®danielle boucher, takefumi kawahara, matthew bouchard, darius parker 1 2005 a strategic management...

®Danielle Boucher, Takefumi Kawahara, Matthew Bouchard, Darius Parker

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20052005A Strategic Management Case Study


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Overview• A brief history of The Home Depot• EOY 2004

– Mission, Vision, Objectives, Strategies

• 2005 – New Vision and Mission

• External Analysis– Opportunities & Threats – CPM– EFE

• Internal Analysis– Financial Data– Strengths and weaknesses – IFE– Financial ratios

• Strategic Analysis – SWOT Matrix– SPACE– BCG– IE matrix– Grand Strategy Matrix– Matrix Analysis– QSPM

•Possible alternative strategies•Our Recommendation

–Strategies –Long range objectives–EPS/EBIT

•Implementation Issues•Proposed annual objectives (goal) and polices•Proposed procedures for evaluation•Epilogue•Current Performance•Resources Utilized•Questions


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History of the Home Depot• 1978 Founded by Bernie Marcus and Arthur Blank; zero

locations; 20 associates• 1979 3 store location; 200 associates; $7 million in sales• 1980 4 stores; 300 associates; $22 million in sales• 1981 Stock goes public on NASDAQ, raising $4.1 million; 8

stores; 700 associates; $51 Million in sales• 1984 Moved to the New York Stock Exchange (NYSE) in• 1986 Sales exceed $1 billion; 60 stores• 1987 Day-in/Day-out pricing policy; UPC scanning system;

health program for associates introduced; 75 stores; $1.45 billion sales

• 1988 Named retailer of the Year by Building Supply Home centers for second time; named High Performance Retailer for 7th consecutive year by Management Horizons; 96 stores; $2 billion in sales


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History of the Home Depot• 1994 The company arrived in Canada with the acquisition of

Aikenhead’s home improvement centers• 1997 624 stores; 124,000 associates; $24.2 billion sales• 1999 The Legend opened in the Atlanta Store Support

Center; chronicles the history of The Home Depot and illustrates the values that set us apart

• 2001 Began flying its flag proudly in Mexico in 2001 through the acquisition of Total HOME

• 2002 1,532 stores; 300,000 associates; $58.3 billion in sales

• 2003 $64.8 billion in sales• 2004 Sales reach 73.1 billion; over 1,818 stores and 54 EXPO

centers making Home Depot the world’s largest home improvement retailer, 2nd largest retailer in the United States, 3rd largest retailer in the world


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2004 MissionThe Home Depot is in the home improvement business and

our goal is to provide the highest level of service, the broadest selection of products and the most competitive prices. We are

a values-driven company and our eight core values include the following: • Excellent customer service • Taking care of our people • Giving back • Doing the "right" thing • Creating shareholder value • Respect for all people • Entrepreneurial spirit • Building strong relationships

Giving Back


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In 2004 Home Depot committed to its first ever week of service.

260,000 volunteers hours were donated by 34,500 associates.

Completing 1,600 service projects. Due to its success we have decided

to make it an annual event.


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2004 Strategies and objectives

• Approximately $1 billion is being invested in infrastructure – Self check out computers– Product scanning devices

• 175 new stores in North America• Modernize current stores


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2004 Issues

• Strong competition with Lowe’s is driving down prices

• Contractor shortages causing a backlog in home remodeling

• A class-action lawsuit alleges that Home Depot and rival Lowe's misled customers with interest-deferred credit card promotions in 2003


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Exclusive Brands• The Home Depot carries several exclusive brands, including:• BEHR Paint• Chem-Dry (carpet cleaning, upholstery cleaning, tile and grout services) • Distinctions Cabinetry • Eco Options (store brand) • Feather River Doors • G.E. (Water Heaters) • Glacier Bay (faucets and bath) • Hampton Bay (lighting, ceiling fans & patio furniture) • Husky (tools) • Millstead • Pegasus (kitchen and bath items) • Ralph Lauren paint • Ryobi (power tools) • Thomasville cabinetry • Vigoro (fertilizer) • Workforce


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Creating a worldwide presence

Add the end of 2004 we had 44 stores in Mexico and 117 in

Canada


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A New Vision

To be the first choice for affordable, diverse, innovative, and modern

products in the home improvement industry.


