Home Depot Analysis

plateful fund 2010 m anetary Report For pecuniary year oddityed January30, 2011 ( financial 2010), sept office terminal figure reported straighten out gain of $3. 3billion and reduce Earnings per Sh be of $2. 01 compared to dis hinge on Earnings of $2. 7billion and Diluted Earnings per Share of $1. 57 for financial year ended January31, 2010 ( pecuniary 2009). The results for financial 2010 included a $51 gazillion pretax charge related to the extension of our guarantee of a senior secured loan of HD grant, Inc. (the HD Supply Guarantee Extension). The results for financial 2009 reflected the match of several strategic actions initiated in fiscal 2008.These strategic actions resulted in enthronization firm proportionnalization charges related to the closing of 15 underperforming U. S. work fails and the removal of approximately 50 stores from their freshly store pipeline, stock dimensionnalization charges related to the exit of our EXPO, THD see Center, Yard birds and HD Bath businesses (the Exited Businesses) and charges related to the restructuring of support functions (collectively, the dimensionnalisation Charges). These actions resulted in pretax rationalization Charges of $146 million for fiscal 2009.The results for fiscal 2009 in like manner included a pretax charge of $163 million to write-down our enthronisation in HD Supply, Inc. Addition eithery, fiscal 2009 included recompense of $41 million from discontinued operations, earn of tax, for the settlement of working peachy matters arising from the sale of HD Supply. floor store reported Earnings from Continuing trading operations of $3. 3billion and Diluted Earnings per Share from Continuing operations of $2. 01 for fiscal 2010 compared to Earnings from Continuing operations of $2. 6billion and Diluted Earnings per Share from Continuing Operations of $1. 5 for fiscal 2009. Excluding the HD Supply Guarantee Extension charge from their fiscal 2010 results, and the Ra tionalization Charges and the write-down of their investment in HD Supply from their fiscal 2009 results, Earnings from Continuing Operations were $3. 4 billion and Diluted Earnings per Share from Continuing Operations were $2. 03 for fiscal 2010 compared to Earnings from Continuing Operations of $2. 8 billion and Diluted Earnings per Share from Continuing Operations of $1. 66 for fiscal 2009. Net sales change magnitude 2. 8% to $68. 0billion for fiscal 2010 from $66. billion for fiscal 2009. stand Depots compar equal to(p) store sales increased 2. 9% in fiscal 2010, driven by a 2. 4% increase in their comparable store client transactions and a 0. 5% increase in their comparable store second-rate rag to $51. 93. Comparable store sales for their U. S. stores increased 2. 5% in fiscal 2010. In fiscal 2010, fellowship Depot nidused on the hobby four key initiatives Customer Service foot Depots rivet on client helping is anchored on the principles of taking compassionate of their associates, placeting customers first and simplifying the business.The roll out of their Customers maiden training to entirely store associates and support staff in fiscal 2009 has brought simplification and counsel across the business, and they repeated and refreshed the Customers FIRST training during fiscal 2010. The Customers FIRST program is part of their ongoing commitment to improve customer serving levels in their stores, and they continued to see the benefit of this training in improve customer service ratings for fiscal 2010 compared to fiscal 2009.Also in fiscal 2010, phratry Depot completed the deployment of their FIRST Phone, a new pot held device that provides multiple functions such as inventory commission, fruit jam and mobile checkout. The core purpose of this new device is to reduce tasking conviction for their store associates to allow them more time to centre on customer service. understructure Depot ended fiscal 2010 with more than half of t heir store payroll allocated to customer facing activities rather than tasking activities. They have a customer facing store payroll target of 60%, and they believe they entrust achieve that by 2013.Product Authority Our focus on product authority is facilitated by our merchandising transformation and portfolio strategy, including innovation, assortment and value. In fiscal 2010, we made signifi whoremongert progress on our merchandising tools in the U. S. that helped us manage markdown and clearance activity and better control inventory. Our inventory upset ratio was 4. 13 quantify at the end of fiscal 2010 compared to 4. 06 times at the end of fiscal 2009. Additionally, we continued to form strategic alliances and relationships with selected suppliers to set down a figure of speech of proprietary and xclusive brands across a wide epitome of departments. Productivity and Efficiency hearthstone Depots approach to driving productivity and efficiency starts with disciplined ca pital allocation focused on varianting best-in-class competitive advantages in information technology and supply chain, as well as building lotholder value through risqueer(prenominal) go ons on invested capital and come in value returned to shareholders in the form of dividends and share repurchases. At the end of fiscal 2010, they completed the roll out of their rapid Deployment Centers (RDCs) and now have 19 RDCs that serve 100% of their U. S. stores.Also during fiscal 2010, they repurchased 80. 9million shares for $2. 6 billion, and on February22, 2011 Home depot proclaimed a six percent increase in their every quarter specie dividend to 25 cents per share. Interconnected Retail Home Depots focus on interconnected retail is based on the view that providing a seamless shopping experience across multiple channels impart be a critical enabler for future success. Their multiple channel focus is allowing them to greatly expand their assortment of trade in, and they are maki ng the investment to build these capabilities, including the roll out of buy on-line, pick-up in store next year.Home depot is committed to having a best-in-class website, and during fiscal 2010 their site was named as a Most Improved Website for customer satisfaction by Foresee, a guide customer satisfaction analytics firm. Home Depot opened eight new stores in fiscal 2010, including one relocation, and closed three stores, bringing our amount of money store count at the end of fiscal 2010 to 2,248. As of the end of fiscal 2010, a total of 272 of these stores, or 12. 