HOME DEPOT

TIM BARNES

TYLER CLAYTON

ALEX VESCOVI

FEBRUARY 27, 2012

BUSINESS STRATEGY

• Home Depot is a home improvement retailer that sells building materials and home improvement products

• Product Mix - Percentage of Sales

• Operates throughout United States, Canada, China, and Mexico

Product GroupPercentage of Net Sales (Fiscal Year End

2010)

Plumbing, electrical and kitchen 30.0%

Hardware and seasonal 29.4%

Building materials, lumber and millwork 21.7%

Paint and flooring 18.9%

Total Sales 100.0%

THREE MAIN TYPES OF RETAIL CUSTOMERS:

1. DO IT YOURSELF CUSTOMERS (DIY) HOME OWNERS WHO DO THEIR OWN HOME IMPROVEMENT

2. DO IT FOR ME CUSTOMERS (DIFM) HOME OWNERS PURCHASE MATERIALS/SUPPLIES FROM HD

AND THEN HIRE OUTSIDE SOURCE FOR INSTALLATION

3. PROFESSIONAL CUSTOMERS HOME BUILDERS, PROFESSIONAL CONTRACTORS,

REPAIRMEN

LARGEST CATEGORY WITH ALMOST DOUBLE THE SALES OF DIY CUSTOMERS

WHO BUYS FROM HOME DEPOT?

HOME DEPOT SUPPLY CHAIN

WHO BUYS FROM HOME DEPOT?

GEOGRAPHIC SEGMENTATION –REVENUE (FY 2009 – FY 2011)

HD UNITED STATES - REVENUE

HD INTERNATIONAL -

REVENUE

20

09

20

10

20

11

HOME IMPROVEMENT RETAIL INDUSTRY

HOME IMPROVEMENT RETAIL SALES - BENCHMARKS

TOTAL HOME IMPROVEMENT RETAIL INDUSTRY–

2010 SALES %

HOME DEPOT45.9%

LOWES 32.9%

2010

HOME IMPROVEMENT RETIAL INDUSTRY – YEAR OVER YEAR

GROWTH

2006 20082004

TOTAL HOME IMPROVEMENT RETAIL SALES

HD: 59%

HD: 52.5%

HD: 46.8%

TOTAL HOME IMPROVEMENT INDUSTRY –

RETAIL SALES

2006 2012

TOTAL HOME IMPROVEMENT RETIAL INDUSTRY - SALES

HOME IMPROVEMENT YEAR OVER YEAR SALES GROWTH – VS. HOME DEPOT

HOME DEPOT

INDUSTRY

2003 2011

TOTAL HOME IMPROVEMENT RETAIL SALES TO TOTAL HOME SALES

1993 2011

TOTAL HOME SALES

HOME IMPROVEMENT

SALES

WHAT WILL EFFECT INDUSTRY SALES GROWTH? NEW HOME SALES? HOME RENOVATIONS? UNEMPLOYMENT RATE? GDP? INTEREST RATES?

INFLUENCED BY THE U.S. FEDERAL RESERVE INFLUENCING FLOW OF CREDIT

CONSUMER CONFIDENCE?

INDUSTRY SALES GROWTH

DID YOU SEE ANY OTHER FACTORS INFLUENCING INDUSTRY SALES

GROWTH?

WHAT DID YOU SEE FOR FUTURE HOME IMPROVEMENT RETAIL SALES?

QUESTIONS???

HOME DEPOT – HISTORICAL PERFORMANCE

HOME DEPOT

HD ANNUAL REVENUES – HISTORICAL

FY 2011FY 1992

SEASONALITY – HD REVENUES QUARTER OVER QUARTER

Q1Q1

Q1Q1

Q1

FY 2007 FY 2011

HOME DEPOT ANNUAL EPS – HISTORICAL

FY 1992 FY 2011

HOME DEPOT QUARTERLY EPS - HISTORICAL

Q1Q1

Q1

FY 2007 FY 2011

HOME DEPOT QUARTER 4 EPS - HISTORICAL

HOME DEPOT QUARTER 1 EPS - HISTORICAL

LOWES QUARTERLY EPS – HISTORICAL: SEASONAL

ANYTHING ELSE THAT STUCK OUT TO YOU?

