Now Home Depot (HD) Slowing Down Expansion

1 May 8:58am
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Just a day after Starbucks (SBUX)announced plans to curb growth, Home Depot (HD) finally follows suit.

Home Depot announced it will no longer pursue the opening of about 50 U.S. stores that have been in planning. New store capital spending will be reduced by approximately $1 billion over the next three years. Total capital spending for the current fiscal year is projected to be about $2.3 billion, down from $3.6 billion last year. Also announced were the closing of 15 underperforming U.S. stores that do not meet the Company's targeted returns.

Home Depot reiterated that its earnings per share from continuing operations are expected to decline by 19-24% for fiscal 2008.

This comes on the heals of the announcement last month of it was getting rid of the "HR Manager" position at each store in favor of a more regional model.

Home Depot needed to do this and like the HR move, one has to wonder "what took so long?". For years Home Depot has needed to invest more capital in its dingy locations as it has been consistently losing market share in almost every sales category to the cleaner, brighter Lowe's (LOW) chain.

The savings from these closing ought to go directly into store remodels. If they don't, while HD will see an improvement when the economy improves, it will pale in comparison to what investors in Lowe's will see. The desertion of shoppers from HD to Lowe's will not change just because the housing market does. It will only change when HD gives them a reason to go back.


Disclosure ("none" means no position):None

Todd Sullivan's- ValuePlays

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ToddSullivan

A Massachusetts based value investor, I look for companies whose current valuation is at a discount to their true value. When I purchase a stock, my typical holding period is several years. I consider buying a stock purchasing a piece of a business. I am confident once I make a decision to buy that eventually the market as a whole will recognize the true value of the business and value it accordingly. It may take 1 month, 6 months or a year, but if I buy it at enough of a discount to its true value my results will be (and have been) superior to the market as a whole. Of all the disparate investing disciplines, value investing has stood the test of time. The great investors of have all been value investors. Warren Buffett, Ben Graham, Bill Ruane (Sequoia Fund), Bill Miller and Wally Weitz, all have consistently outperformed the market for decades by using various forms of value investing. Currently I am a contributing writer to Seeking Alpha, Vinvesting.com, The Stock Masters and Value Investing News. Posts have been reprinted in The Wall St. Journal, Yahoo Finance, Google Alerts, Google Finance, TheStreet.com. 24/7 Wall St. and Topix.net.