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TABLE OF CONTENTS

THE HOME DEPOT, INC...............................................................................................1

EXTERNAL ENVIRONMENT - INDUSTRY ANALYSIS .................................................................................................1 COMPANY ANALYSIS STRATEGY.......................................................................................................................2 Corporate history....................................................................................................................................2 Strategy...................................................................................................................................................3 FINANCIAL RESULTS..........................................................................................................................................5 ASSESSMENT AND RECOMMENDATIONS.................................................................................................................6 References...............................................................................................................................................7 Exhibit 1: Home improvement retail industry leaders...........................................................................8 Exhibit 2: Five forces of competition analysis.......................................................................................9 Exhibit 3: Financial results The Home Depot...................................................................................10 Exhibit 4: Lowes financial results.......................................................................................................14 Exhibit 5: Home improvement retail industry statistics.......................................................................16 Exhibit 6: The Home Depot SWOT analysis.........................................................................................17

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THE HOME DEPOT, INC.

The Home Depot is an Atlanta based company that ranks first in the home improvement retail market. It is also the second largest retail company in the world following Walmart. This paper will study the industry which the company belongs to and the company strategy to assess the companys performance over the last five years, which coincides with the period of time the current CEO has been in charge of the company. After the thorough analysis, there will be a set of recommendations for the company.

External Environment - Industry Analysis

The Home Depot belongs to the retail industry. Because it is a huge industry and it would be complicated to obtain conclusions by studying the whole industry, we will narrow our focus and will analyze the home improvement1 retail industry which the company belongs to. Retailers from this industry typically sell different kinds of building materials, home improvement supplies and lawn and garden products. The target customers usually are do-it-yourselfers (DIY) as well as home improvement, construction and building maintenance professionals. The industry has a fairly concentrated market structure; it is dominated by a few strong competitors (Home Depot and Lowes) with a reduced number of other small players. See Exhibit 1 for industry leaders basic data. Home improvement appears to be less a retail sector and more a movement. There are sociologic facts that boosted the growth of the industry. E.g. when the ABC program Home Improvement debuted in 19912, The Home Depot's annual sales were about $3.8 billion and the company employed 21,500. When the show ended in 1999, the chain (the #1 DIY store operator in the US) had annual sales of about $38.4 billion with 201,000 on the payroll. Home improvement retail sales were around $230 billion in 2004. Home improvement is the weekend hobby of millions of enthusiasts around the world. Weekend DIY-ing is so popular that there are even cable networks dedicated to home improvement along with prime time shows in broadcast channels. Fueled by the low interest rates, home ownership in the United States has been continuously growing over the last years. As home owners invest much more on home improvement than home renters, our industry of study has shown an important growth rate over the last years: an annual compound rate of 7.2 % from 1998 to 2003. Furthermore, 85 % of the nation's homes were built prior to 1980 and will need frequent maintenance, meaning the industry can expect to expand even more. Some experts estimate a 5.3 % rate in the 2003-2008 period so that US home improvement sales will
1

This industry denomination is based on the S&P industry analyses. It is widely used in financial and business documents. Other industry classifications use different terminology: NAICS classification 44411: Home Centers Retail or SIC 5211: Lumber and other building materials
2

Retail Home Improvement Industry Profile: Yahoo Finance

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reach $265 billion by 20083. Currently, big-box chains continue to open stores in the US and abroad. What is clear is the important influence that the general economy has over this particular industry. An increase in interest rates would lead to a halt in home sales that could provoke a stop in the industry growth. Sales in this industry are seasonal having its peak during the spring and summer, when most customers start home improvement projects. Bad weather can affect sales as it has happened during spring 2005. Technology does not affect this industry in a strong way although it is possible to take advantage of technical advances by offering better products and being more efficient in operations. Although in the future it can be expected for this industry to reach maturity and stop growth, home improvement is expected to remain for a long time. The industry is capital intensive requiring strong investments in stores, warehouses and inventories. On the other hand, it can benefit of important economies of scale. From the five forces of the industry analysis (Exhibit 2) we infer that the threat of new entrants is moderate due to the fact that retail chains from other sectors can offer the same products offered by this industry (e.g. Walmart has started to sell some gardening and home products). The fact that the industry is growing also makes it attractive to entrants but capital requirements may lower this threat. The bargaining power is on the side of buyers who have low switching costs. Suppliers have low power. Due to the growth in the industry, the intensity of rivalry among competitors is moderate. As a summary, this is a very attractive industry to be in, especially if one is already a major player. The situation of Home Depot as the market leader is very positive and the company has to take advantage o the possibilities of growth.

