HOME DEPOT, INC MIKE SWAPP ACG2021 SECTION 001
EXECUTIVE SUMMARY Home
Depot is an Atlanta based corporation with a new CEO, Frank Blake. As the US fights a housing market slump, Home Depot fights a downturn in sales while continuing to invest, acquire new stores, and expand internationally. Stock prices have rose from last month’s dismal lows and seem to be holding. This is a good sign for investors that have been less than impressed over the last 24 months, with websites like http://www.fool.com/investing/value/2008/02/15/stock-of-the-week-home-depot.aspx valuing the stock at least $7 more than it’s currently trading. Annual
Report Link:
http://ir.homedepot.com/reports.cfm
INTRODUCTION
Frank Blake, Chief Executive Officer
Carol Tome, Executive VP and CFO
Corporate Headquarters located at 2455 Paces Ferry Rd in Atlanta, GA 30339 Fiscal-year ended Jan 28, 2008 The Home Depot is one of the largest diversified wholesale distributors in the United States, offering products and services for building, improving and maintaining homes, businesses and municipal infrastructures. The Home Depot is the world's largest home improvement specialty retailer, with 2,127 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, 10 Canadian provinces, Mexico and China.
AUDIT REPORT
Independent Auditors:
Thomas Ridge, Angelo Mozilo, Kenneth Langone, Lawrence Johnston, Laban Jackson, Jr, Bonnie Hill, Milledge Hart, Claudio Gonzalez, John Clendenin, and Greg Brenneman.
One of the main points the auditors made was the disconnect between former CEO Robert Nardelli’s pay and Home Depot’s performance. They recommended that shareholder’s withhold votes from compensation committee members as a sign of their distaste for the chairman’s $40 million/year package deal. He resigned soon after this report was made public.
STOCK MARKET INFORMATION
Stock Price 27.52 (close Feb 15)
52-week high: 41.85 52-week low: 23.77 Dividends per share in 2007:
0.90
The stock price is just coming off a 5-year low in early January 2008. Former CEO Bob Nardelli stepped down early last year amid criticism from investors of low stock prices and generous pay for the chairman. http://www.msnbc.msn.com/id/16451112/ Newly appointed CEO Frank Blake seems poised raise profits and cut costs including 500 layoffs at corporate headquarters, in Atlanta announced earlier this month. http://www.nytimes.com/2008/02/01/business/01depot.html?partner=rssnyt&emc=rss The company’s profits are closely tied to the housing market, which has been disastrous, but stock prices have shown some improvements since the fed rate-cut last month. It looks as if this stock may have hit bottom and started recovering. It is my recommendation to buy at this time.
INDUSTRY SITUATION AND COMPANY PLANS
Home Depot sells building materials, home improvement supplies, and lawn and garden products to do-it-yourself customers, do-it-for-me customers, home improvement contractors, trades-people, and building maintenance professionals. Its chief competitors are Lowes, Mernard, and True Value. CEO Frank Blake is trying to weather the housing market slump because sales have a strong link to home improvements while he finalizes the acquisition of 12 stores in China.
INCOME STATEMENT Multi-step
format http://finance.yahoo.com/q/is?s=HD&annual These numbers look relatively solid for a large corporation, with a slight decrease in Net Income from 2006 to 2007. The 2008 numbers, which have not yet been disclosed, are anticipated to be less than stellar.
Period Ending… Jan 28 2007 Gross Profit
Jan 29 2006
29,783,000,000 27,320,000,000
Income from Operations
9,700,000,000
9,425,000,000
Net Income
5,761,000,000
5,838,000,000
BALANCE SHEET
Total
liabilities nearly doubled in just one year. This includes an increase of long-term debt from 2.6 Billion to 11.6 Billion. These are somewhat disturbing numbers, but the company has continued to grow.
Fiscal 2006
Fiscal 2005
Total Liabilities Stockholder's Equity
27,233,000,000 17,496,000,000
Total Assets
52,263,000,000 44,405,000,000
25,030,000,000 26,909,000,000
STATEMENT OF CASH FLOWS Cash
flow from operations are at 7.6 Billion and 6.6 Billion for 2007 and 2006, respectively. This is greater than Net Income for these years at 5.7 Billion and 5.8 Billion, respectively. The company invested 7.6 Billion last year, roughly as much as cash flow from operations, including PPE purchases of more than 3 Billion the last two years, and acquisitions of over 4 Billion this year including 12 The Home Way stores in China whose founding management team was trained by Home Depot in the mid 1990’s. Home Depot prefers short-term investments (over 5 Bil) to long-term, which is listed at 0. Home Depot’s primary source of financing, while it continues to invest large sums of money is long-term loans (8.9 Billion last year). This while repurchasing more than 6.6 Billion in Capital Stock last year. Overall, cash has decreased from 793 Million to 600 Million from 2006 to 2007.
ACCOUNTING POLICIES Home
Depot recognizes revenue at the time a customer takes possession of merchandise or receives service, and estimates the liability for sales returns based on historical return levels. Inventories are estimated at the lower of cost or market, with approximately 80% valued under the Retail Inventory Method and the remainder under the Cost Method. Home Depot considers all highly liquid investments purchased with maturities of three months or less to be cash equivalents. Short-term investments are recorded at fair value based on current market rates and are classified as available for sale. Buildings, furniture, fixtures, and equipment are depreciated using the straight line method over the estimated useful lives of the asset. Other financial statement topics of note include: Goodwill and other intangible assets, impairment of long-lived assets, stock-based compensation, derivatives, foreign currency translation, and reclassification of prior years.
FINANCIAL ANALYSIS LIQUIDITY RATIOS
Working Capital: 2007 5.069 Billion, 2006 2.563 Billion.
Assets have increased while liabilities have remained relatively unchanged.
Current Ratio:
Not nearly 2-1 ratio, but improving.
Inventory turnover: 4.8x
2007 1.39, 2006 1.20.
Home Depot moves product, although housing inventory takes vast amounts of warehousing space.
FINANCIAL ANALYSIS PROFITABILITY RATIOS
Profit margin: 2007 6.3%, 2006 7.2%
Home Depot makes sound business decisions and has good sales.
Asset turnover:
Home Depot is an efficient company that moves product within cost.
2007 32%, 2006 38%
FINANCIAL ANALYSIS SOLVENCY RATIO
Debt to equity: 2007 1.09,
2006 .65
The repurchasing of stock with long-term loans during the 2007 year has increased this ratio.
FINANCIAL ANALYSIS MARKET STRENGTH RATIOS Price of stock has plummeted over the last year from $42 a share to $23 in January and then back to $27. Dividend yield: 3.27%
