• by Sarah Mahoney  @mahoney_sarah, January 26, 2009

Battered by the ongoing malaise in real estate, The Home Depot says it is bailing out of the Expo business, and will lay off 2% of its workforce as a result. While this and other restructuring moves will put another 7,000 employees out of work, some observers believe the decision will ultimately strengthen the Atlanta-based retailer as it fights its way through the recession. 

"The choice to exit the Expo market was an obvious one," says Jaison Blair, an analyst who covers Home Depot for Rochdale Securities, Stamford, Conn., which has a "buy" rating on the stock. "It has not been performing well, and I don't think it's core to the company's strategy." Blair says he sees the decision as further evidence that "the company is resolving the life-cycle crisis it's been going through for the last several years."

Expo has not been a strong business, "even during the recent housing boom," the company concedes in its release. "It has weakened significantly as the demand for big ticket design and decor projects has declined in the current economic environment. Continuing this business would divert focus and resources from the Company's core "orange box" stores."

In addition to shuttering 34 Expo Design Center stores, the company will close two Design Center stores, HDBath, its bath remodeling business, and five YardBIRDS stores--resulting in 5,000 lost jobs. And the company says it is eliminating another 2,000 associates in support functions, as well as issuing a salary freeze on all officers.

The company, which also confirmed that it expects fiscal 2008 sales to fall 8%, says it expects "continued weakness in sales related to the broader economic downturn," and is reducing its capital-spending budget to $1 billion in the coming fiscal year, opening just 12 new stores.

Blair says the company is continuing its test of smaller-format stores, "which is a more efficient model for them." He also points out that while two of the three important drivers of the company's business--housing turnover and new construction--continue to be weak, "there's still ongoing spending on home maintenance, which is actually a pretty defensive business. People may not go on vacation, but they will build a new deck. People are still going to mow their lawns."