Wednesday, November 14, 2007

Home Depot Conference Call: Bye Bye Buyback

That did not take long. Anyone care to wager the doomed from the beginning share repurchase plan at Home Depot (HD) is not completed next year either?

Aside from suspending the buyback plans, they also said the recapitalization plan under which they planned to buy back $22.5 billion in stock would not be completed this year. Under that plan, the company bought back about 290 million common shares for $10.7 billion earlier this year in a tender offer. Most of those repurchases were done with the proceeds from the Supply sale. In August I joked that HD would end up with a $12 billion plan. It looks like even I was too optimistic.

Do not be fooled into thinking HD will complete this anytime soon. The ingredients necessary for it to happen, improved credit markets, improved business environment and improved business fundamentals are at least a year away. Don't believe me? Blake said it himself on the call "We expect continued difficult conditions for the remainder of 2007 and into 2008." That puts us a 2008 at the earliest before we can even consider more repurchases of anything other than a token amount. I would bet we do not see any additional ones this decade..

How did the sale of Supply end up? Carol Thome said "Earnings for our discontinued operation, HD Supply, were $20 million. Included in this quarter’s results are the net after tax financial results for the month of August, as well as the impact of the sale of HD Supply. After expenses and taxes, we recognized a $4 million loss on the sale of the business."

Regarding the repurchase plan and buyback Thome said "We will move forward when we see improvement in both the home improvement and credit market, which we believe will not occur until some time in 2008."

During the conference call, CEO Frank Blake said they continued to lose overall home improvement market share but at a lower rate compared with the year earlier. Of all the news this is the worse because it means that Home Depot as a company, is doing worse than its competitors.

Home Depot's problems are so deep, it will be bad for a while. If you must invest in this sector, go with Lowe's (LOW).

Read the transcript here:

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