Company analysis Strategy

The Home Depot faces important challenges as it tries to maintain its position as the worlds leading home improvement retailer. Its smaller main rival, Lowes, is moving into many of its markets and remains a tough competitor. Corporate history In 1978 co-founders Bernard Marcus and Arthur Blank launched the company in Atlanta, where it still has its headquarters. Home Depot went public in 1981, and it was listed on the New York Stock Exchange in 1984. Today the company has around 1,890 stores in the United States, Canada and Mexico. Home Depot stocks 40,000 to 50,000 different kinds of building materials, home improvement supplies and lawn and garden products in its warehouse-style outlets. Store dimensions average 131,000 square feet. The company had about 320,000 employees at the end of the latest fiscal year making it not only the

Retail Home Improvement Industry Profile: Yahoo Finance

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leader in its industry but also the second largest retailer in the world. It is continuing its expansion. In the last five years the number of stores has grown from 1,134 to 1,890. Former General Electric executive Robert L. Nardelli was appointed president and CEO in 2000. The following year he added the chairman's title. Since his arrival, he has tried to suppress old habits in the company and bring it to the 21st century. Strategy The Home Depot is credited as being the innovator in the home improvement retail industry by combining the economies of scale produced by the warehouse format with a level of customer service very high for warehouse-style retailers. When the new CEO took over in December 2000, Home Depot had lost its competitive edge. Stores were unattractive to customers because of lack of organization and modernization. Meanwhile, the main competitor Lowes had modern and well-ordered stores. The first measures taken were centralizing purchasing to achieve economies of scale. The company also made sure that inventory was restocked outside store hours, avoiding customer complaints about messy hallways. Despite being criticized for poor customer service, the company has shown signals of improvement in this area. Store managers also had problems due to the amount of paperwork required for every project due to duplicated ways of communication: fax, e-mail, call, memos, etc. After they complained in March 20034, the company spent 2 million on workload management software. Since Home Depot announced its plans to increase capital spending 21% to $4 billion for fiscal 20035 in an effort to remodel stores and use technology to improve customer service, the home improvement giant has largely completed its laundry list of activities. That list includes the creation of digital dashboards to monitor store operations, reengineering business processes to focus employees on floor sales, upgrading point-ofsale equipment, speeding up replenishment at stores and implementing SAP. According to analysts, Home Depot's best move is using technology to up-sell goods and services. Self-checkout aisles and Kiosks allow Home Depot to deploy more employees to restock shelves or sell big-ticket items. The result: a contionuous increase in average tickets at Home Depot. The retailer closed the fiscal year ended Jan. 30 with an average ticket of $54.89, up 7.3% from fiscal 2003's amount of $51.15. That improvement translated into fiscal 2004 earnings of $5 billion on sales of $73.1 billion. Operating margin was a record 10.8%. According to the CEO, technology has played a big role in Home Depot's ability to sell more goods and services and increase productivity. Self-checkout systems now reside in 1,029 stores.

4 5

Brian Glow. Thinking outside the big box. Business Week, Oct. 2004 "Data Depot," June 2003, p. 60

