Home Depot is a home improvement retailer that sells building materials and home improvement products. It operates stores throughout the United States, Canada, China, and Mexico. There are three main types of retail customers for Home Depot: do-it-yourself customers, do-it-for-me customers, and professional customers. Home Depot's largest customer category is professional customers, which include home builders and contractors. To forecast Home Depot's quarterly earnings per share, analysts examine historical quarterly EPS trends and Wall Street estimates, as well as key assumptions around sales growth and expenses.

1. HOME DEPOT
TIM BARNES
TYLER CLAYTON FEBRUARY 27, 2012
ALEX VESCOVI

2. BUSINESS STRATEGY
• Home Depot is a home improvement retailer that sells building
materials and home improvement products
• Product Mix - Percentage of Sales
Product Group Percentage of Net Sales (Fiscal Year End 2010)
Plumbing, electrical and kitchen 30.0%
Hardware and seasonal 29.4%
Building materials, lumber and millwork 21.7%
Paint and flooring 18.9%
Total Sales 100.0%
• Operates throughout United States, Canada, China, and Mexico

3. WHO BUYS FROM HOME DEPOT?
 THREE MAIN T YPES OF RETAIL CUSTOMERS:
1. DO IT YOURSELF CUSTOMERS (DIY)
 HOME OWNERS WHO DO THEIR OWN HOME IMPROVEMENT
2. DO IT FOR ME CUSTOMERS (DIFM)
 HOME OWNERS PURCHASE MATERIALS/SUPPLIES FROM HD AND
THEN HIRE OUTSIDE SOURCE FOR INSTALLATION
3. PROFESSIONAL CUSTOMERS
 HOME BUILDERS, PROFESSIONAL CONTRACTORS, REPAIRMEN
 LARGEST CATEGORY WITH ALMOST DOUBLE THE
SALES OF DIY CUSTOMERS

4. WHO BUYS FROM HOME DEPOT?
HOME DEPOT SUPPLY CHAIN

5. GEOGRAPHIC SEGMENTATION –
REVENUE (FY 2009 – FY 2011)
HD UNITED STATES -
REVENUE
2011
2009
2010
HD INTERNATIONAL -
REVENUE

6. HOME IMPROVEMENT RETAIL INDUSTRY

7. HOME IMPROVEMENT RETAIL SALES -
BENCHMARKS

8. TOTAL HOME IMPROVEMENT RETAIL INDUSTRY –
2010 SALES %
HOME DEPOT
LOWES 45.9%
32.9%
2010

9. HOME IMPROVEMENT RETIAL INDUSTRY
– YEAR OVER YEAR GROWTH
TOTAL HOME IMPROVEMENT RETAIL SALES
HD: 46.8%
HD: 52.5%
HD: 59%
2004 2006 2008

10. TOTAL HOME IMPROVEMENT INDUSTRY –
RETAIL SALES
TOTAL HOME IMPROVEMENT RETIAL
INDUSTRY - SALES
2006 2012

11. HOME IMPROVEMENT YEAR OVER
YEAR SALES GROW TH – VS. HOME DEPOT
HOME DEPOT
INDUSTRY
2003 2011

12. TOTAL HOME IMPROVEMENT RETAIL
SALES TO TOTAL HOME SALES
HOME
IMPROVEMENT
SALES
TOTAL HOME
SALES
1993 2011

13. INDUSTRY SALES GROWTH
 WHAT WILL EFFECT INDUSTRY SALES GROW TH?
 NEW HOME SALES?
 HOME RENOVATIONS?
 UNEMPLOYMENT RATE?
 GDP?
 INTEREST RATES?
 INFLUENCED BY THE U.S. FEDERAL RESERVE
 INFLUENCING FLOW OF CREDIT
 CONSUMER CONFIDENCE?

14. QUESTIONS???
DID YOU SEE ANY OTHER FACTORS
INFLUENCING INDUSTRY SALES GROWTH?
WHAT DID YOU SEE FOR FUTURE HOME
IMPROVEMENT RETAIL SALES?