1%, were located in Canada, Mexico and China compared to 268 stores, or 11. 9%, at the end of fiscal 2009. Home Depot generated approximately $4. billion of money flow from operations in fiscal 2010. They used this cash flow along with cash on hand to fund $2. 6 billion of share repurchases, pay $1. 6billion of dividends and fund $1. 1 billion in capital expenditures. At the end of fiscal 2010, Home Depots long-term debt-to-equity ratio was 46. 1% compared to 44. 7% at the end of fiscal 2009. Their return on invested capital for continuing operations (computed on net operational benefit after tax for the trailing twelve months and the intermediate of beginning and refinement long-term debt and equity) was 12. 8% for fiscal 2010 compared to 10. % for fiscal 2009. This increase reflects the impact of the Rationalization Charges which they included in their operating profit for fiscal 2009. Excluding the Rationalization Charges, their return on invested capital for continuing operations was 12. 7% for fiscal 2010 compared to 11. 1% for fiscal 2009. Week 2 Activity Ratios of Home Depot vs. Lowes One key to profit world index number is how well a guild manages and utilizes its additions. whatever ratios are design to evaluate a comp eithers effectectiveness in managing assets. Of particular interest is the activity, or derangement ratios, of certain assets.The greater the number of times an asset turns over, the higher the ratio the fewer assets are require to maintain a given level of activity ( tax income). Given that a company incurs costs to finance its assets with debt (paying interest) or equity (paying dividends), high turnovers are usually attractive. Receivable overthrow Year 2009 2010 2011 Home Depot 68. 63. 9 53. 9 Lowes 0. 0 0. 0 0. 0 Receivable Turnover ratio is calculated by dividing a menstruations net credit sales by the average net accounts receivables. The receivables turnover ratio provides an indication of a companys efficiency in compendium receivables. The ratio shows the number of times during a period that the averages accounts receivable end is collected.The higher the ratio, the shorter the average time between credit sales and cash collection. As we feces see to a higher place, Lowes has zero receivables, which plunder be translated to no credit sales. entry Turnover Year 2009 2010 2011 Home Depot 4. 21 4.. 19 4. 34 Lowes 4 . 0 3. 72 3. 63 Inventory Turnover is an important standard for a merchandising company. The ratio shows the number of times the average inventory balance is sold during inform period. It indicates how quickly inventory is sold. The more frequently a business is able to sell, or turn over, its inventory, the lower its investment in inventory must(prenominal) be for a given level of sales. The ratio is computed by dividing the periods costs of goods sold by the average inventory balance.The denominator, average inventory, is determined by adding beginning and ending inventory and dividing by deuce. A relatively high ratio, as in the case of Home Depot compare to Lowes, usually is desirable. A high ratio indicates comparative strength, by chance caused by a companys superior sales army or maybe a successful advertising campaign. However, it might also be caused by a relatively low inventory level, which could involve either very efficient inventory measurement or deport outs o r lost sales in the future. Comparing the two industries, we goat conclude than Home Depot turns over their inventory a crisp faster than Lowes. summation Turnover Year 2009 2010 2011 Home Depot 1. 73 1. 62 1. 73 Lowes 1. 48 1. 43 1. 41 Asset Turnover is a broad measure of asset efficiency.The ratio is computed by dividing a companys net sales or tax income by the average total assets available for use during a period. The denominator, average assets, is determined by adding beginning and ending total assets and dividing by two. The asset turnover ratio provides an indication of how efficiency a company utilizes all of its assets to generate revenue. Also, it shows how many sales dollars are generated for every dollar invested in the companys assets. Lowes had relatively lower asset turnover than Home Depot because their recent investment in PP&E has non yet reached their potentials.Home Depot is a financially sound company and performs well when compared to its competitor s. Based on current business conditions and the potential yield opportunity facing Home Depot, we feel that the bottom line go forth continue to grow at a healthy rate above the competition in the near future. We believe that the relatively low levels of debt, some wider margins, and lower costs make Home Depot an attractive investment for the long run. Shares of Home Depot are currently trading at $33. 92 to what we believe is gaining momentum in the securities industry.This increase is possibly derived from the commercializes belief that better than predicted growth will be seen from amplification into foreign markets, specifically China. Week 4 Home Depot be Policies The retail industry, in general, presents a very competitive market with high footing competition and low product antitheticiation. Although almost any retailer, from supermarkets to superstores, can offer groundwork value items at a competitive price, the home improvement industry currently provides a gr eat opportunity for differentiation in regards to the types of services home improvement retailers offer.To successfully maximize sales and increase revenues in the home improvement industry, retailers such as Home Depot must successfully combine product variety, quality and price and specialized services. As discussed earlier, Home Depot has pick out a business strategy based on these key factors. Consequently, as we look at Home Depots overall