The Home Depot is extricating itself from the last vestiges of retail diversification in its portfolio of stores. The company announced on Monday that it would close its remaining 34 Expo Design Centers over the next two months. It is shutting two female-friendly hybrid stores, called THD Design Centers, in North Carolina and California; and a seven-branch bath remodeling and installation business known as HD Bath. And the company will close five contractor-oriented Yardbirds outlets in California that it purchased in late 2005.

There are currently 13 EXPOs in Arizona, five in Florida, three in New York, two each in Georgia , Illinois, Maryland, and New Jersey; and one each in Massachusetts, Missouri, Tennessee, Texas, and Virginia.

The warehouse home-improvement giant launched its EXPO concept in 1991 when it converted one-third of a 113,000-square-foot home center in San Diego to a display area of vignettes for kitchens, baths, flooring, windows, and doors. EXPO's store count eventually grew to 50 units, and at one point Depot officials boasted about their plans to have at least 200 stand-alone Expo design centers opened throughout the U.S. and Canada by 2005. But the concept itself was plagued by inconsistent merchandise assortments, erratic pricing strategies, high-overhead services, and revolving-door corporate management that sometimes seemed to leave the division orphaned.

In the past, The Home Depot never reported EXPO's sales or operating income, leaving competitors to question if it ever made money out of those stores. In a teleconference with analysts this morning, the retailer's chairman and CEO Frank Blake admitted that EXPO "never reached our financial goals." Even during the recent housing boom EXPO "was not a strong business," according to the company's statement. "The EXPO business has not performed well financially and is not expected to anytime soon." Carol Tome, Depot's CFO, said that the EXPO and other specialty stores being closed incurred a $50 million operating loss on $950 million in revenue in 2008 and were projected to lose another $80 million in 2009 if left opened. Tome added that year-to-year sales declines at some EXPOs had exceeded 30%.

In response to one analyst's question about what, if anything, from EXPO would remain in Home Depot's core stores, Blake said that the warehouses might end up taking on new home-décor vendors, but it is unlikely that they would offer the same level of installation services that EXPO touted.

The closing of EXPO, HD Bath, and Yardbirds will affect 5,000 of Depot's employees. The company is also cutting 2,000 management-level positions in an effort to streamline its continuing operations. All told, the company is reducing its total workforce by 2%, which includes thinning its officer ranks by between 12 and 15 people, or by 10%. Officers' salaries have been frozen. The company stated, however, that the personnel cuts do not include any "customer-facing" associates.

To account for the costs related to these closings and cutbacks, The Home Depot expects to take a pretax charge totaling $532 million, of which $390 million will be recognized in the fourth quarter of fiscal 2008, which concludes at the end of this month. Those charges break down this way: $379 million in fixed-asset writedowns, $80 million in severance, $53 million in closing costs, and $20 million in inventory liquidations. Tome told one analyst that the company's projected disposal timeframe for selling real estate of the discontinued businesses is 28 months. (Depot owns 10 of the 34 EXPOs and the two THD Design Centers; it leases the other stores it's closing.)

Depot projects that its staff and store reductions will produce $305 million in cash flow. And it is removing $225 million in costs by cutting personnel from continuing operations.

The Home Depot is also taking charges related to its August 2007 sale of HD Supply, in which the retailer retained a 12.5% equity stake. It will record a charge of $55 million, net of tax, to defray a cash settlement related to the working capital dispute with other equity partners. The cash component of the HD Supply charge is $22 million. Second, The Home Depot is also writing down the value of its investment in HD Supply by $163 million.

The company says that its guidance for fiscal 2008 — that sales would be off around 8% and earnings per share down 24% — is still on track. It also stated that it would reduce capital expenditures to about $1 billion in fiscal 2009, from $1.8 billion in 2008. A good chunk of that reduction will come from its investment in new stores, which in 2009 will be about one-quarter of what Depot spent in 2008. The company intends to open a dozen stores this year.

John Caulfield is a senior editor with BUILDER magazine.

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