Tuesday, November 17, 2009

Home Depot & Lowes -- When Will Desperation Hit?

Home Depot (HD) and Lowes (LOW) all announced much weaker revenues. Home Depot is down 8% and Lowes is down 29.5%. Both are cutting costs and probably doing everything imaginable to salvage the situation. Economic headwinds continue at gale force levels. They will soon realize they have more capacity than they need. The super store size may not sustain the economic models they are used to working with.

Being retailers and merchants they will look to other product lines to fill their stores and feed their investors. This will entail stepping out into product lines that they are not familiar with. Watch for new hires from non traditional product groups. Watch for investments, joint ventures and other forms of partnership with non traditional product groups. Watch for financial shrapnel in the commercial real estate space as stores go dark and leases are exited. Any technicality will do.

Hey I know if a mortgage defaults with Home Depot or Lowes as the lease let the tenant buy out the mortgage, own the site and then bring in competing retail product to threaten the retail site immediately adjacent. Sounds like a vulture capital opportunity to me. So buckle up it will be nasty.