[2/26/2003]

Quick Note on Home Depot

On Tuesday, Home Depot (NYSE: HD) delivered year-end 4th quarter results for a very dismal year in which it has seen comps drop and its rival Lowes creeping up.

Sales slipped 2% to $13.2 billion, along with a 6% drop in comparable same store sales. Using a 13-week basis for comparison (2001's Q4 had 14 weeks, while this year's only had 13), sales were actually up increasing 9% to $58.2 billion.
The company beat market expectations for comp sales after warning earlier that comps could fall by as much as 10%.
Yearly earnings came in at $3.66 billion, 20% ahead of 2001's results, but the company experienced a drop in quaterly earnings. Earning per share was $0.30 in Q4, three cents better than analysts had expected.

I should note here that there is a psychological trap that investores fall into, and that is, to prove ourselves right by sticking to earlier investment assumptions and placing greater emphasis on information that make us feel we made the right decision. That is not what is going on in the case of HD. The results above were expected and the story is in what happens from here, which I still believe will be very favorable for long term holders of Home Depot.

[2/21/2003 1:22:42 PM | Shegun Otulana]

What's To Love About Home Depot

There is a lot not to love about Home Depot(NYSE: HD) right now, especially if you had put your hard earned money into it over the last year.
America's favorite store, with its ubiquitous orange boxes, has seen its stock price dwindle from $70 in 2000 to a current level of $21.90, just above its five-year low. All this while America experienced its biggest housing boom in a while.
The cause of the great fall: The once high flying company has had its share of new management adjustments and customer complaints in recent times. It also had a dismal fourth quarter, with EPS down an estimated 10%, along with drop in same-store sales. Add to this, the fact that Home Depot reduced its guidance for 2003 to 9% to 12% sales growth and 9% to 14% EPS growth, which is way below the previous 15% to 20% earlier projections.
These events have forced buyers of the company who were in it for the quick growth to jump ship--and that was most.

So what's to love then?
Well, I believe Home Depot's current troubles are temporary. New management is beginning to get a feel of things and readjusting, the company continues to generate high returns on equity, and a huge amount of free cash. Operating cash flow for the 12 months ending in Q3 was $6.4 billion. The company has also bought back over $1 billion of stock--which means management still strongly believes in their ability to deliver, and it has built its cash to $4 billion with only $1.3 billion of debt.

In summary, Home Depot is here to stay, and though it may not grow as fast as it grew before the incursion of Lowe's, the company is still experincing great growth and will deliver superior returns to its shareholders. In the long run, the value of the company and its stock price will have to converge, and with the high growth seekers out of the picture, I believe its volatility--and thus, the rate at which your stomach churns--will reduce.

Desert: Homo Moronicus

O.O
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