The Bull Rebuttal
By Jeff Fischer (TMF Jeff)
Rick has taken the "Lowe" road in slamming Home Depot. He's hammering home the same tired points that have already sawn the stock in half. These negatives won't drive the stock any lower. They're already known. The company is already acting on them.
Rick criticized the company for saying it's positioned for sustained value creation rather than gonzo growth now, but that's exactly where it should be. Home Depot is 25 years old, not 50 like McDonald's, and it hit its stride in the 1990s, when it opened most of its stores. In the next few decades, it will steadily capitalize on this store base, while still opening new stores.
There's plenty of room for expansion, both for Home Depot nationally and internationally, and for new store concepts. Last year, the chain opened its first three Home Depot Urban stores, smack in the middle of big cities, stocking 20,000 items instead of the usual 50,000. It's also opening Expo Design Center stores, focused on interior design.
There's more. Home Depot is testing a flooring product store, "The Home Depot Floor Store," with its first location in Texas. Among other ventures, the company also acquired Apex Supply Company (a chain of plumbing appliance stores) and Georgia Lighting (a lighting retailer), and has opened Villager's Hardware Stores (40,000 items). Besides all that, 200 new stores in 2003 doesn't sound like saturation.
Rick said it best (although incorrectly!) himself: "Home Depot went in for the tummy tuck when all it really needed was a facelift." But it hasn't gone in for a tummy tuck. It's just spending $200 million on a facelift, and that should keep it young and relevant for years to come.
Jeff Fischer hopes Rick is wrong. He doesn't own shares in Home Depot. Jeff's stock holdings can be viewed online, as can the Fool's disclosure policy.
The Bear Rebuttal
By Rick Aristotle Munarriz (TMF Edible)
While Jeff and I agree that Home Depot is a wrecking ball these days, I think my fellow Fool's optimism is misplaced. He thinks the company will right itself in time while I see a bigger problem for a company that will be $4 billion poorer down the road. Jeff tries to justify Home Depot's 10% lapse in fourth-quarter same-store sales with the "Everybody's doing it" candor of a deluded backseat teenager. Everybody is not doing it, my friend. Lowe's had a 4% spike in comps in its third quarter and earlier this month projected a 2% to 4% increase to close out its fiscal fourth quarter. He mentions Wal-Mart putting up "disappointing" comps, but, again, at least the world's leading retailer still posted positive gains at the store level.
What really bothers me here, and it's something that Jeff seems almost proud of, is that Home Depot will still be adding 200 more stores this year. Since when is handing racing shoes to a crawling school dropout a good idea? Looking at the rearview mirror while driving forward can be hazardous, but looking ahead while going in reverse can kill you.
McDonald's thought it could expand while trying to become more like Wendy's (NYSE: WEN) with its dollar menu. It is failing. Kmart thought it could emulate Wal-Mart by aping its low-price strategy. It failed. If Home Depot thinks that estrogen spritzers and brighter bulbs will be enough to rescue its tarnished brand, I'll laugh. It needs brighter bulbs, and I'm not talking 'bout the screw-in variety.
Yes, Jeff's right. Home Depot trades at a discount to the S&P 500, but guess what? It is still trading at an earnings multiple premium relative to Lowe's. That's not right. There are two ways to get hammered here. You can hold on to Home Depot or you can buy a Home Depot hammer and do it yourself. One is dumb. The other is dumber.
Rick Aristotle Munarriz hopes he's wrong, too. He has friends who bleed orange. He does not own shares in Home Depot. His stock holdings can be viewed online, as can the Fool's disclosure policy
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