Download - Situational Analysis

Situational AnalysisSituational AnalysisTeam A1 ProjectTeam A1 Project

March 11, 2006

Kerrie CoxAdrienne P. Love

Jeff KodaGarland Collier

Jim Clifton

Company OverviewCompany Overview

• Founded in 1979 in Atlanta, GA by Bernie Marcus and Authur Blank

• Robert L. Nardelli- president/chairman/CEO

• Employees- 100,000 plus• Over 2000 stores throughout US,

Canada, Mexico, Puerto Rico and St. Thomas– Approx. store size-108,000 sq ft,– 40,000+ SKUs

• 2005 Revenue- $81.5 billion

“World’s largest home improvement retailer”

Company CultureCompany Culture

• Very customer focused• 8 core values

– Taking Care of our People– Respect For all People– Doing the Right Thing– Strong Relationships– Giving Back– Excellent Customer Service– Shareholder Returns– Entrepreneurial Spirit

“Excellent Customer Service”

Company Company CultureCulture

• All businesses under corporate umbrella follow the same values– EXPO– Apex – Home Depot Landscape Supply

• Welcome Aboard broadcast from chairman• Extensive Community Relations Program

– Building and refurbishing playgrounds – Ensuring safe community spaces– Building affordable housing– Preparing communities for emergencies

• Hire Nice– 100,000+ employees hired annually

“Communicate Corporate Value Throughout”

Revenue PlanRevenue Plan

Revenue Plan

$53.60 $58.20$64.80

$73.10$81.00

$89.10$98.01

$107.81$118.59

9% 11% 13% 11% 10% 10% 10% 10% 10% 10%

$130.45

0

20

40

60

80

100

120

140

2001 2002 2004 2004 2005 2006 2007 2008 2009 2010

Bill

ions

• 9 to 12 percent sales growth guidance over the next 5 years• Open 175 new stores

www.yahoofinance.com www.homedepot.com

Operating MarginOperating Margin

Operating Margin Plan

$4.9 $5.8 $6.8 $7.9 $9.2$10.6

$12.3$14.3

$16.6$19.2

10% 10% 11% 12% 13% 13% 14% 15%9% 11%0

5

10

15

20

25

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Bill

ions

• Focus on increased revenues and cost control


EarningsEarnings

Earnings Plan

$3.70$3.00

$4.30

$5.00

$5.80

$6.84

$8.08$9.53

$11.24 $13.27

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Bill

ions

• 10-14 percent earnings guidance


ROA-ROEROA-ROE

ROA/ROE Forecast

11% 12% 13% 13% 13% 14% 14% 15% 15% 16%

17%19% 19% 21% 21%

23% 25% 26% 27%29%

0%

5%

10%

15%

20%

25%

30%

35%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

ROAROE

• Efficient use of assets and equity for profitable returns


http://www.yahoofinance.com/

http://www.homedepot.com/

ROICROIC

Return On Invested Capital

16% 16%18% 19% 19% 20% 20% 21% 21%

0%

5%

10%

15%

20%

25%

2002 2003 2004 2005 2006 2007 2008 2009 2010

Perc

ent R

etur

n

• Wise use of capital to grow the business




Average SaleAverage Sale

Average Transaction

$49.43$51.29

$54.89$57.80

$59.53$61.32

$63.16$65.05

$67.01

40

45

50

55

60

65

70

2002 2003 2004 2005 2006 2007 2008 2009 2010

Dol

lars

• Focus on higher dollar products and transactions




Main CompetitorsMain Competitors

www.hoovers.com

0.00

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

300,000.00

350,000.00

Home Depot Lowe's Menard1 True Value1

Annual Sales ($ mil.)EmployeesMarket Cap ($ mil.)

CustomersCustomers

•Contractors

•Do it yourselfers

•Handymen and Women

•Designers

• Retail Customers

www.homedepot.com

Company StrengthsCompany Strengths

• Size, diversity and continuous growth• Business Model

– Broad assortment of high-quality merchandise and services at competitive prices using highly knowledgeable, service-oriented personnel and strong marketing and co-op promotions

– Knowledgeable associates • Distinctive product range

– 40,000 SKUs including both national brand name and proprietary items

– Strategic alliances with certain suppliers to market products• New Capital Expenditures

– Yearly revenue growth – 9 Billion return to shareholders

“Continuous Growth”

www.mindbranch.com/listing/product/P313-8421.html - 9k

Company WeaknessesCompany Weaknesses

• Weak new store productivity• Rising expenses

– 5 consecutive years – Expense ratio has increased at a

faster pace than competition• Lowe's expenses per foot 19% lower

• Store layout and appearance– Criticized for inconsistencies in

layout/appearance– Resulted in negative publicity and

customer dissatisfaction

“Rising Expenses”


Company OpportunitiesCompany Opportunities

• International Expansion• Acquisition• Additional Products and

Services• Vendor Strategic Alliances

“Global Expansion”


Company ThreatsCompany Threats

• Competitive Environment• Polictical and Regulatory

Issues• Entry to New Markets• Cost of Capital and Expenses

“Proceed with Caution”


Opportunity Threat MatrixOpportunity Threat Matrix

Probability of Occurrence (2011)

Level of Impact High Low

High 3 2

Low 1 4

1 Positioning Store Locations Against Competition

2 Regulatory/Political Issues

3 Real Estate Development Industry Bubble

4 Public Perception

References References

• www.homedepot.com

• www.mindbranch.com/listing/product/P313-8421.html - 9k

• www.yahoofinance.com

• www.mindbranch.com/listing/product/P313-8421.html - 9k

• Joint Center for Housing Studies by Harvard School 2005

Chart AppendixChart Appendix