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Carl Liebert, senior vice president of operations at Home Depot, said in January that the company will continue to mine customer data to improve service and automate and simplify tasks such as inventory replenishment to give employees more time with customers. Home Depot continually collects data from customers, who get a code on every receipt urging them to provide feedback through a Web site. The customer answer has been good, allowing Home Depot to determine why a customer is there and what's important to him at the time, allocating employees accordingly. As mentioned before, Home Depot is using an automated inventory replenishment system. The goal for 2005 is to have auto-replenishment systems covering 20% of Home Depot's stock-keeping units. The Home Depot has recently announced6 a new partnership with SAP, reinforcing the companys commitment to technology investments to build a robust IT infrastructure. The partnership will provide opportunity for The Home Depot to utilize SAP's solutions to enhance its retail operations and support its other businesses. This new solutions will provide specialized merchandise assortments and promotions at the individual store level, increase operational flexibility by providing a common platform to grow the business, and significantly improve visibility throughout the supply chain. While the company still relies mostly on product sales, it is starting to look for lucrative new niches in the home improvement market. During the 2000-2004 period, the company has started to sell services such as kitchen and bath installation. This way it is targeting not only DIYs but also those who want home improvements done for them and have a professional installation. In the late 1990s Home Depot also created tool rental space in its stores. This way the company can take advantage of the convenience it creates to the DIY customer by being able to rent a tool at the same place he/she is buying home improvement supplies. Home Depot also launched in 2004 a new line of power tools to target professional customers. The retailer also started selling bathroom textiles and accessories through its web site and catalog, expanding its line of products even more. Over the past few years, The Home Depot has been testing different kinds of stores to continue its expansion. First, in 1997 it opened Expo Design Centers 7 which feature showrooms with high-end appliances, modern-design shower heads and specialty flooring. Once planned to open around 200 of these stores, now the company plans to close 15 of the 54 currently existing8 and convert five others into big-box Home Depot locations. These stores never met the expectations for growth or profit. Other specialty stores have been The Home Depot Floor Stores (only two opened in five years), The Home Depot Landscape Supply stores (11 stores) and The Home Depot Supply stores (5 stores). In 1999 the retailer launched Villagers Hardware9, a neighborhood format inspired in hardware stores. It didnt succeed either. Then a new format was launched of about half the size of a typical Home Depot store. The most important ones were located
The Home Depot Partners With SAP to Accelerate the Company's Technology Strategy. PR Newswire US. May 2005
6 7

Tony Wilbert. Home Depot Refocuses Expo Unit. Atlanta Journal and Constitution. January 18 2004
8 9

Home Depot net rises; Expo chain to be pared. The Wall Street Journal. May 2005

Tony Wilbert. Home Depot alters format for urban stores. Atlanta Journal and Constitution. June 21, 2003.

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in Manhattan and Chicago and customer surveys were conducted in the area previous to its construction. These new stores then were created adapting them to customer preferences in each area. The company has an active acquisition strategy in the last few years. Only in 2004 it acquired suppliers like White Cap Construction Supply, competitors like Home Mart in Mexico or related companies like Creative Touch Interiors, the west coast leader in flooring. It looks like they are pursuing vertical (value chain) as well as horizontal (market presence) integration.

Financial results
The financial results show that the retailer is in good shape to meet future challenges (see Exhibit 3 for The Home Depot financial results). It has been very profitable, increasing sales by a compound rate of 12.4% and profits by a 17.9% over the last five years. However, the main competitor has bested these results with 18.6% and 28.5% respectively over the same period of time (Exhibit 4). Gross profit has improved over the last five years from 29.9% to 33.4%, showing a more efficient relation with suppliers although it is still below the industry average (Exhibit 5). Moreover, activity ratios show stability or improvement, with the inventory turnover ratio going from 6.99 to 7.25 over the last three years, better than the competition (Lowes ratio: 6.58 to 6.1). It shows that technology investments to improve productivity are producing good results. Related to the industry average, liquidity ratios are better for Home Depot and leverage ratios are worse. Profitability ratios are similar or better than the industry average. Cash levels are adequate for the industry and As a whole, the financial results are good compared to the industry average and the main competitor, although Lowes is slowly closing the gap in sales and profits.