QUESTIONS???

HOME DEPOT STOCK PRICE CORRELATIONS

U.S. UNEMPLOYEMENT RATE

HOME DEPOT STOCK PRICE CORRELATIONS

HOME IMPROVEMENT SPENDING TO U.S. UNEMPLOYMENT RATE - HISTORICAL

U.S. UNEMPLOYEMENT RATE

HOME IMPROVEMENT RETAIL SPENDING

U.S. UNEMPLOYEMENT RATE - FORECAST

2005 EST 2014

U.S. UNEMPLOYMENT RATE AND HD STOCK PRICE CORRELATION –

CORRELATION: -.92

U.S. GDP

HOME DEPOT STOCK PRICE CORRELATIONS

GDP – FORECAST FOR UNITED STATES

2005 EST 2014

U.S. GDP

GDP TO HD STOCK PRICE CORRELATION -

CORRELATION : -.25

HD STOCK PRICE

U.S. GDP

WHAT ELMO THINKS

DO YOU SEE ANY OTHER MACROECONOMIC FACTORS EFFECTING HOME DEPOT?

QUESTIONS???

FORECASTING EPS FOR FISCAL YEAR 2012 –

QUARTER 1

HOME DEPOT

FORECASTING WITH ANNUAL VS. QUARTERLY FIGURES USING EVAL

WHEN WORKING WITH EVAL, EVERY INPUT AND OUTPUT IS ON AN ANNUAL BASIS. SO HOW DO YOU TAKE ANNUAL FORECAST AND GET QUARTERLY EARNINGS PER SHARE?

WE USED EVAL TO FORECAST OUT HOME DEPOT’S FY 2012 ANNUAL INCOME STATEMENT AND BALANCE SHEET. THEN WE TOOK OUR ANNUAL EPS FORECAST AND MULTIPLIED IT BY HISTORICAL Q1 % OF ANNUAL EPS MULTIPLIER.

WHICH GAVE US OUR Q1 EPS ESTIMATE.

USE OF EVAL: ANNUAL VS. QUARTERLY

DID YOU HAVE ANY ALTERNATIVES METHODS FOR YOUR FORECASTING?

QUESTIONS??

SALES GROWTH – HOW WE DETERMINED1. AVERAGE OF PAST YEARS’ Q1 YOY SALES GROWTH

USE AVERAGE GROWTH OF YOY QUARTER 1 GROWTH2. GUIDANCE FROM FY 2011 Q4 MANAGEMENT EARNINGS

CALL

FORECASTING ASSUMPTIONS

MANAGEMENT’S GUIDANCE FOR FY 2012 IS 4% SALES GROWTH FROM Q4 8-K: WE FEEL UNDERESTIMATING

CONTINUE TO BUILD A STRONG BUSINESS ON BASIC REPAIR AND REMOD NEEDS OF CUSTOMERS FORECASTS GROWTH TO BE CONSISTENT WITH GDP

Q4 SALES UP 5.9% FROM LAST YEAR; COMP SALES UP 5.7%; US SAME STORE SALES UP 6.1% EVEN AGAINST VERY STRONG 2010 Q4 COMPS

POSITIVE COMPS IN ALL 40 GEOGRAPHIC MARKETS CANADIAN AND MEXICAN MARKETS - STRONG GROWTH IN COMPS

WARM WEATHER HELPED RAISE Q4 TOTAL REVENUE BY 200 – 250 BASIS POINTS (2.0 – 2.5%) COMPARED TO PREVIOUS YEAR Q4 SEE THE WARM WEATHER TREND TO CONTINUE, THEY ARE SEEING