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A New Mission

The Home Depot’s mission is to be a superior retailer in the home improvement business by providing an extensive range of products worldwide. (2,3,7) We offer first-rate customer service to all home owners and businesses, from housewives to contractors. (1) The Home Depot values its relationship with it’s employees, shareholders, customers, and the community as well as the environment and maintains a high level of respect for all. (6,8,9) These relationships are maintained through vast community involvement and a dedication to increasing our presence internationally, thereby providing to those in need and increasing profits to our shareholders. (4, 6,5) We utilize technological advancements to assist in our growth and further develop our innovated stores. (4)


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The Home Depot’s missionThe new mission answers the following questions 1. Customers: Who are the firm’s customers?2. Products or services: What are the firm’s major products?3. Markets: Geographically, where does the firm compete?4. Technology: Is the firm technologically current?5. Concern for survival, growth, and profitability: Is the firm

committed to growth and financial soundness?6. Philosophy: What are the basic beliefs, values, aspirations,

and ethical priorities of the firm?7. Self-concept: What is the firm’s distinctive competence or

major competitive advantage?8. Concern for public image: Is the firm responsive to social,

community, and environmental concerns?9. Concern for employees: Are employees a valuable asset of

the firm?


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External Audit: Opportunities

•International expansion

•Consumer interest in one-stop shopping to save time and gas money

•Growth in global sourcing

•Hardware stores, home centers, and retail-oriented lumberyards, industry expected to grow (from $236.3 billion in 2004 to $281.7 billion by 2008)

•Slow housing sales (people are likely to stay home and spend money on remodeling and on improvements to make a home more attractive to purchase)

•The growing number of woman who are making home improvement decisions and spending an increasing amount of time on DIY (do-it-yourself) projects


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External Audit: Threats

• Competitors (Lowe's, Sears, Wal-Mart)• Reaching market saturation within North America• Contractor shortage causing backlog in home remodeling• Overlap between Home Depot and Lowe's• A class-action lawsuit alleges that Home Depot and rival

Lowe's misled customers with interest-deferred credit card promotions in 2003


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The Home Depot CPMHome Depot Lowe's Wal-Mart

Critical Success factors

Weights

Rating

Weighted

Score

Rating

Weighted

Score

Rating Weighte

d Score0.0 to 1.0 1 to 4 1 to 4 1 to 4

Market Share 0.10 3 0.3 2 0.2 4 0.40Inventory system 0.07 4 0.28 3 0.21 3 0.21Financial position 0.07 2 0.14 4 0.28 4 0.28Product quality 0.09 3 0.27 3 0.27 2 0.18Consumer loyalty 0.05 4 0.20 4 0.20 3 0.15Sales distribution 0.07 4 0.28 2 0.14 4 0.28Global expansion 0.11 3 0.33 3 0.33 4 0.44Organization structure 0.08 3 0.24 3 0.24 3 0.24Production capacity 0.05 3 0.15 3 0.15 4 0.20E-commerce 0.08 3 0.24 2 0.16 4 0.32Customer service 0.06 4 0.24 3 0.18 2 0.12Price competitive 0.07 3 0.21 3 0.21 4 0.28Management experience 0.10 4 0.4 3 0.30 3 0.30Totals 1 3.28 2.87 3.4


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The Home Depot EFE

Key External FactorsWeights Rating

Weighted Score

0.0 to 1.0 1 to 4Opportunities International Expansion 0.1 4 0.4Consumer interest in one-stop shopping to save time and gas money 0.1 4 0.4Growth in global sourcing 0.08 4 0.32Payback from IT Investment 0.05 3 0.15Hardware store, home centers, and retail-oriented, lumberyards, industry expected to grow (from 236.3 billion in 2004 to 281.7 billion in 2008) 0.08 4 0.32Slow housing sales (people are most likely to stay home and spend money on remodeling and on improvements to make a home more attractive to purchase 0.07 2 0.14Growing number of women who are making home improvement decisions and spending an increase amount of time on DIY (Do-it-yourself) projects 0.09 4 0.36Threats 0Competitors (Lowes's, Sears, Wal-Mart) 0.1 3 0.3Reaching market saturation within North America 0.07 4 0.28Contractor shortage causing backlog in home remodeling 0.07 2 0.14Overlap between Home Depot and Lowe's 0.07 3 0.21A class-action lawsuit alleges that Home Depot and rival Lowe's misled customers with interest-deferred credit card promotions in 2003 0.06 2 0.12Industry slowdown 0.06 3 0.18Totals 1 3.32