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Assessment and recommendations

As we can see in the SWOT analysis (see Exhibit 6), the company faces important challenges in the future but it can overcome them by using the important strengths that the company has. The Home Depot has traditionally used a focused cost leadership strategy by using economies of scale and targeting DIYs and construction professionals. As the company was growing in the 1990s, it lost its focus and forgot to serve its customers in an adequate fashion. This trend was changed in the last five years by improving customer service and employees efficiency. The use of new technologies and strategic alliances (SAP) has allowed its employees to turn the focus on the customer, increasing the average ticket per visit. With the introduction of new installation services, Home Depot is changing its focus strategy from only DIYs (traditionally men) to reach a more general customer base, thus shifting to a cost leadership strategy. Opening smaller stores inside cities and having better-ordered stores also shows this tendency. A possible strategy could be to try to reach to women, usually not customers of this kind of store, opening a huge new market. This movement has the risk of losing its traditional customers if the company loses focus again so it has to make sure that customer service is continuously improved and inventories are conveniently managed. The Home Depot has to take advantage of its financially strong position to continue its expansion. As they are trying to open new markets abroad (China), they have to be sure that they dont lose attention to its core business and core market: the U.S. The company has to continue its investments in new technology and focus on customer satisfaction while being efficient in its operations in order to continue to create value for its customers as well as to maintain its position as the industry leader. Only this way will be able to obtain above average returns once the industry stops its growth phase.

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References Carrns, Ann. Home Depot net rises; Expo chain to be pared Wall Street Journal May 18, 2005 pg. B.2 Corral, Cecile B. Home Depot enters bath Home Textiles Today May 2, 2005. Pg 2 Grow, Brian Thinking outside the big box Business Week. Oct 25, 2004 pg 70 Hitt, Michael, R. Duane Ireland, Robert E. Hoskisson. Strategic Management 6th ed. Mason: South-Western, 2005 Home Depot to test smaller stores HFN June 18, 2001 Pg. 3 Home Depot to open flooring concept store PR Newswire June 8, 2000 Inside line: Home Depot vs Lowes Analyst Wire May 13, 2005 URL:
http://proquest.umi.com.ezp1.harvard.edu/pqdweb? did=840268381&sid=2&Fmt=3&clientId=11201&RQT=309&VName=PQD

Luna, Nancy Home Depot to Buy Orange County, Calif.-Based Construction Supplier The Orange County Register May 7, 2004 Roth, Michael Home improvement Rental Equipment Register September 1, 2004. 10 The Home Depot, Inc. Better investing. Dec. 2002. Pg 46, 2 pgs Yahoo Retail home improvement Industry Center. URL:http://biz.yahoo.com/ic/rthome.html

Financial statements were obtained through the company website: http://ir.homedepot.com/annual.cfm And through SEC Filings & Forms (EDGAR): http://www.sec.gov/edgar.shtml

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Exhibit 1: Home improvement retail industry leaders

Company name Home Depot, Inc. Lowe's Companies, Inc. Sherwin-Williams Company Menards Inc. Stock Building Supply Tractor Supply Company Building Materials Holding Corp. Market Cap. (Mill.$) Sales (Mill.$) Employees 86,023 74,517.00 325,000 43,999 37,696.00 125,000 6,092 6,332.81 28,690 Private 6,000.00 3,588.0* 1,669 1,785.49 4,200 869 2,247.11 12,000

* Data from 2003 Source: Retail (Home Improvement) Company Ranks 2004/2005 - Reuters.com -

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Exhibit 2: Five forces of competition analysis Forces Threat of new entrants Description Low product differentiation Important capital requirements Vigorous retaliation expected from existing firms in the industry to new entrants Other retail chains (Walmart) can enter the market by offering similar lines of products There are many supplier companies Suppliers product is important to industry companies success There are not high switching costs for the industry companies Buyers create all of the revenue of the industry companies DIYs and construction professionals have low switching costs Home improvement products doesnt have a clear substitute Few competitors Industry growth is high Lack of differentiation and low switching costs Result High barriers of entry Overall threat is moderate

BP of suppliers

Low BP

BP of buyers

High BP

Threat of substitute products Intensity of rivalry

Low threat

Moderate rivalry among competitors

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Exhibit 3: Financial results The Home Depot

