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Home Depot on target to reach $100B by '05

Andrea Lillo -- Home Textiles Today, December 10, 2001

Though it anticipates the home improvement industry to grow only about 3 percent annually over the next three years, The Home Depot announced at a recent meeting with investors that it expects its revenues to grow between 15 and 18 percent from 2002 through 2004. This would keep the home improvement retailer on track to double its size to $100 billion in revenues by 2005.

It also expects to grow earnings and earnings per share at 18 percent to 20 percent annually through a combination of gross margin expansion and expense control.

In addition, Home Depot will add about 200 new stores per year for the next three years, which includes 184 Home Depots in fiscal 2002, as well as four Home Depot Pro stores and the initial rollout of two Home Depot Urban stores, a new smaller store format targeting the convenience customer.

However, the Expo Design Center division will slow its annual growth down from about 70 percent to about 25 percent. New Expo stores will focus on the top 100 U.S. metropolitan markets, and will include 10 openings for fiscal 2002.

"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," ceo and president Bob Nardelli told investors.

Nardelli, who celebrates his one-year anniversary as ceo and president this week, also said that he expects sales in fiscal 2001 to approach $53 billion. He also affirmed that for fiscal 2001 the company expects comp-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 of fiscal 2001 and $2.17 per share for the full fiscal year.

"We are embarked on a transformation of Home Depot," he 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 new square footage, the company will expect existing stores to experience a greater rate of sales growth in the future. Existing stores contributed about 85 percent of annual sales growth in fiscal 2000, and the company anticipates that percentage to grow to 90 percent over the next three years. Enhanced existing store productivity is expected to be brought about by ongoing business initiatives, such as the service performance improvement (SPI) initiative and pro initiative, and the development of new product and service offerings.

The new Home Depot Urban stores will open next year. One is located in in Brooklyn, NY, scheduled to open April 4, and the other to open next summer in Lincoln Park, IL. The Brooklyn store will be 58,000 square feet, half of a typical HD, said John Simley, spokesperson. The assortment will be slightly less deep, but the turns will be higher, he said.

The company has also looked to enhance its relationship with its customers. It has completed its SPI initiative rollout and is seeing better efficiencies in customer service levels and freight handling, both of which are improving sales in stores, the company said. There is also a decor initiative centered on the company's Design Place program, a location in the stores that brings all of the departments together in a 10,000 to 15,000 square foot space, Simley said, and includes the help of in-store designers.

The Home Depot will also improve its gross margin by more than 100 basis points by 2004, said senior vp Jerry Edwards. "We will emphasize a neighborhood store that meets the customer's product and pricing needs at an ever tighter geographic focus."

Expo Design Center will slow its growth over the next few years, due in part to current economic pressures. "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," said Bob Wittman, Expo president. Though the company targets a 25 percent growth rate for the future for the division, it may accelerate that to about 50 percent in future years if the economy improves and stores expand their customer base.

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