Home Depot to target 'inclusive' clientele

By Harry R. Weber
Associated Press and Advertiser Staff

ATLANTA — The Home Depot said yesterday it will broaden its customer base beyond its do-it-yourself clientele and launch a $250 million store remodeling program but predicted only modest earnings growth for 2003.

The Home Depot announced yesterday it will launch a $250 million store remodeling program in an effort to expand its customer base. The Hawai'i stores — in Iwilei (pictured), Pearl City, Kona and Kahului — will undergo modest changes. Advertiser library photo

Home Depot's oldest Hawai'i store, in Iwilei, opened 3 1/2 years ago and will only have its signs updated, said store manager Bill McKale. The new store in Kona on the Big Island won't need any work, McKale said.

Chief executive Bob Nardelli said the company "certainly could be more sensitive to the decor side. Our studies show that males and females are both involved in the decor side."

"We know who we are, we know what got us here," Nardelli told investors during a conference call. "What it means to us is we will be inclusive, not exclusive. We will not drop a gender to add a gender. We want to satisfy our customers whether they are do-it-yourselfers or professionals, male or female."

Nardelli said the company also needs "to make the stores more shopable and cleaner. Sometimes you have to step outside the box — that's why we have moved aggressively into the appliance business. At the same time, we're not going to go put in 10 or 20 bays of Christmas decoration."

Nardelli also said he may have underestimated how difficult it would be for the nation's largest home-improvement-store chain to complete a transition to a more centralized operation.

"If I had it to do over again, would I have done it slower? No. I would have done it with more planning and foresight," he said. "Clearly as I said, we underestimated the magnitude and the significance of some of these changes."

Home Depot has been trying to retool its identity and appeal to different kinds of customers in recent years, as Wilkesboro, N.C.-based Lowe's has gained ground on the longtime market leader.

"We're an organization that is passionate about customer service," Nardelli said. "We're an organization that understands and is focused on the compelling values of this company."

It's also a company, he acknowledged, that needs to work harder at its bottom-line results.

Laurie Breidenbach, an analyst with Ragen MacKenzie in Seattle, said in a research note that she was cautiously optimistic about the company's earnings potential. Her firm rates Home Depot a buy. But she said key risks include weak consumer spending and growing pressure from Lowe's.

Deutsche Bank Securities analysts Michael Baker and David Weiner said Home Depot's decision to reinvest at the store level is the right move.

"However, while these are the correct steps in our opinion, we believe that greater investments, particularly in the area of store associates, could be warranted," they said in a research note.

Their firm rates Home Depot a sell.

Chief financial officer Carol Tome reiterated yesterday that Home Depot, which lowered its guidance earlier this month, expects earnings for 2002 of between $1.53 and $1.55 a share when it reports to investors on Feb. 25. That's below the $1.57 a share initially forecast by analysts surveyed by Thomson First Call.

Tome said slow holiday sales hurt the company.

"What we didn't understand was what was happening with the rest of retail," Tome said. "December was a very tough month for us."

Home Depot said its overall sales declined up to 10 percent during December. The company expected a drop of 3 percent to 5 percent.

For all of 2002, Home Depot said it expects total sales growth of 10 percent and earnings per share growth of 21 percent to 23 percent on a comparable 52-week basis for fiscal 2002.

In 2003, Home Depot expects full-year earnings of between $1.67 and $1.77 a share, an increase of 9 percent to 14 percent. Analysts are expecting $1.67 a share. The company said it expects to deliver sales growth of between 9 percent and 12 percent.

Other initiatives and growth strategies for 2003 announced by Home Depot yesterday include:

• Increasing capital spending 21 percent to $4 billion.

• Opening 200 stores and adding 40,000 employees. The company has 277,000 employees.

• Increasing the number of stores that have tool rental centers.

Home Depot operates 1,502 retail outlets in the United States, Canada and Mexico.

Shares of Home Depot closed up 26 cents, at $22.43, in trading yesterday on the New York Stock Exchange.