POSITIVE FEBURARY COMPS, AND EXPECT A SOLID Q1 2012 RECOVERY IN SALES FROM FLORIDA AND CALIFORNIA

MARKETS

FORECASTING ASSUMPTIONS - HD FY 2011 Q4 EARNINGS CALL TRANSCRIPT

IN-STORE CUSTOMER SERVICE IMPROVEMENTS 53% OF STORE LABOR HOURS TO CUSTOMER FACING

ACTIVITIES, COMPARED TO 40% FROM LAST YEAR NEW IN-STORE SERVICE OFFERINGS, INCLUDING IN-STORE

REPAIR SERVICES (PREVIOUSLY MOSTLY DONE OFF-SITE) ONLINE BUSINESS – BEST-IN-CLASS PLATFORM; HELP

DRIVE SALES HAS INVESTED $1.1B TO ENHANCE ITS ONLINE PRESENCE ACQUISTION OF REDBEACON.COM

IMPROVED INVENTORY TURNOVER BIG TICKET ITEMS – UP 9% YEAR-OVER-YEAR

CEO HAS REPORTED SOLID REVENUE NUMBERS FOR JANUARY AND FEBRUARY 2012

FORECASTING ASSUMPTIONS - HD FY 2011 Q4 EARNINGS CALL TRANSCRIPT

COST OF GOODS SOLD / SALES EXPECTED TO GROW AT 50% OF SALES GROWTH (EXPECTED TO GROW

2.5% YOY IN RELATION TO 5% SALES GROWTH YOY) EXPECT INTEREST RATES TO STAY LOW THROUGH AT LEAST FY 2012 COMMODITY PRICES – INPUT PRICES

SG&A EXPENSES FROM FY 2011 EARNINGS CALL TRANSCRIPT

EFFECTIVE TAX RATE 37%: ACCORDING TO MANAGEMENT ASSUMPTIONS IN 2011 Q4 8-K

FORECASTING ASSUMPTIONS

HD INCOME STATEMENT – GROWTH (2005 – 2011)

EVAL – FINANCIAL STATEMENTS

EVAL

EVAL – FORECASTING ASSUMPTIONSINCOME STATEMENT

• Management Guidance of 4% Sales Growth is conservative – from 8-K• 5.7% same-store comps• Average ticket sales rose 2.4%• Continued Gross Margins Growth• Effective Tax Rate: 37% for FY 2012

EVAL – FY 2012 FORECASTINCOME STATEMENT

EVAL – FORECASTING ASSUMPTIONSBALANCE SHEET

EVAL – FISCAL YEAR 2012 FORECASTBALANCE SHEET

EVAL – STATEMENT OF CASH FLOWS

EVAL – FORECASTING ASSUMPTIONS

STATEMENT OF RETAINED EARNINGS

EVAL – FISCAL YEAR 2012 FORECAST

STATEMENT OF RETAINED EARNINGS

EVAL – RATIO ANALYSIS

EPS - FORECASTING

HOME DEPOT

BLOOMBERG – EPS ESTIMATES

WALL STREET JOURNAL –EPS ESTIMATES

HOME DEPOT CONSENSUS REVENUE FORECAST

QUARTERLY EPS - HISTORICAL

Q1Q1

Q1

QUARTER 4 EPS - HISTORICAL

RECENT

TREND

QUARTER 1 EPS - HISTORICAL

RECENT

TREND

Quarter 1 Sales / Annual Sales

Quarter 4 Previous Year Sales / Quarter 1 Sales

FORECASTING SALES – AVERAGES

EVAL – EPS FORECASTER

FORECASTED Q1 2012 - EPS

ANY OTHER QUESTIONS?

QUESTIONS???

1. BLOOMBERG TERMINAL GRAPHS, CHARTS, FIGURES

2. WIKINVEST.COM

SOURCES