Flooring News and Information

Atlanta, GA, Nov. 30— The Home Depot expects to grow revenues between 15% and 18% annually from 2002 through 2004. The forecast keeps the company on track to double its size to $100 billion in revenues by 2005. During the same time period, Home Depot expects to grow earnings and earnings per share at 18% to 20% annually through a combination of gross margin expansion and expense control.

"We are enhancing our relationship with current customers, expanding our product and service offerings, and extending our brand into new business ventures, allowing us to grow our current business and tap into large new markets," Bob Nardelli, CEO and president, told the company's investors at the opening session of a day long meeting in the company headquarters in Atlanta.

Nardelli said he expects sales in fiscal 2001 to approach $53 billion. He reaffirmed that Home Depot expects comparable store sales growth in the low single digits, stable gross margin performance and leverage of expenses in the fourth quarter to produce earnings of $0.28 earnings per share for the fourth quarter and $1.27 per share for the full fiscal year.

The company anticipates its strong financial performance despite its internal forecast that the home improvement industry will grow at only about 3% annually over the next three years. The company expects flat home improvement industry sales in 2001 and 2002, with modest growth in the following two years. Based on the company's economic modeling, its forecast for the home improvement industry through 2004 fluctuates between 0% and 19% growth over the period.

"Home Depot will open about 200 stores each year for the next three years," Nardelli said. In fiscal 2002, the company will add additional square footage through approximately 184 Home Depot warehouse stores, as well as 10 Expo Design Centers, four Home Depot Pro stores, and the initial rollout of two Home Depot Urban stores, a new smaller store format targeting the convenience customer.

"We are embarked on a transformation of Home Depot," Nardelli said, "Building on the proud past of being the fastest growing retailer in history, we are moving from growth based on incremental square footage to growth based on the expansion, extension, and enhancement of our business. In addition to expansion of the existing Home Depot, our company will reach for new relationships with homebuilders, commercial, and industrial customers. We have the ability to leverage our operations by creating tremendous efficiencies, adding new technology and capabilities through acquisitions like Your "other" Warehouse. Beyond that, we will extend our business into new opportunities like our recently announced pilot program with ServiceMaster to offer lawn care, pest control and other services through Home Depot stores.”

In addition to new square footage, the company said that it expects existing stores to contribute an increasing share of sales growth in the future. While existing stores contributed approximately 85% of annual sales growth in fiscal 2000, the company anticipates that this percentage will increase over the next three years to approximately 90%. Enhanced existing store productivity will be achieved primarily through the continued implementation of ongoing business initiatives, such as the company's service performance improvement initiative and pro initiative, and the development of new product and service offerings in company stores.

The company has several initiatives designed to enhance its relationship with customers. The company has completed its SPI initiative rollout, and is seeing improved efficiencies in customer service levels and freight handling, both of which are improving sales performance in Home Depot stores. Other in store initiatives detailed by the company included the expansion of the tool rental program, which will be in 608 stores by the end of 2002 and over 1,300 by the end of 2004, an enhanced focus on appliance sales, with 1,500 to 2,000 feet of dedicated appliance selling space in selected stores, and a decor initiative centered on the company's Design Place program.

The company is also taking steps to better serve the approximately $276 billion professional market. The pro initiative, which targets smaller professional customers, will be in approximately 500 Home Depot stores by the end of the fourth quarter and approximately 966 stores by the end of 2002, is delivering improved sales and operating margins in Home Depot stores. In 2002 Home Depot will unveil HD Supply and test several Home Depot Pro stores to focus more resources on reaching out to larger commercial and industrial customers. Under the business umbrella of HD Supply, the company will leverage Home Depot account managers and the outside sales staff of its fast growing Maintenance Warehouse subsidiary to offer professional customers a wide array of products and services offered through Home Depot, Maintenance Warehouse, Apex Supply and other related businesses. In addition, Home Depot Pro stores will offer professional customers product assortments and service typically associated with wholesale supply houses.

These initiatives will be complemented by new product and services offerings in Home Depot stores, such as the company's recently announced pilot program with ServiceMaster. In conjunction with ServiceMaster, Home Depot stores in selected markets will in 2002 offer at home services such as lawn care and pest control. This program is part of the company's effort to expand its participation in the service business market segment, which represents a $180 billion market opportunity. The company estimates that it will generate revenues of over $2.5 billion of product and labor sales from all its service businesses in 2001 and anticipates that this business can grow at a 40% compound annual growth rate through 2004.

Executive vice president and CFO Carol Tome indicated that improving earnings per store together with initiatives focused on working capital management are expected to produce about $7 billion of cumulative positive cash flow by 2004 and improve return on capital. She also indicated that capital spending will be increasingly allocated to new growth initiatives in coming years.

"Home Depot's Expo Design Centers will also undergo some change, as management refines the concept's product assortment and pricing to reach a broader consumer segment and integrates key operating functions with Home Depot service and merchandising," Expo president Bob Wittman said. As a consequence, new Expo stores will focus on the top 100 US metropolitan markets while the growth rate of Expo Design Centers will slow from about 70% per year to about 25%. The decreased growth rate is due in part to current economic pressures, and the company stated it might accelerate the growth rate to about 50% in future years as the economy improves and the stores expand their customer base.

Wayne Gibson, senior vice president of Global Logistics, discussed the company's commitment to continuing to add strategic capabilities to its global supply chain and to using its distribution capability to enhance the flow of goods, lower costs and increase inventory turns. The company anticipates having 11 import distribution centers and 40 lumber distribution centers in 2004, and 16 transit facilities in 2003, increases from seven, 28 and three, respectively, in 2001.