Can Home Depot Raise the Roof Again?

Just how closely does this stock track residential real estate anyway? Or does this lagging member of the Dow need something entirely different -- like better store service -- to fix its problems?

To their credit, Home Depot's executives didn't wallpaper over the giant retailer's results for the quarter that ended April 29. The Depot's bosses admitted that performance was awful and that the rest of the year won't be grand, either. First-quarter sales at U.S. stores open more than a year dropped 7.6% from the same period last year. Gross and net profit margins shrank. The average sales ticket -- that is, what every customer spent on a given trip to the store -- also went down. That's partly because the stuff that did sell briskly -- home appliances -- moved only because of deep discounts.

Shades of Wal-Mart? Looks that way. And there's more. Since 2002, Home Depot (symbol HD) has spent $16.5 billion to buy back shares, to little avail. The stock's annualized total return for the past five years is -2%. There's a lot more here than the failure of ousted CEO Bob Nardelli and the controversy over the $210 million he got to resign. What's a mere $210 million when a slug of corporate capital 80 times greater failed to give long-term stockholders even under-the-mattress returns?

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Jeffrey R. Kosnett
Senior Editor, Kiplinger's Personal Finance
Kosnett is the editor of Kiplinger's Investing for Income and writes the "Cash in Hand" column for Kiplinger's Personal Finance. He is an income-investing expert who covers bonds, real estate investment trusts, oil and gas income deals, dividend stocks and anything else that pays interest and dividends. He joined Kiplinger in 1981 after six years in newspapers, including the Baltimore Sun. He is a 1976 journalism graduate from the Medill School at Northwestern University and completed an executive program at the Carnegie-Mellon University business school in 1978.