Home Depot Outlines Plans to Refocus on Retail (UPDATED)

Home Depot CEO Frank Blake reinforced his drive to refocus on the business' retail division at the company's annual investor and analyst conference. To that end, Blake told participants that acquisitions outside of the retail core won't be a priority for us.

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HD Supply ended the year at 12% of Home Depot's overall sales - HD hopes that number will grow to 15% by the end of the year. Still HD Supply, which reached $12 billion in sales in 2006, had a 6.9% decline in organic growth in the fourth quarter. That is consistent with the down housing market.

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Retail also suffered in the fourth quarter 2006 with a profit drop of 28%. Sales were up just 4%. For the year, organic growth was down 2.8%.

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HD does not expect residential construction and the housing market to improve until late in the second half of 2007 or early 2008.

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Blake has in recent weeks promised to zero in on improving the retail business. Home Depot announced it would consider strategic alternatives" for its HD Supply business, including a possible sale of the wholesale division.

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Home Depot touched on that announcement in its annual meeting with investors, but for the most part questions and presentations stuck with proposed improvements to the retail side.

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Wholesale Sale?
In the 2/20/07 transcript of the call with analysts/investors regarding year-end results, HD provided some color behind the discussions to evaluate "strategic alternatives" for HD Supply. Blake said that it was important to determine a course of action for HD Supply so that the company didn't have "a foot on the dock and a foot on the boat." "We're exploring all alternatives and as is obvious from my comments, don't assume anything from it," he said.

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It had "nothing to do with the performance of the business."

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Blake emphasized that he wants to ensure Home Depot is one entity and not a conglomerate of different business segments. "With Home Depot Supply, one of the first moves was making Joe (DeAngelo) the Chief Operating Officer across all of Home Depot, and request Joe look across the whole company and how do we think about this as one entity and drive an enterprise-wide advantage from the Supply business and the orange box?" Blake explained.

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"… I concluded and recommended to our Board that the best alternative would be to look at our other options at this point because once Joe and his team are launched down the road of integrating, doing a do-over becomes very hard."

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Retail Focus

"While the current home improvement market remains challenging, the long-term fundamentals of our company are strong, and we believe we can improve our performance and grow at, or faster than, the market beyond 2007," Blake said. "That's why we are making significant investments in our associates and our stores."

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Among proposed improvements, worth an estimated $2.2 billion:

Associates: HD plans to focus on know-how and service as competitive differentiators. It plans to recruit master trade specialists, implement a simplified staffing model and technology-enabled customer assistance, and redesign compensation and reward plans.
Products: In 2007, HD will focus on merchandising resets, product innovation, pricing strategies and sourcing initiatives.
< Product Availability: HD will invest in its logistics capabilities, including demand forecasting and distribution.
< Shopping Environment: Investments totaling $865 million will be made to improve the safety, cleanliness and organization of the stores.

Serving the Pro: HD will spend $415 million on loyalty programs, a pro bid room

to handle large customer orders with volume discounts, direct ship programs, credit programs and other specialty sales initiatives.
Financial targets for the year include:

Total sales growth of 0-2%, with HD Supply growing from 13% to 15% of total sales by the end of the year.
Retail comps in negative mid-single-digit area.
115 new store openings; 4.6% square footage growth.  ;
Related Links

HD Supply White Cap Agrees to Buy GSI
HD Supply Hits $12.07B in 2006   ;

HD to Evaluate "Strategic Alternatives" for HD Supply Business   ;
Home Depot Reaches $81.5B in Sales in 2005
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