INCOME STATEMENT (in millions of $) FISCAL YEAR END NET SALES COST OF GOODS GROSS PROFIT SELLING, GENERAL & ADMIN INCOME BEFORE DEPREC & AMORT NON-OPERATING INCOME INTEREST EXPENSE INCOME BEFORE TAX PROVISION FOR INCOME TAXES NET INCOME 1/30/2005 73,094 48,664 24,430 16,504 7,926 56 70 7,912 2,911 5,001 2/1/2004 64,816 44,236 20,580 13,734 6,846 59 62 6,843 2,539 4,304 2/2/2003 58,247 40,139 18,108 12,278 5,830 79 37 5,872 2,208 3,664 2/3/2002 1/28/2001 53,553 37,406 16,147 11,215 4,932 53 28 4,957 1,913 3,044 45,738 32,057 13,681 9,490 4,191 47 21 4,217 1,636 2,581

5-YEAR GROWTH RATE

Sales 12.4%

Net Income 17.9%

Year to year variation 2004-2003 2003-2002 2002-2001 2001-2000 NET SALES COST OF GOODS GROSS PROFIT SELLING, GENERAL & ADMIN INCOME BEFORE DEPREC & AMORT INCOME BEFORE TAX PROVISION FOR INCOME TAXES NET INCOME
INCOME STATEMENT - Percentages FISCAL YEAR END NET SALES GROSS PROFIT SELLING, GENERAL & ADMIN INCOME BEFORE DEPREC & AMORT NET INCOME 1/30/2005 100% 33.4 22.6 10.8 6.8% 2/1/2004 100% 31.8 21.2 10.6 6.6% 2/2/2003 100% 31.1 21.1 10.0 6.3% 2/3/2002 100% 30.2 20.9 9.3 5.7% 1/28/2001 100% 29.9 20.7 9.2 5.3%

13% 10% 19% 20% 16% 16% 15% 16%

11% 10% 14% 12% 17% 17% 15% 17%

9% 7% 12% 9% 18% 18% 15% 20%

17% 17% 18% 18% 18% 18% 17% 18%

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1/30/2005 2/1/2004 2/2/2003 506 1,659 1,499 10,076 450 14,190 28,437 5,711 22,726 369 1,394 228 38,907 1,103 1,749 1,097 9,076 303 13,328 24,594 4,531 20,063 84 833 129 34,437 2,188 65 1,072 8,338 254 11,917 19,861 2,693 17,168 107 575 244 30,011

2/3/2002 2,477 69 920 6,725 170 10,361 18,129 2,754 15,375 83 419 156 26,394

LIABILITIES FISCAL YEAR END ACCOUNTS PAYABLE CURRENT LONG TERM DEBT ACCRUED EXPENSES INCOME TAXES OTHER CURRENT LIABILITIES TOTAL CURRENT LIABILITIES DEFERRED CHARGES & INCOME LONG TERM DEBT OTHER LONG TERM LIABILITIES TOTAL LIABILITIES COMMON STOCK NET CAPITAL SURPLUS RETAINED EARNINGS TREASURY STOCK OTHER LIABILITIES SHAREHOLDERS' EQUITY TOTAL LIABILITIES & NET WORTH 1/30/2005 2/1/2004 2/2/2003 5,766 11 3,045 161 1,546 10,529 1,309 2,148 763 14,749 119 6,650 23,962 6,692 119 24,158 38,907 5,159 509 2,430 175 1,281 9,554 967 856 653 12,030 119 6,184 19,680 3,590 14 22,407 34,437 4,560 7 2,243 227 998 8,035 362 1,321 491 10,209 118 5,858 15,971 2,000 (145) 19,802 30,011 2/3/2002 3,436

211 938 6,501 189 1,250 372 8,312 117 5,412 12,799

18,082 26,394

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CASH FLOW STATEMENT (in millions)