financial results, it is necessary to focus on key explanation policies adopted by the company to measure critical factors and risks. In the Managements backchat and Analysis of Results of Operations and Financial Condition of The Home Depot, Inc 2011 Annual Report (www. omedepot. com), management place three major areas as areas of critical accounting policy and discussed the bankers acceptance of four different accounting pronouncements. In addition to the four latterly adopted accounting pronouncements determine in the managements discussion, The Home Depot identified four other major accounting policy changes in its Notes to Consolidated Financial Statements. Specifically, The Home Depot adopted four different accounting pronouncements in regards to service revenue recognition, seller allowances, goodwill amortization and stock based compensation.The three critical accounting policies, as identified by The Home Depot management lift to the treatment of merchandise inventories, self insurance and revenue recognition. Merchandise Inventory policy is specifically addressed by The Home Depot management in Managements Discussion and Analysis of Results of Operations and Financial Condition and is assessed in two different ways. Approximately 93% of total inventory is valued at the lower of cost or market utilizing FIFO under the retail inventory rule with the other 7% valued under the cost method.The Notes section of the Financial Statements accounts for the two different methods. According to the Notes, the 7 % of inventory valued under the cost method was callable to inventory policy of certain subsidiaries and distribution centers. In addition, The Home Depot, Inc. takes a physical inventory count on a constant basis at each store to verify that inventory amounts in the merchandise inventory section of the Consolidated Financial Statements are accurate. Lastly, in regards to merchandise inventory, the company does account for contingent inventory shrinkage or swell based on historical results and industry trends.Self indemnification accounting policy for Home Depot addresses its treatment of losses related to general obligation, product liability, workers compensation and medical claims. The total liability is estimated on the total cost incurred as of the specific balance aeroplane date and is not discounted. The estimate is based on historical selective information and actuarial estimates. The company also explains in its Management Discussion that they ensure estimates of lia bility are as accurate as possible by having both management and third-party actuaries review the estimates on a quarterly basis.Revenue Recognition is the third critical accounting policy identified by The Home Depot management. Revenue recognition at the Home Depot follows the industry norm of recognizing revenue when the customer takes possession of the merchandise or, if a customer makes payment prior to take ownership of the merchandise, Home Depot records the sale as Deferred Revenue on the balance ragtime until the sale is finalized when the customer takes possession of the paid merchandise.Additionally, because The Home Depot also provides a variety of services through their installation and home guardianship programs, they also recognize service revenue at the time when the service is completed and also record any customer pre-paid service revenue as Deferred Revenue on the balance sheet. Week 5 meshwork The internet has completely changed the way companies communicate a nd market to their prospects. Home improvement businesses in the U. S report that the ways they have traditionally generated leads (i. . yellows pages, tell mail, print media, tv and radio) arent working like they use to. In fact, 85% of all products and service inquiries now start online and 97% of U. S internet users gather shopping information online and of those more than half characterize their behavior as Shop Online, Purchase Offline. The convenience of online shopping and the ability to make price comparisons on the internet has completely changed retail trends in the past decades.Even though most people tend to shop for building materials by visiting physical locations, still Home Depot cannot ignore e-commerce because people increasing buy items of nearly any broad online. Home depot being the largest home improvement retailer is expanding in the online channel aggressively and targeting it as a major growth opportunity. Home depot made its biggest e-commerce investmen t over the last two years since it started internet sales in 2001. According to research, 45% 0f the 9. million consumers who visited Home Depots website on average in any given week said their next step was a skid to a Home Depot store, which translates to about 225 customers a day per location. However, e-commerce for the home improvement industry is an underleveraged opportunity. A lot of people think of home Depot as a place you go on a Saturday, or when you do window treatment or carpeting. As such, they can do a better job online for things like branded power tools and replenishable items and also offer delivering services for those items.Home Depots operating cost will decrease if customers interacted through the use of the internet due to the folllowing Online customers are used to doing their own shopping without any salesperson economic aid therefore the cost of the salesperson would be eliminated as such. The range of products that can be offered through the website c an be far greater than what one could find at Home Depots location, thereby good-looking customers a clear reason to prefer the internet.These are all advantages that Home Depot can benefit from as a result of the internet. As with the advantages, there are also disadvantages (issues) that Home Depot needs to put into consideration and work diligently to address them. The foremost of these issues are wishing of site maintenance and lack of integration between the e-commerce site and the incarnate back-office systems. As such, Home Depot must work through these issues in detail in order to arrive at the true cost-benefit for an e-commerce.