Home Depot (HD) to Exit EXPO Business; Cutting 7,000 Jobs; Reaffirms FY08 Outlook
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The Home Depot (NYSE: HD) today announced it will exit its EXPO business. The Company is also taking steps to streamline its support functions. These decisions will impact 7,000 associates, or approximately 2% of the Company's total workforce. Finally, the Company today reaffirmed its previous guidance on EPS for FY08, excluding the charge associated with the actions announced today and the store rationalization charge recognized earlier in the year.
The Company also announced that it is restructuring support functions to better align the Company's cost structure with the current economic environment. This includes continuing its shift to a region- and district- based support model in various field functions and reducing headcount in administrative functions in the Company's store support centers. These support reductions will impact approximately 2,000 associates and will result in a 10% reduction in the Company's officer ranks. They will not impact any customer-facing positions in Home Depot stores.
The Company is also initiating a salary freeze among all officers. But, it will continue to offer merit increases to non-officer associates, as well as earned bonuses and the Company's existing 401k matching contribution for all associates, including officers. The Company will offer severance, earned bonuses and other benefits to all impacted associates.
The Company anticipates taking a total pre-tax charge due to these actions of approximately $532 million, of which approximately $390 million will be recognized in the fourth quarter and the remaining $142 million will be recognized in 2009 and beyond. The charge consists primarily of fixed asset write-offs, lease reserves on closed stores, severance and store closing costs. The cash component related to severance and store closing costs is projected to be approximately $153 million over the next twelve months, and is expected to be offset by cash received for liquidated inventory.
These actions should benefit FY09 earnings before interest and tax by approximately $305 million. The benefit to earnings is primarily a result of payroll savings and operational improvements from the business exit.
The Company announced that it will take two charges in Q4 related to its sale of HD Supply in 2007 and its ongoing equity interest in that business. First, it will record a charge of approximately $55 million, net of tax, to be reflected in discontinued operations primarily related to the working capital dispute related to the sale of the business. The cash component of the HD Supply charge is $22 million. Second, it will record a pre-tax charge of $163 million that will be reflected in other expense for a write-down of the Company's investment in HD Supply.
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