HOME DEPOT
TIM BARNES
TYLER CLAYTON
ALEX VESCOVI
FEBRUARY 27, 2012
BUSINESS STRATEGY
• Home Depot is a home improvement retailer that sells building materials and home improvement products
• Product Mix - Percentage of Sales
• Operates throughout United States, Canada, China, and Mexico
Product GroupPercentage of Net Sales (Fiscal Year End
2010)
Plumbing, electrical and kitchen 30.0%
Hardware and seasonal 29.4%
Building materials, lumber and millwork 21.7%
Paint and flooring 18.9%
Total Sales 100.0%
THREE MAIN TYPES OF RETAIL CUSTOMERS:
1. DO IT YOURSELF CUSTOMERS (DIY) HOME OWNERS WHO DO THEIR OWN HOME IMPROVEMENT
2. DO IT FOR ME CUSTOMERS (DIFM) HOME OWNERS PURCHASE MATERIALS/SUPPLIES FROM HD
AND THEN HIRE OUTSIDE SOURCE FOR INSTALLATION
3. PROFESSIONAL CUSTOMERS HOME BUILDERS, PROFESSIONAL CONTRACTORS,
REPAIRMEN
LARGEST CATEGORY WITH ALMOST DOUBLE THE SALES OF DIY CUSTOMERS
WHO BUYS FROM HOME DEPOT?
HOME DEPOT SUPPLY CHAIN
WHO BUYS FROM HOME DEPOT?
GEOGRAPHIC SEGMENTATION –REVENUE (FY 2009 – FY 2011)
HD UNITED STATES - REVENUE
HD INTERNATIONAL -
REVENUE
20
09
20
10
20
11
HOME IMPROVEMENT RETAIL INDUSTRY
HOME IMPROVEMENT RETAIL SALES - BENCHMARKS
TOTAL HOME IMPROVEMENT RETAIL INDUSTRY–
2010 SALES %
HOME DEPOT45.9%
LOWES 32.9%
2010
HOME IMPROVEMENT RETIAL INDUSTRY – YEAR OVER YEAR
GROWTH
2006 20082004
TOTAL HOME IMPROVEMENT RETAIL SALES
HD: 59%
HD: 52.5%
HD: 46.8%
TOTAL HOME IMPROVEMENT INDUSTRY –
RETAIL SALES
2006 2012
TOTAL HOME IMPROVEMENT RETIAL INDUSTRY - SALES
HOME IMPROVEMENT YEAR OVER YEAR SALES GROWTH – VS. HOME DEPOT
HOME DEPOT
INDUSTRY
2003 2011
TOTAL HOME IMPROVEMENT RETAIL SALES TO TOTAL HOME SALES
1993 2011
TOTAL HOME SALES
HOME IMPROVEMENT
SALES
WHAT WILL EFFECT INDUSTRY SALES GROWTH? NEW HOME SALES? HOME RENOVATIONS? UNEMPLOYMENT RATE? GDP? INTEREST RATES?
INFLUENCED BY THE U.S. FEDERAL RESERVE INFLUENCING FLOW OF CREDIT
CONSUMER CONFIDENCE?
INDUSTRY SALES GROWTH
DID YOU SEE ANY OTHER FACTORS INFLUENCING INDUSTRY SALES
GROWTH?
WHAT DID YOU SEE FOR FUTURE HOME IMPROVEMENT RETAIL SALES?
QUESTIONS???
HOME DEPOT – HISTORICAL PERFORMANCE
HOME DEPOT
HD ANNUAL REVENUES – HISTORICAL
FY 2011FY 1992
SEASONALITY – HD REVENUES QUARTER OVER QUARTER
Q1Q1
Q1Q1
Q1
FY 2007 FY 2011
HOME DEPOT ANNUAL EPS – HISTORICAL
FY 1992 FY 2011
HOME DEPOT QUARTERLY EPS - HISTORICAL
Q1Q1
Q1
FY 2007 FY 2011
HOME DEPOT QUARTER 4 EPS - HISTORICAL
HOME DEPOT QUARTER 1 EPS - HISTORICAL
LOWES QUARTERLY EPS – HISTORICAL: SEASONAL
ANYTHING ELSE THAT STUCK OUT TO YOU?