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1/30/2005 CASH FROM OPERATIONS NET INCOME (LOSS) DEPRECIATION & AMORTIZATION NET INC(DEC) IN ASSETS & LIABS CASH FROM (USED IN) DISC OPS OTHER ADJUSTMENTS, NET NET CASH FROM (USED IN) OPS CASH FROM INVESTMENTS (INC) DEC PROP & PLANT ACQ (DISP) OF SUBS OR OTH BUS INC (DEC) IN INVESTMENTS OTHER CASH INFLOW (OUTFLOW) NET CASH FROM (USED IN) INVESTING CASH FROM FINANCING ISSUANCES OF EQUITY SHARES ISSUANCES (REPAYMENT) OF DEBT INC (DEC) IN BANK, OTH BORROWINGS DIVIDENDS, OTHER DISTRIBUTIONS OTHER CASH INFLOW (OUTFLOW) NET CASH FROM FI-NCING EFFECT OF EXCHG RATES ON CASH NET CHANGE CASH & EQUIVALENTS CASH & EQUIVS AT START OF YEAR CASH & EQUIVS AT YEAR END 5,001 1,319 459 125 6,904 (3,852) (727) 100 (4,479) (2,821) 485 (719) (3,055) 33 (597) 1,103 506 -

2/1/2004

2/2/2003

2/3/2002

1/28/2001

4,304 1,076 1,098 67 6,545 (3,243) (215) (115) (598) (4,171) (1,327) (9) (595) (1,931) 20 463 640 1,103

3,664 903 1,797 (1,562) 4,802 (2,644) (213) (77) (2,934) (1,674) 1 (492) (2,165) 8 (289) 2,477 2,188

3,044

2,581

5,963

2,796

(3,466)

(3,530)

167 2,477

168 167

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CSS-100 RATIO ANALYSIS - Home Depot FISCAL YEAR END QUICK RATIO CURRENT RATIO SALES/CASH SALES, GENERAL & ADMIN/SALES RECEIVABLES TURNOVER RECEIVABLES DAY SALES INVENTORIES TURNOVER INVENTORIES DAY SALES NET SALES/WORKING CAPITAL NET SALES/PLANT & EQUIPMENT NET SALES/CURRENT ASSETS NET SALES/TOTAL ASSETS NET SALES/EMPLOYEES TOTAL LIAB/TOTAL ASSETS TOTAL LIAB/INVESTED CAPITAL TOTAL LIAB/COMMON EQUITY TIMES INTEREST EARNED CURRENT DEBT/EQUITY LONG TERM DEBT/EQUITY TOTAL DEBT/EQUITY TOTAL ASSETS/EQUITY PRE-TAX INCOME/NET SALES PRE-TAX INCOME/TOTAL ASSETS PRE-TAX INCOME/INVESTED CAP PRE-TAX INCOME/COMM EQUITY NET INCOME/NET SALES NET INCOME/TOTAL ASSETS NET INCOME/INVESTED CAP NET INCOME/COMMON EQUITY

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1/30/2005 0.35 1.35 33.76 0.23 48.76 7.38 7.25 49.63 19.97 3.22 5.15 1.88 0.38 0.56 0.61 114.03 0 0.17 0.61 1.61 0.11 0.2 0.3 0.33 0.07 0.13 0.19 0.21 -

2/1/2004 0.41 1.4 22.73 0.21 59.08 6.09 7.14 50.41 17.17 3.23 4.86 1.88 0.35 0.52 0.54 111.37 0.02 0.11 0.53 1.54 0.11 0.2 0.29 0.31 0.07 0.12 0.19 0.19

2/2/2003 0.41 1.48 25.85 0.21 54.33 6.63 6.99 51.53 15 3.39 4.89 1.94 208,025 0.34 0.48 0.52 159.7 0 0.11 0.52 1.52 0.1 0.2 0.28 0.3 0.06 0.12 0.17 0.19

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Exhibit 4: Lowes financial results

INCOME STATEMENT (in millions of $) FISCAL YEAR END NET SALES COST OF GOODS GROSS PROFIT SELLING, GENERAL & ADMIN INCOME BEFORE DEPREC & AMORT DEPRECIATION & AMORTIZATION INTEREST EXPENSE INCOME BEFORE TAX PROVISION FOR INCOME TAXES NET INCOME BEFORE EX-ITEMS EX-ITEM & DISCONTINUED OPNS NET INCOME OUTSTANDING SHARES 5-YEAR GROWTH RATE 1/30/2005 36,464 24,165 12,299 7,685 4,614 902 176 3,536 1,360 2,176 2,176 774 Sales 18.6% 2/1/2004 30,838 21,231 9,607 5,706 3,901 777 180 2,944 1,115 1,829 15 1,844 787 Net Income 28.5% 2/2/2003 26,112 18,164 7,948 4,754 3,194 640 182 2,372 893 1,479 12 1,491 782