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Consolidated Balance Sheet


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Consolidated Balance Sheet


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Consolidated Statement of cash flows


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Internal Audit: Strengths• #1 home improvement retailer in the world• #2 retailer in the U.S.• Profits climbed 16% and revenues climbed

13% in for the fiscal year 2004• Innovative methods of differentiating• Dominant in the lumber and building

materials industry• Distinctive product range• Efficient business model


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Internal Audit: Weaknesses

• Rising expenses• Store layout and appearance• New store productivity remains weak• Revenue growth is slower than

industry average and Lowe's• 18% decrease in cash and cash

equivalents FY from 2002 and 2003 to 2004


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The Home Depot IFE

Key Internal FactorsWeights Rating Weighted

Score0.0 to 1.0 1, 2, 3 or 4

Internal Strengths 3 or 4

#1 home improvement retailer in the world 0.12 4 0.48

#2 retailer in the U.S. 0.09 4 0.4Profits climbed 16% and revenues climbed 13% in for the fiscal year

2004 0.07 4 0.32

Innovative methods of differentiating 0.08 4 0.32

Dominant in the lumber and building materials industry 0.08 3 0.24

Distinctive product range 0.04 3 0.12

Efficient business model 0.1 4 0.4Internal Weaknesses 1 or 2

Rising expenses 0.1 2 0.2

Store layout and appearance 0.06 2 0.12

New store productivity remains weak 0.11 1 0.12

Revenue growth is slower than industry average and Lowe's 0.07 2 0.1618% decrease in cash and cash equivalents FY from 2002 and 2003 to

2004 0.08 2 0.16Totals 1 3.04


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Financial Ratio Analysis

LIQUIDITY RATIOS Current Ratio 1.3 times 1.4 times Quick Ratio 0.4 times 0.4 times LEVERAGE RATIOS Debt to Total Assets 37.9% 34.9% Times Interest Earned 114.0 times 111.4 times ACTIVITY RATIOS Inventory Turnover 7.3 times 14.3 times Ave. Collection Period 7.5 days 3.1 days Fixed Assets Turnover 3.0 times 6.1 times Total Assets Turnover 1.9 times 3.8 times PROFITABILITY RATIOS Profit Margin on Sales 6.8% 6.6% Return on Total Assets 12.9% 25.0% Return on Net Worth 20.7% 38.4%

FIRM FY 2004 FY 2003


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Financial Ratio Analysis

LIQUIDITY RATIOS Current Ratio 1.3 times 1.2 times 0.9 times Quick Ratio 0.4 times 0.2 times 0.2 times LEVERAGE RATIOS Debt to Total Assets 37.9% 45.6% 58.4% Times Interest Earned 114.0 times 21.1 times 17.6 times ACTIVITY RATIOS Inventory Turnover 7.3 times 12.2 times 9.6 times Ave. Collection Period 7.5 days 0.0 days 1.8 days Fixed Assets Turnover 3.0 times 5.1 times 3.6 times Total Assets Turnover 1.9 times 3.4 times 2.4 times PROFITABILITY RATIOS Profit Margin on Sales 6.8% 6.0% 3.5% Return on Total Assets 12.9% 20.5% 8.6% Return on Net Worth 20.7% 37.7% 20.8%

FIRM HD Lowe's Wal-Mart


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Financial Ratio Analysis Home Depot Electronics &

Appliances Stores

Home Centers (Paint & Wallpaper Stores)

Hardware Stores

Other Building Material Dealers

Lawn & Garden Equi. & Supplies Stores

FINANCIAL RATIOS LIQUIDITY RATIOS Current Ratio 1.3 times 1.6 times 1.1 times 3.1 times 2.2 times 1.8 times Quick Ratio 0.4 times 0.6 times 0.8 times 1.1 times 1.2 times 0.5 times LEVERAGE RATIOS Debt to Total Assets 37.9% 59.4% 48.1% 39.2% 54.3% 59.6% Times Interest Earned - - - - - - ACTIVITY RATIOS Inventory Turnover 7.3 times 7.6 times 5.1 times 3.6 times 7.4 times 3.9 times Ave. Collection Period - - - - - - Fixed Assets Turnover - - - - - - Total Assets Turnover 1.9 times 2.6 times 0.9 times 2.3 times 2.9 times 2.7 times PROFITABILITY RATIOS Profit Margin on Sales 6.8% 4.7% 8.7% 4.1% 4.2% 2.8% Return on Total Assets 12.9% 13.0% 8.0% 10.6% 13.5% 9.1% Return on Net Worth 20.7% 23.7% 10.0% 14.4% 23.8% 18.1%