QUESTIONS???
HOME DEPOT STOCK PRICE CORRELATIONS
U.S. UNEMPLOYEMENT RATE
HOME DEPOT STOCK PRICE CORRELATIONS
HOME IMPROVEMENT SPENDING TO U.S. UNEMPLOYMENT RATE - HISTORICAL
U.S. UNEMPLOYEMENT RATE
HOME IMPROVEMENT RETAIL SPENDING
U.S. UNEMPLOYEMENT RATE - FORECAST
2005 EST 2014
U.S. UNEMPLOYMENT RATE AND HD STOCK PRICE CORRELATION –
CORRELATION: -.92
U.S. GDP
HOME DEPOT STOCK PRICE CORRELATIONS
GDP – FORECAST FOR UNITED STATES
2005 EST 2014
U.S. GDP
GDP TO HD STOCK PRICE CORRELATION -
CORRELATION : -.25
HD STOCK PRICE
U.S. GDP
WHAT ELMO THINKS
DO YOU SEE ANY OTHER MACROECONOMIC FACTORS EFFECTING HOME DEPOT?
QUESTIONS???
FORECASTING EPS FOR FISCAL YEAR 2012 –
QUARTER 1
HOME DEPOT
FORECASTING WITH ANNUAL VS. QUARTERLY FIGURES USING EVAL
WHEN WORKING WITH EVAL, EVERY INPUT AND OUTPUT IS ON AN ANNUAL BASIS. SO HOW DO YOU TAKE ANNUAL FORECAST AND GET QUARTERLY EARNINGS PER SHARE?
WE USED EVAL TO FORECAST OUT HOME DEPOT’S FY 2012 ANNUAL INCOME STATEMENT AND BALANCE SHEET. THEN WE TOOK OUR ANNUAL EPS FORECAST AND MULTIPLIED IT BY HISTORICAL Q1 % OF ANNUAL EPS MULTIPLIER.
WHICH GAVE US OUR Q1 EPS ESTIMATE.
USE OF EVAL: ANNUAL VS. QUARTERLY
DID YOU HAVE ANY ALTERNATIVES METHODS FOR YOUR FORECASTING?
QUESTIONS??
SALES GROWTH – HOW WE DETERMINED1. AVERAGE OF PAST YEARS’ Q1 YOY SALES GROWTH
USE AVERAGE GROWTH OF YOY QUARTER 1 GROWTH2. GUIDANCE FROM FY 2011 Q4 MANAGEMENT EARNINGS
CALL
FORECASTING ASSUMPTIONS
MANAGEMENT’S GUIDANCE FOR FY 2012 IS 4% SALES GROWTH FROM Q4 8-K: WE FEEL UNDERESTIMATING
CONTINUE TO BUILD A STRONG BUSINESS ON BASIC REPAIR AND REMOD NEEDS OF CUSTOMERS FORECASTS GROWTH TO BE CONSISTENT WITH GDP
Q4 SALES UP 5.9% FROM LAST YEAR; COMP SALES UP 5.7%; US SAME STORE SALES UP 6.1% EVEN AGAINST VERY STRONG 2010 Q4 COMPS
POSITIVE COMPS IN ALL 40 GEOGRAPHIC MARKETS CANADIAN AND MEXICAN MARKETS - STRONG GROWTH IN COMPS
WARM WEATHER HELPED RAISE Q4 TOTAL REVENUE BY 200 – 250 BASIS POINTS (2.0 – 2.5%) COMPARED TO PREVIOUS YEAR Q4 SEE THE WARM WEATHER TREND TO CONTINUE, THEY ARE SEEING
POSITIVE FEBURARY COMPS, AND EXPECT A SOLID Q1 2012 RECOVERY IN SALES FROM FLORIDA AND CALIFORNIA
MARKETS