Year to year variation 2004-2003 2003-2002 NET SALES COST OF GOODS GROSS PROFIT NET INCOME 18% 14% 28% 18% 18% 17% 21% 24%

INCOME STATEMENT - Percentages FISCAL YEAR END NET SALES GROSS PROFIT SELLING, GENERAL & ADMIN INCOME BEFORE DEPREC & AMORT NET INCOME 1/30/2005 100% 33.7% 21.1% 12.7% 6.0% 2/1/2004 100% 31.2% 18.5% 12.6% 6.0% 2/2/2003 100% 30.4% 18.2% 12.2% 5.7%

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RATIO ANALYSIS - Lowe's FISCAL YEAR END QUICK RATIO CURRENT RATIO SALES/CASH SALES, GENERAL & ADMIN/SALES RECEIVABLES TURNOVER RECEIVABLES DAY SALES INVENTORIES TURNOVER INVENTORIES DAY SALES NET SALES/WORKING CAPITAL NET SALES/PLANT & EQUIPMENT NET SALES/CURRENT ASSETS NET SALES/TOTAL ASSETS NET SALES/EMPLOYEES TOTAL LIAB/TOTAL ASSETS TOTAL LIAB/INVESTED CAPITAL TOTAL LIAB/COMMON EQUITY TIMES INTEREST EARNED CURRENT DEBT/EQUITY LONG TERM DEBT/EQUITY TOTAL DEBT/EQUITY TOTAL ASSETS/EQUITY PRE-TAX INCOME/NET SALES PRE-TAX INCOME/TOTAL ASSETS PRE-TAX INCOME/INVESTED CAP PRE-TAX INCOME/COMM EQUITY NET INCOME/NET SALES NET INCOME/TOTAL ASSETS NET INCOME/INVESTED CAP NET INCOME/COMMON EQUITY 2004 0.14 1.22 44.85 0.21 4051.56 0.09 6.1 59.06 29.05 2.62 5.23 1.72 NA 0.46 0.66 0.84 21.09 0.05 0.27 0.32 1.84 0.1 0.17 0.24 0.31 0.06 0.1 0.15 0.19 2003 0.42 1.55 18.99 0.19 211.22 1.7 6.73 53.51 13.28 2.61 4.73 1.64 209,782 0.46 0.61 0.84 17.36 0.01 0.36 0.37 1.84 0.1 0.16 0.21 0.29 0.06 0.1 0.13 0.18 2002 0.37 1.6 23.19 0.18 151.81 2.37 6.58 54.71 12.57 2.52 4.69 1.62 170,667 0.48 0.65 0.94 14.03 0 0.45 0.45 1.94 0.09 0.15 0.2 0.29 0.06 0.09 0.12 0.18

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Exhibit 5: Home improvement retail industry statistics

Industry Statistics Valuation Ratios P/E (ttm) P/Sales (ttm) P/Book (mrq) P/Cash Flow (mrq) Profitability (ttm) Gross Margin % Operating Margin % Net Profit Margin % Financial Strength (mrq) Quick Ratio Current Ratio LT Debt/Equity Total Debt/Equity Mgt. Effectiveness (ttm) Return on Invstmt % Return on Assets % Return on Equity %

17.93 1.18 3.67 15.17

34.06 10.48 10.47

0.32 1.23 0.16 0.19

17.51 12.21 21.93

Source: Retail (Home Improvement) Industry Statistics - Reuters.com

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Exhibit 6: The Home Depot SWOT analysis

Strengths Brand recognition Strong marketing resources Bargaining power with suppliers Several distribution channels Financially strong Leader in its industry

Weaknesses International potential not fully exploited Heavy dependency on US market Lack of efficiency in its operations

Opportunities Development of new technologies can provide new distribution channels and improve cost efficiencies Growth opportunity in the Asian market

Threats Potential lifestyle and demographic changes Other retail chains can start selling similar products with competitive cost advantages Possible future market saturation

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