The nation’s two largest home improvement retailers continue to struggle during a housing downturn that is taking no prisoners.

This morning, The Home Depot reported a 30.7 percent decline in earnings, to $756 million, for the three months ended Nov. 2. The Atlanta-based retailer’s revenue during that period was off 6.2 percent to $17.8 billion, and sales from stores open at least a year fell 8.3 percent. Through the first nine months of its fiscal year, Depot generated $56.7 billion, a 5 percent decline over the same period a year ago. Its net income for this period plummeted 37.9 percent to $2.31 billion. Same-store sales for the nine months were down 7.1 percent. (The company's profit was impacted by about $225 million by a shift in how it reports its fiscal year.)

Lowe’s Cos., which is Home Depot’s primary rival, didn’t fare much better. The Mooresville, N.C.-based retailer reported yesterday that its net income have dropped for the fifth consecutive quarter. Earnings during latest three months, which ended Oct. 31, fell 24.1 to $643 million on sales of $11.7 billion that were off 1.4 percent. The company’s comparable-store sales were down 5.9 percent for the quarter and 6.5 percent for the first nine months of its fiscal year, during which its total revenue rose marginally to $38.3 billion, and its earnings were down 15.3 percent to $2.03 billion.

Robert Niblock, Lowe’s CEO, stated that his company’s quarterly financial performance benefited from the relatively strong sales of products for maintenance and outdoor living projects. Lowe’s also experienced an uptick in sales from products that went towards post-hurricane reconstruction in the Gulf states. However, Niblock said that consumers, in general, are delaying discretionary spending, especially for bigger-ticket jobs.

Lowe’s opened 39 stores during the quarter, bringing its total to 1,616. It expects to open between 33 and 38 more in the fourth quarter, when it projects that sales will fall within a range of 3 percent down to 2 percent up. It expects its cash flow to be off by 330 basis points during the last three month, and down 190 points for the full year. The company has reduced its full-year forecast for earnings to $1.48 per share, from a previous estimate of $1.56.

Home Depot, which slowed new-store openings this year, ended its latest quarter with 2,268 outlets that include operations in Canada (where it also competes with Lowe’s), Mexico, and China. The company operates 257 stores in those three countries.

Systemwide, Home Depot's customer transactions so far this year were down 3.1 percent, and its average sale per customer was off 2.2 percent to $56.97, although that falloff was probably cushioned by the retailers launch during the quarter of a new lower-price merchandising and marketing campaign.

Frank Blake, Home Depot’s CEO, said during a teleconference this morning that the September decline in the U.S. economy was particularly adverse to Depot's financial well being. During the last six weeks of the quarter, only 15 of the company’s top 40 markets were performing better than a year ago, and most of them only fractionally.

For example, Home Depot’s stores in the once-strong Pacific Northwest reported mid-teen negative comps. Even Canada, which has long been one of Home Depot’s best markets, reported mid-single-digit comp declines. Greg Menear, Depot’s executive vice president of merchandising, noted that big-ticket sales were off generally and pointed to special-order kitchens in particular, which were down 30 percent in the quarter. Menear also noted that while Home Depot captured $125 million in incremental sales from the damage wrought by Hurricanes Gustav and Ike, much of that business was low-margin and offset by added distribution and personnel expenses.

Blake cautioned shareholders that the retailer’s full-year revenue could be down by as much as 8 percent and that earnings per share would be off 24 percent. However, he and other Home Depot executives offered some positive news. The company lowered its inventory-per-store levels by 7.5 percent, and opened its fourth rapid deployment center (RDC) in Winchester, Va. Those RDCs now service 400 stores, and a fifth center will open in the fourth quarter. Menear said that the company enjoyed a 2.7 percentage point gain in quarterly gross margin, and saw six of its 13 product departments increase their market shares.

Home Depot and Lowe’s are hardly alone among retailers feeling the pangs from an economic downturn that is manifesting itself in a significant curtailment in consumer spending. Target, for example, recently announced that it would scale back its store-opening plans for the next five years. The one exception appears to be Wal-Mart, which last week reported an 8 percent increase in quarterly sales and an 9.8 percent gain in earnings. Equally surprising was Wal-Mart’s rosy projection for good holiday sales.

John Caulfield is senior editor at BUILDER magazine.

Learn more about markets featured in this article: Atlanta, GA, Charlotte, NC, Winchester, VA.