FORECASTING ASSUMPTIONS - HD FY 2011 Q4 EARNINGS CALL TRANSCRIPT
IN-STORE CUSTOMER SERVICE IMPROVEMENTS 53% OF STORE LABOR HOURS TO CUSTOMER FACING
ACTIVITIES, COMPARED TO 40% FROM LAST YEAR NEW IN-STORE SERVICE OFFERINGS, INCLUDING IN-STORE
REPAIR SERVICES (PREVIOUSLY MOSTLY DONE OFF-SITE) ONLINE BUSINESS – BEST-IN-CLASS PLATFORM; HELP
DRIVE SALES HAS INVESTED $1.1B TO ENHANCE ITS ONLINE PRESENCE ACQUISTION OF REDBEACON.COM
IMPROVED INVENTORY TURNOVER BIG TICKET ITEMS – UP 9% YEAR-OVER-YEAR
CEO HAS REPORTED SOLID REVENUE NUMBERS FOR JANUARY AND FEBRUARY 2012
FORECASTING ASSUMPTIONS - HD FY 2011 Q4 EARNINGS CALL TRANSCRIPT
COST OF GOODS SOLD / SALES EXPECTED TO GROW AT 50% OF SALES GROWTH (EXPECTED TO GROW
2.5% YOY IN RELATION TO 5% SALES GROWTH YOY) EXPECT INTEREST RATES TO STAY LOW THROUGH AT LEAST FY 2012 COMMODITY PRICES – INPUT PRICES
SG&A EXPENSES FROM FY 2011 EARNINGS CALL TRANSCRIPT
EFFECTIVE TAX RATE 37%: ACCORDING TO MANAGEMENT ASSUMPTIONS IN 2011 Q4 8-K
FORECASTING ASSUMPTIONS
HD INCOME STATEMENT – GROWTH (2005 – 2011)
EVAL – FINANCIAL STATEMENTS
EVAL
EVAL – FORECASTING ASSUMPTIONSINCOME STATEMENT
• Management Guidance of 4% Sales Growth is conservative – from 8-K• 5.7% same-store comps• Average ticket sales rose 2.4%• Continued Gross Margins Growth• Effective Tax Rate: 37% for FY 2012
EVAL – FY 2012 FORECASTINCOME STATEMENT
EVAL – FORECASTING ASSUMPTIONSBALANCE SHEET
EVAL – FISCAL YEAR 2012 FORECASTBALANCE SHEET
EVAL – STATEMENT OF CASH FLOWS
EVAL – FORECASTING ASSUMPTIONS
STATEMENT OF RETAINED EARNINGS
EVAL – FISCAL YEAR 2012 FORECAST
STATEMENT OF RETAINED EARNINGS
EVAL – RATIO ANALYSIS
EPS - FORECASTING
HOME DEPOT
BLOOMBERG – EPS ESTIMATES
WALL STREET JOURNAL –EPS ESTIMATES
HOME DEPOT CONSENSUS REVENUE FORECAST
QUARTERLY EPS - HISTORICAL
Q1Q1
Q1
QUARTER 4 EPS - HISTORICAL
RECENT
TREND
QUARTER 1 EPS - HISTORICAL
RECENT
TREND
Quarter 1 Sales / Annual Sales
Quarter 4 Previous Year Sales / Quarter 1 Sales
FORECASTING SALES – AVERAGES
EVAL – EPS FORECASTER
FORECASTED Q1 2012 - EPS
ANY OTHER QUESTIONS?
QUESTIONS???
1. BLOOMBERG TERMINAL GRAPHS, CHARTS, FIGURES
2. WIKINVEST.COM
SOURCES