Analyst: Home Depot margins to expand

Atlanta An analyst wrote in a client note late Thursday that Home Depot is simplifying and streamlining its business and is using capital more efficiently to drive better returns.

Stifel Nicolaus & Co. analyst David Schick wrote that the retailer is poised to grow its gross margins due to re-merchandising and marketing initiatives. Schick said he met with several members of the company's management team who spoke about the company's efforts to improve business.

Home Depot has suffered as consumers cut back on big-ticket purchases amid the recession. But Schick said the company indicated more consumers are changing focus to do-it-yourself projects -- meaning there's a shift to smaller ticket items from big ones -- but "traffic has been relatively stable given some of the discretionary spending numbers reported."

He said it was difficult to see the results of the company's efforts given the tough economic climate, but he believes the company is making progress and is poised to have higher margins in the long term.