Well, Home Depot seems headed for terrible financial horizons ahead.
Last month Home Depot announced a whopping 28% decline in earnings for the fourth quarter. Even more striking, same-store sales were down 6.6% from the previous year. This had never happened before, not in all 28 years of company history. Once a growth darling, "the new Wal-Mart" and a stock that sold at twice the market multiple, Home Depot is now widely discussed as a potential private-equity buyout candidate because it earns 22% on shareholder equity and has lots of assets to hock. Today it sells at a below-market multiple of 14.4 and offers an above-average dividend yield of 2.2%.
Embattled CEO Robert Nardelli resigned nearly a month ago, and the company recently announced plans to hire more sales associates for its stores. But little has changed for investors.
For one thing, the company's management change wasn't radical enough. The board didn't go outside the company to find a person with years of retailing experience -- it elevated Frank Blake, a Nardelli hire and another former General Electric man. Though Blake will try to put his own stamp on the company, he was behind many of the moves that investors have questioned, most notably the move into construction supply. What Home Depot needed was a leader who understands retail and the customer experience. Blake isn't that man.
Maybe that's why the stock hasn't made much headway. It's possible Blake will prove the skeptics wrong by improving customer service, inventory management and store appeal, but there is nothing in his past to suggest that he possesses the skill set to accomplish those tasks.
There's no reason to invest your money on the hope that he will succeed.
Home Depot's stock has rebounded some 22% off its summer lows amid hopes that a bottom in the real estate market would translate into improved performance. Now you can't even make a compelling valuation argument for buying the stock at current levels. Home Depot currently sells at 14 times next year's estimated earnings of $2.88 per share. That might seem cheap until you realize that earnings over the next year are expected to climb by a scant 1.4%. By comparison, Lowe's trades at 15.8 times estimated earnings, with a growth rate of nearly 5%.
But I'd like to suggest a much bigger reason that Home Depot has become a troubled and unloved company. I call it time abuse.
Home Depot is a consistent abuser of its customers' time. Let me explain.
Back in 1990, when my wife and I loved Home Depot, the stores were staffed with well-trained, knowledgeable and helpful people. If you had a question, even a silly one, it was easy to find someone who knew the answer. Home Depot had an amazing inventory. It also had a staff that helped you access that inventory and make choices.
Though it didn't have employees waiting at the door, as do high-service stores such as Elliot's in Dallas and Big Jo in Santa Fe, you could make a purchase quickly at Home Depot.
But that was then.
Today, it is difficult to find a staff person at a Home Depot. Personally, I've left the store empty-handed after a hopeless wait. During one long wait shortly before Christmas, I commented to a worker that the store was so busy they must be getting lots of overtime.
"No way," the employee said.
My wife has gotten so frustrated waiting -- while trying to buy carpeting for an entire house -- that she has taken her business elsewhere.
I know we're not alone. One of my friends started to seethe when I mentioned Home Depot. He'll buy things almost anywhere, except Home Depot. He hates having his time abused.
That's what Home Depot does by short-staffing. It abuses our time. We can't get the help we need, and we can't make our purchases quickly. The result is that a once iconic, wonderfully American store has become an aggravation rather than a blessing.
Let's hope the board of directors at HD takes the time to learn what's obvious to ordinary people who do a lot for themselves and need to make good use of their time.
The solution is to add people to the payroll rather than reducing both.