Home Depot Inc. Case Analysis
Home Depot was founded in 1978 in Atlanta, Georgia. The company went public in 1981. Their stocks were first traded in OTC (Over-The Counter) and were subsequently listed on the New York Stock Exchange in 1984. The Chain stores were warehouses that had huge amounts of building materials and home improvement products targeting customers that were individual home owners and small contractors.
Their aim was to bring the warehouse retailing concept to the home center industry. This was considered to be the first successful company in Do-It-Yourself (DIY) segment and was famous for providing high quality products with low prices. Beside providing best quality products, the company 's distinctive feature was that they provided knowledgeable customer services. All sales personnel were required to attend product knowledge training classes.
The home improvement industry in which Home Depot is part of was a large, rapidly growing and competitive industry during the 1980 's. With two wage earners in each household, families were willing to spend more money on home improvement projects and they rather do it themselves. Therefore the DIY segment grew rapidly. This growing industry attracted many competitors who had a dream of gaining a quick and easy profit.
The success of the first three stores in 1979 encouraged the company to expand its business rapidly and reach the 50th store opening by the end of fiscal 1985. Due to this rapid expansion, the sales grew from $7 million in 1979 to $700 million in 1985. A remarkable part of this expansion plan in 1985 was to acquire nine stores from a competitor store chain which was in financial difficulty, Bowater Home Centers. However, while gaining market shares in the industry, the company 's net earning declined. Furthermore, in 1985, the industry and retailing in general faced a difficult period in which the strongest and most capable companies survived from it but not without being affected. This downward situation also affected
Their aim was to bring the warehouse retailing concept to the home center industry. This was considered to be the first successful company in Do-It-Yourself (DIY) segment and was famous for providing high quality products with low prices. Beside providing best quality products, the company 's distinctive feature was that they provided knowledgeable customer services. All sales personnel were required to attend product knowledge training classes.
The home improvement industry in which Home Depot is part of was a large, rapidly growing and competitive industry during the 1980 's. With two wage earners in each household, families were willing to spend more money on home improvement projects and they rather do it themselves. Therefore the DIY segment grew rapidly. This growing industry attracted many competitors who had a dream of gaining a quick and easy profit.
The success of the first three stores in 1979 encouraged the company to expand its business rapidly and reach the 50th store opening by the end of fiscal 1985. Due to this rapid expansion, the sales grew from $7 million in 1979 to $700 million in 1985. A remarkable part of this expansion plan in 1985 was to acquire nine stores from a competitor store chain which was in financial difficulty, Bowater Home Centers. However, while gaining market shares in the industry, the company 's net earning declined. Furthermore, in 1985, the industry and retailing in general faced a difficult period in which the strongest and most capable companies survived from it but not without being affected. This downward situation also affected
References: K. Palepu, 'The Home Depot, Inc. ', the case, Harvard Business School, 1996Palepu, Healy and Bernard. 'Business analysis and valuation ', Third edition, 2004Table 1: Stores Productivity198319841985Sales/Store ($million)Transaction/Store (000)Sales/TransactionSquare Foot/Store (000)Sales/Square Foot13.5446307418313.9460307718014.04673080175Table 2: Financial ratios of Home DepotFinancial RatioFiscal Year198319841985Return on SalesAsset TurnoverReturn on AssetsFinancial LeverageReturn on Equity (%)Gross Margin (%)SGA Expense/Sales (%)Net Interest Expense/Sales (%)Tax Expense/Sales (%)4.03.714.81.724.527.320.8-3.43.32.48.02.419.426.420.6(0.3)2.81.22.22.63.79.725.923.21.20.5Table 3: Comparison of Home Depot to HechingerHome DepotHechingerFiscal Year198319841985198319841985ROE (%)24.519.49.719.118.915.8ROA (%)14.88.02.610.78.97.1ROS (%)4.03.31.25.35.24.8AT3.72.42.22.01.71.5FL1.72.43.71.82.12.2AT: Asset Turnover, FL: Financial Leverage