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Financial Trends(January 1999-January 2005)

Avg P/E Price/ Sales Price/ Book Net Profit Margin (%) 01/05 16.70 1.23 3.65 6.8 02/04 16.70 1.25 3.57 6.6 02/03 22.40 0.84 2.42 6.3 02/02 35.50 2.17 6.41 5.7 01/01 46.20 2.30 6.93 5.6 01/00 46.60 3.39 10.39 6.0 01/99 40.20 3.09 10.19 5.3

Book Value/ Share Debt/ Equity Return on Equity (%) Return on Assets (%) Interest Coverage 01/05 $11.06 0.09 20.7 12.8 113.2 02/04 $9.93 0.06 19.2 12.5 110.4 02/03 $8.64 0.07 18.5 12.2 157.6 02/02 $7.71 0.07 16.8 11.5 176.1 01/01 $6.46 0.10 17.2 12.1 199.6 01/00 $5.36 0.06 18.8 13.6 92.9 01/99 $3.95 0.18 18.5 12.0 58.0

Financial data in U.S. dollars

Industry: Home Improvement Stores


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The Home depot stock Performance

Source: moneycentral.msn.comDividends ( ) Splits ( )


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The Home depot Net Worth (January 2005, in Millions of U.S. Dollars Except Per Share items)

1. Stockholders’ Equity + Goodwill = $24,158 + $1,394

$ 25,552

2. Net Income x 5 = $5,001 x 5= $ 25,005

3. Share price = *$40.41/EPS(2.26) = 17.88 x Net Income $5,001 =

$ 89,418

4. Number of Shares Outstanding x Share Price = 2,159 x $40.41=

$ 87,245

Method Average $ 56,805

*Stock price is based on a closing price at 1/28/2005 from finance.yahoo.com


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Strategic Analysis: SWOT Matrix

WT Strategies1. Open stores in every large U.S.

market (W3, W4, T6)2. Open Stores in Europe or Asia-

Pacific markets (W3, W4, T2, T6)3. Supply contractors working in

Middle East reconstruction efforts (W4, T1, T2, T3, T6)

ST Strategies1. Increase market share by buying out

Menard Inc., True Value, or Ace Hardware (S2, S5, T1)

2. Open stores in Europe or Asia Pacific markets (S2, S5, T2, T6)

Threats – T1. Competitors (Wal-mart, Sears,

Lowe’s)2. North American market saturation3. Contractor shortage / backlog in

home remodeling4. 2003 Lawsuit5. Overlap between H.D. and Lowe’s

WO Strategies1. Expand product line to other areas

(W3, W4, O2, O6)2. Sell wider variety of products online

(W1, W2, W4, O1, O3, O7)3. Open Stores in Europe or Asia-

Pacific markets (W4, O1, O5, O6)

SO Strategies1. Open stores in Europe or Asia-Pacific

markets (S2, S5, O1, O5)2. Buy out Kingfisher or OBI to expand

into those markets (S2, S5, T1, O5)3. Experiment with different check-out

methods (S3, S5, O2, O7)4. Add more options such as fuel

centers or convenience stores (S2, S3, S5, O2, O5)

Opportunities – O1. International expansion2. Consumer interest in one-stop

shopping3. Growth in global sourcing4. Payback from IT investment5. Select industries expected to grow6. Slow housing sales (more

remodeling)7. More “do it yourself” women

Weaknesses – W1. Rising expenses2. Store layout and appearance3. New store productivity remains weak4. Revenue growth is slower than

industry average and Lowe’s5. 18% decrease in cash and cash

equivalents from 2002 to 2004

Strengths – S1. #1 home improvement retailer in the

world / #2 retailer in U.S.2. Profits climbed 16% / revenues 13%

in 20043. Innovative methods of differentiating4. Dominant in lumber/building

materials industry5. Efficient business model

Home DepotSWOT Matrix

WT Strategies1. Open stores in every large U.S.

