Home Depot Tone Deaf Merchandising Margins

Home Depot (HD) announced Q4 and year end numbers. To no one’s surprise the numbers were difficult. 2009 guidance did not offer an encouragement. They are forecasting further sales declines, which most observers will agree is astute.

But the interesting bet was that gross margins would be flat to slight expansion. Given that your average piece of lumber is a commodity that is quite the assumption. You have several large retailers fighting it out in this space and it is hard to see how margins will stay the same or improve when revenues are dropping.

Home Depot does not speak to a merchandising mix; so my criticism is much the same as my Lowes (LOW) post a few days ago. Home Depot despite its stature as a Dow Jones 30 Index bell weather stock thinks in monolithic market coverage terms. They follow metrics such as stores, square footage, locations and even countries that they are expanding into. No one is thinking what will drive customer traffic into the stores. The demand driver is passive acceptance.

True merchants think their way through their product offerings and are margin oriented. Frank Blake, Chairman & CEO. as well as the board of Home Depot seem to be tone deaf on this critical metric.