Slide1: Mena Boyadzhiev, Alex Hirschhorn, Shen Li, and Haley Zernich


Industry Overview: Industry Overview U.S. Home Improvement Retail Industry Focuses on the sale of equipment and supplies for various forms of small and individual construction projects, especially home improvement. Overall market size in 2000 was about $200 billion. Customers : Do-It-Yourself (D-I-Y) Buy-It-Yourself (B-I-Y) Professional Costumers (Business to Business Sales)


Home Depot Overview: Home Depot Overview World’s largest home improvement retailer Second largest retailer in the US in 2000 1103 Home Depot Stores 26 EXPO Design Center 4 Villager’s Hardware Test Store Lighting and plumbing subsidiaries Products Group Building Materials, Lumber and Millwork (24.7%) Plumbing, Electrical and Kitchen (26.6%) Hardware and Seasonal (28.5%) Paint, Flooring and Wall Coverings (20.2%)


Home Depot Overview: Home Depot Overview Operating Strategy: Broad assortment of high-quality merchandise and services at competitive prices using highly service-oriented personnel and aggressive advertising. Year 2000 Income Statement: Net Sales: 38.4 billion Gross Profit: 11.4 billion Net Earnings: 2.3 billion


Case Overview: Case Overview Nearly two decades of spectacular performance Reported a below expectations 3Q & 4Q performance in 2000 Stock price experienced its largest one-day drop


Case Overview: Case Overview Is it a temporary slip or has Home Depot reached the limit of sustainability? Internal Financial Performance External Macroeconomic Concerns


Financial Analysis: Financial Analysis Good cost control History of strong sales Strong market presence Projections of continued strong sales growth at a slower rate


Financial Analysis: Financial Analysis


Financial Analysis: Financial Analysis


Financial Analysis: Financial Analysis


Competition: Competition LOWE’S (No.2 in Market) Recent increase in market share and sales Differences: Layout Regional distribution Number of stores


Competition: Competition Other Competitors: MENARDS Mostly in Midwestern states- has 35% of home improvement market share in Milwaukee HOMEBASE Just in some western states Large stores, as big as Home Depot


Competition: Competition Staying Competitive: Villager Hardware EXPO Design Center Expanding into the professional market New product lines (i.e. appliances)


Macroeconomic Factors: Macroeconomic Factors Interest Rates Consumer Confidence and Spending Home Improvement Market Real Estate Market


Macroeconomic Factors: Macroeconomic Factors


Analyst Views: Analyst Views Raymond James: 12/29/99 “Home Depot was the best-managed retailer in the country, if not the world.” Stock is overvalued “conditioned the street to expect it to beat estimated numbers” Credit Suisse/ First Boston: 2/25/00 Drop is a result of “general concern over interest rates and the Feds intent to low consumer spending.” “Positive comments about all of the company’s growth initiatives” “Pro-Initiative” is most important


Analyst Views: Analyst Views Morgan Stanley: 3/1/00 Positive on growth initiatives Predicts 18% increase stock price over next year CIBC World Markets: 4/12/00 Predicted 25% earnings growth rate, possibly higher Rising interest rates would not have same effects as in 1995 thanks to good strategy 12 month price target 30% higher than current price


Analyst Views: Analyst Views Salomon Smith Barney: 8/23/00 “Expected a deceleration in the company’s earnings growth to about 25% a year…would occur primarily because of the macroeconomic environment-higher interest rates and a slowing economy” (emphasis added)


Conclusion: Conclusion Home Depot has a solid foundation... Good Business Plan Customer Loyalty Good Market Strategy


Conclusion: Conclusion ...but it’s not immune to macro factors Repeat of ’94-95 recession drop Susceptible to interest rates, consumer confidence, real estate Expansion into new markets could provide insulation


Conclusion: Conclusion A good company but susceptible to macroeconomic turbulence