Investors have been left in the dark, wondering whether home-improvement giant Home Depot
The year 2006 wasn't pretty for Big Orange. Home Depot announced that it grew slower than the overall home-improvement market. That's a humbling development for a company used to years of category-killing and known for mercilessly driving smaller competitors out of business. Former CEO Bob Nardelli's strategy had involved growth in the do-it-for-me supplier business where contractors and other professionals help homeowners improve their homes. Unfortunately, this may have hurt the company's bread-and-butter, do-it-yourself retail store performance.
While overall financial performance has held up well, and certain metrics continue to outshine archrival Lowe's
So where does the company go from here? Home Depot announced a renewed commitment to retailing during yesterday's earnings conference call, and it may end up selling or spinning off the DIFM supply business if it can't find a way to successfully integrate supply into the retail business. It conceded that supply is driving overall sales growth, so the key concern to investors is how long it will take to get the retail business moving in a positive direction again.
Management will offer more insight into its "business strategy and financial outlook for fiscal 2007" during its annual analyst conference, currently scheduled for Feb. 28. Don't expect a quick fix; in addition to the company's internal turmoil, the overall homebuilding industry remains in a funk, as new-home construction trends plummet at builders such as Centex
Despite this, I'm hanging on tight, and I may even add to my position. After all, Home Depot still dominates its industry and throws off prodigious amounts of cash. This was one of the few areas Home Depot could brag about for 2006: During the year, it repurchased $6.7 billion in stock, and increased its dividend twice. We'll know more about Home Depot's future next week, but it will take patience for the company to refocus on retail and ride out home-improvement industry woes.
For related Foolishness:
- Home Depot Needs Improvement: Fool by Numbers
- Home Depot Severs Supply Lines
- Repair Work for Home Depot
- Best and Worst in Customer Service
Fool contributor Ryan Fuhrmann is long shares of Home Depot but has no financial interest in any other company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.