market (W3, W4, T6)2. Open Stores in Europe or Asia-

Pacific markets (W3, W4, T2, T6)3. Supply contractors working in

Middle East reconstruction efforts (W4, T1, T2, T3, T6)

ST Strategies1. Increase market share by buying out

Menard Inc., True Value, or Ace Hardware (S2, S5, T1)

2. Open stores in Europe or Asia Pacific markets (S2, S5, T2, T6)

Threats – T1. Competitors (Wal-mart, Sears,

Lowe’s)2. North American market saturation3. Contractor shortage / backlog in

home remodeling4. 2003 Lawsuit5. Overlap between H.D. and Lowe’s

WO Strategies1. Expand product line to other areas

(W3, W4, O2, O6)2. Sell wider variety of products online

(W1, W2, W4, O1, O3, O7)3. Open Stores in Europe or Asia-

Pacific markets (W4, O1, O5, O6)

SO Strategies1. Open stores in Europe or Asia-Pacific

markets (S2, S5, O1, O5)2. Buy out Kingfisher or OBI to expand

into those markets (S2, S5, T1, O5)3. Experiment with different check-out

methods (S3, S5, O2, O7)4. Add more options such as fuel

centers or convenience stores (S2, S3, S5, O2, O5)

Opportunities – O1. International expansion2. Consumer interest in one-stop

shopping3. Growth in global sourcing4. Payback from IT investment5. Select industries expected to grow6. Slow housing sales (more

remodeling)7. More “do it yourself” women

Weaknesses – W1. Rising expenses2. Store layout and appearance3. New store productivity remains weak4. Revenue growth is slower than

industry average and Lowe’s5. 18% decrease in cash and cash

equivalents from 2002 to 2004

Strengths – S1. #1 home improvement retailer in the

world / #2 retailer in U.S.2. Profits climbed 16% / revenues 13%

in 20043. Innovative methods of differentiating4. Dominant in lumber/building

materials industry5. Efficient business model

Home DepotSWOT Matrix


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Strategic Analysis: Space Matrix

Ratings

1 3.02 4.03 4.04 4.05 5.0

FS Total 20.0

1 5.02 6.03 3.04 4.05 3.0

IS Total 21.0

1 -4.02 -3.03 -2.04 -2.05 -1.0

ES Total -12.0

1 -1.02 -2.03 -3.04 -1.05 -3.0

CS total -10.0

Environmental Stability rating is -1 (best) to -6 (worst)

Competitive advantage rating is -1 (best) to -6 (worst)

rating is 1 (worst) to 6 (best)Financial Strength

Industry Strength rating is 1 (worst) to 6 (best)

Efficient Business Modle

Distincitive Product Range

Technological Changes

Market Share

Profit Potential

Slow Housing Sales

Real Estate Ownership (own 86% its stores)

Highly knowledgeable and Service-Oriented personel

Competitive Pressure

Increase in Fuel Prices

Rate of Inflation

Exchange rates

Financial Stability

Contractor Shortage

Cash Flow

Working Capital

Liquidity

Return on Net Worth

Net income

Growth Potential


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Strategic Analysis: Space Matrix

Home Depot has achieved moderate competitive advantages and financial strength in a growing and stable industry.


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Strategic Analysis: Grand Strategy Matrix


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Strategic Analysis: IE Matrix


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Strategic Analysis: BCG Matrix


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Matrix AnalysisAlternative Strategies BCG IE SPACE GRAND COUNT Forward Integration X X X X 4 Backward Integration X X X X 4 Horizontal Integration X X X X 4 Market Penetration X X X X 4 Market Development X X X X 4 Product Development X X X X 4 Related Diversification X X 2 Unrelated Diversification

X X 2

Joint Venture 0 Retrenchment 0 Divestiture 0 Liquidation 0


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The Home Depot QSPM

AS TAS AS TAS AS TAS

1 to 4 1 to 4 1 to 4

0.10 2 0.20 4 0.40 1 0.10 0.10 2 0.20 2 0.20 4 0.40 0.08 1 0.08 4 0.32 1 0.08 0.05 2 0.10 3 0.15 2 0.10

