to open 55 new stores this year, down from about 100 opened in 2007. It also reiterated that capital spending would be $2.3 billion this year, down from $3.6 billion last year.
The stores to be closed account for less than 1 percent of Home Depot’s existing store count of more than 2,200.
The 15 store closures will affect 1,300 workers, many of whom are expected to be offered posts at other locations. The stores to be closed are in Wisconsin, Ohio, New Jersey, Indiana, Kentucky, Louisiana, Minnesota, New York, North Dakota and Vermont.
“Don’t be surprised if Home Depot continues on this path of closing underperforming stores,” Siddique said.
Home Depot’s shares gained $1.49, or 5.2 percent, to $30.29 in afternoon trading on the New York Stock Exchange. Lowe’s was up $1.77, or 7 percent, to $26.96.
Reporting by Karen Jacobs; Editing by Brian Moss