0.08 3 0.24 3 0.24 2 0.16

0.07 4 0.28 2 0.14 3 0.21

0.09 1 0.09 1 0.09 1 0.09

0.10 4 0.40 2 0.20 3 0.30 0.07 3 0.21 1 0.07 2 0.14 0.07 3 0.21 3 0.21 1 0.07 0.07 4 0.28 2 0.14 2 0.14

0.06 2 0.12 1 0.06 2 0.12 0.06 4 0.24 3 0.18 2 0.12

1 2.29 2.4 2.03

Threats

total should be 1.0

Opportunities

A class-action lawsuit alleges that Home Depot and rival Lowe's

misled customers with interest-deferred credit card promotions in Industry slowdown

Competitors (Lowes's, Sears, Wal-Mart)Reaching market saturation within North AmericaContractor shortage causing backlog in home remodelingOverlap between Home Depot and Lowe's

Hardware store, home centers, and retail-oriented, lumberyards,

industry expected to grow (from 236.3 billion in 2004 to 281.7 billion Slow housing sales (people are most likely to stay home and spend

money on remodeling and on improvements to make a home more Growing number of women who are making home improvement

decisions and spending an increase amount of time on DIY (Do-it-

International ExpansionConsumer interest in one-stop shopping to save time and gas moneyGrowth in global sourcingPayback from IT Investment

Domestic

Expansion

Global

Expansion

Fuel

CentersKey External FactorsWeight


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The Home Depot QSPM

AS TAS AS TAS AS TAS

1 to 4 1 to 4 1 to 4

0.12 3 0.36 4 0.48 2 0.24 0.09 4 0.36 2 0.18 3 0.27

0.07 3 0.21 4 0.28 3 0.21 0.08 4 0.32 3 0.24 2 0.16 0.08 4 0.32 4 0.32 2 0.16 0.04 2 0.08 3 0.12 2 0.08 0.10 2 0.20 2 0.20 2 0.20

0.10 3 0.30 4 0.40 3 0.30 0.06 2 0.12 2 0.12 3 0.18 0.11 3 0.33 3 0.33 2 0.22 0.07 4 0.28 3 0.21 2 0.14

0.08 3 0.24 4 0.32 2 0.16 1 3.12 3.2 2.32

5.41 5.6 4.35

total should be 1.0

Weaknesses

Key External Factors

Rising expenses

Weight

Domestic

Expansion

New store productivity remains weakRevenue growth is slower than industry average and Lowe's

18% decrease in cash and cash equivalents FY from 2002 and 2003 to

2004

Global

Expansion

Distinctive product rangeEfficient business model

Store layout and appearance

Fuel

Centers

#2 retailer in the U.S.

Profits climbed 16% and revenues climbed 13% in for the fiscal year

2004Innovative methods of differentiatingDominant in the lumber and building materials industry

Strengths

#1 home improvement retailer in the world

Key Internal Factors


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Possible Alternative Strategies

• Forward integration: As a retail outlet, Home Depot can acquire major distributors of plumbing equipment, construction equipment, and other Home Depot product related distributors.

• Backward Integration: As a retail outlet, Home Depot can acquire its major suppliers of Home Depot supplies such as installation services, steel mills, and logging companies of their own thus creating a supply that suits their quality, and amount that they need.

• Horizontal integration: Home Depot can acquire other home improvement companies taking greater control of the industry, and gaining more control in various regions.


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Possible Alternative Strategies

• Market Development: Home Depot mainly targets self builder construction companies and baby boomers. Home Depot can develop a market for newly weds, and new home owners who may want to improve their newly purchased home.

• Market Penetration: Go after Lowe’s, Ace Hardware and True Value’s market share


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Recommendations• Strategy 1Domestic ExpansionOpen up more full service hardware stores throughout the united states thus creating a presence in all areas within a state. Goal would be to

have at least 5 Home Depots per state, averaging 10 new stores per quarter.

This will make Home Depot a one stop shop for individual customers and businesses alike.

Estimated cost of such an expansion: $4 million per store 10 stores = $40 Million


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Recommendations• Strategy 2International ExpansionAcquire European home improvement company Kingfisher plc.

By acquiring this company, we will create a presence in Europe. This

will also give us presence and possession of companies that are part of the

Kingfisher group such as B&G (UK: Ireland: China: Taiwan and Hong

Kong), Brico Depot (France and Spain), Castorama (France: Italy: Poland

and Russia) Hombach Holding AG (21% Kingfisher stake), KOCTAS

(Turkey, and Screwfix Direct Ltd (England).

Estimated cost for such an acquisition: $10 Billion


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Recommendations• Strategy 3Provide fuel servicesAside from being a home improvement store, Home Depot will

have filling stations at select Home Depot stores. This will create a one stop

shop for customers, and businesses providing fuel, food, and other quick

stop necessities.

Estimated cost: 8 million


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EPS/EBIT

Low Normal High$4,000 $8,000 $12,000

$10,000.00

5%36%

Ammount Needed

Interest RateTax Rate

$40.00 Stock Price# Shares Outstanding

2,100

EBIT RangeAll amounts are in millions except for

percentages and stock price.


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EPS/EBITCommon

Stock DebtLow Normal High Low Normal High

EBIT 4,000.00 8,000.00 12,000.00 4,000.00 8,000.00 12,000.00

Interest - - - 500.00 500.00 500.00

EBT 4,000.00 8,000.00 12,000.00 3,500.00 7,500.00 11,500.00

Tax 1,440.00 2,880.00 4,320.00 1,260.00 2,700.00 4,140.00

EAT 2,560.00 5,120.00 7,680.00 2,240.00 4,800.00 7,360.00

# Shares 2,400 2,400 2,400 2,100 2,100 2,100

EPS 1.07 2.13 3.20 1.07 2.29 3.50

Low Normal High Low Normal High

EBIT 4,000.00 8,000.00 12,000.00 4,000.00 8,000.00 12,000.00

Interest 150.00 150.00 150.00 350.00 350.00 350.00

EBT 3,850.00 7,850.00 11,850.00 3,650.00 7,650.00 11,650.00

Tax 1,386.00 2,826.00 4,266.00 1,314.00 2,754.00 4,194.00

EAT 2,464.00 5,024.00 7,584.00 2,336.00 4,896.00 7,456.00

# Shares 2,275 2,275 2,275 2,175 2,175 2,175

EPS 1.08 2.21 3.33 1.07 2.25 3.43

70% Stock - 30% Debt 30% Stock - 70% Debt


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Implementation Issues• Importing goods overseas• Dealing with changes in supply chain

with distributors• Dealing with new cultures

– Customers– Employees

• Environmental issues and regulations• Hostile takeover

– Hesitancy of KingFisher to sell


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Proposed Annual Objectives (goal) and Policies

• Increase sales revenues by 20% annually for the next 3 years

• Reduce expenses by 20% annually for the next 3 years

− by 10% in selling and store operating costs

− by 10% in general and administrative costs

• New capital expenditure priorities; not over investing in a maturing business

– 90% reduction in a new store development in domestic

– 40% increase in remodeling older stores and upgrading IT systems

– 50% increase in international expansion


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Proposed Procedures For Evaluation

• Track competitors’ price changes• Company ranking

– SAP Top 100 retailers– Business Week– Fortune

• Quarterly financial reports• Quarterly meetings to evaluate current plan

and respond as necessary to changes


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Epilogue• 2005 launches its high-end online home-furnishings store, 10 Crescent

Lane, shortly followed by the launch of Paces Trading Company, its high-end online lighting store.

• 2005 Former employee Michael Davis filed a whistleblower lawsuit against the Home Depot, alleging that his discharge was in retaliation for refusing to make unwarranted charge backs against vendors.

• 2006 the Home Depot acquired Home Decorators Collection which was placed as an additional brand under its Home Depot Direct

Division; Sales totaled US$90.8 billion; 10% increase in revenue• 2006 Started testing with fuel centers at some of its stores. The first

centers are expected to earn $5-$7 million per year. The fuel centers sell beer, hot food, snacks along with providing diesel at a separate island. This allows contractors with large trucks to be able to fill their vehicles. The fuel centers also offer car washes, which are large enough to accommodate full size pickups.

• 2007 Nardelli (CEO) was replaced by Frank Blake; sold its wholesale division HD Supply to a consortium of 3 private equity firms


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Current Stock Performance


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Resources

• MSN Money• CNN Money• Almanac Business and Industry

Financial Ratios 2008• Edgar Online• www.homedepot.com


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Questions

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