15. HOME DEPOT
HOME DEPOT – HISTORICAL PERFORMANCE

16. HD ANNUAL REVENUES –
HISTORICAL
FY 1992 FY 2011

17. SEASONALIT Y –
HD REVENUES QUARTER OVER QUARTER
Q1 Q1 Q1
Q1 Q1
FY 2007 FY 2011

18. HOME DEPOT ANNUAL EPS –
HISTORICAL
FY 1992 FY 2011

19. HOME DEPOT QUARTERLY EPS -
HISTORICAL
Q1
Q1
Q1
FY 2007 FY 2011

20. HOME DEPOT QUARTER 4 EPS -
HISTORICAL

21. HOME DEPOT QUARTER 1 EPS -
HISTORICAL

22. LOWES QUARTERLY EPS –
HISTORICAL: SEASONAL

23. QUESTIONS???
ANYTHING ELSE THAT STUCK OUT TO YOU?

24. HOME DEPOT STOCK PRICE CORRELATIONS

25. HOME DEPOT STOCK PRICE
CORRELATIONS
U.S. UNEMPLOYEMENT RATE

26. HOME IMPROVEMENT SPENDING TO U.S.
UNEMPLOYMENT RATE - HISTORICAL
HOME IMPROVEMENT
RETAIL SPENDING
U.S. UNEMPLOYEMENT
RATE

27. U.S. UNEMPLOYEMENT RATE - FORECAST
2005 EST 2014

28. U . S . U N E M P LOY M E N T R AT E A N D H D S T O C K P R I C E C O R R E L AT I O N –
CORRELATION: -.92

29. HOME DEPOT STOCK PRICE
CORRELATIONS
U.S. GDP

30. GDP – FORECAST FOR UNITED STATES
2005 U.S. GDP EST 2014

31. GDP TO H D STOC K PRI C E C ORRE LAT I ON -
C ORRE LATI ON : - .2 5
HD STOCK PRICE
U.S. GDP

32. WHAT ELMO THINKS

33. QUESTIONS???
DO YOU SEE ANY OTHER MACROECONOMIC
FACTORS EFFECTING HOME DEPOT?

34. HOME DEPOT
FORECASTING EPS FOR FISCAL YEAR 2012 –
QUARTER 1

35. USE OF EVAL: ANNUAL VS. QUARTERLY
 FORECASTING WITH ANNUAL VS. QUARTERLY FIGURES USING
EVAL
 WHEN WORKING WITH EVAL, EVERY INPUT AND OUTPUT IS ON
AN ANNUAL BASIS. SO HOW DO YOU TAKE ANNUAL FORECAST
AND GET QUARTERLY EARNINGS PER SHARE?
 WE USED EVAL TO FORECAST OUT HOME DEPOT’S FY 2012
ANNUAL INCOME STATEMENT AND BALANCE SHEET. THEN WE
TOOK OUR ANNUAL EPS FORECAST AND MULTIPLIED IT BY
HISTORICAL Q1 % OF ANNUAL EPS MULTIPLIER.
 WHICH GAVE US OUR Q1 EPS ESTIMATE.

36. QUESTIONS??
DID YOU HAVE ANY ALTERNATIVES METHODS
FOR YOUR FORECASTING?

37. FORECASTING ASSUMPTIONS
 SALES GROW TH – HOW WE DETERMINED
1. AVERAGE OF PAST YEARS’ Q1 YOY SALES GROWTH
 USE AVERAGE GROWTH OF YOY QUARTER 1 GROWTH
2. GUIDANCE FROM FY 2011 Q4 MANAGEMENT EARNINGS CALL

38. FORE CASTING A SSUM PTI ONS -
H D F Y 2 01 1 Q4 E A RN I N G S CA LL T RA N SC RIP T
 MANAGEMENT’S GUIDANCE FOR FY 201 2 IS 4% SALES GROW TH
 FROM Q4 8-K: WE FEEL UNDERESTIMATING
 CONTINUE TO BUILD A STRONG BUSINESS ON BASIC REPAIR AND
REMOD NEEDS OF CUSTOMERS
 FORECASTS GROWTH TO BE CONSISTENT WITH GDP
 Q4 SALES UP 5.9% FROM LAST YEAR; COMP SALES UP 5.7% ; US
SAME STORE SALES UP 6.1%
 EVEN AGAINST VERY STRONG 2010 Q4 COMPS
 POSITIVE COMPS IN ALL 40 GEOGRAPHIC MARKETS
 CANADIAN AND MEXICAN MARKETS - STRONG GROWTH IN COMPS
 WARM WEATHER HELPED RAISE Q4 TOTAL REVENUE BY 200 – 250
BASIS POINTS (2.0 – 2.5%) COMPARED TO PREVIOUS YEAR Q4
 SEE THE WARM WEATHER TREND TO CONTINUE, THEY ARE SEEING POSITIVE
FEBURARY COMPS, AND EXPECT A SOLID Q1 2012
 RECOVERY IN SALES FROM FLORIDA AND CALIFORNIA MARKETS

39. FORE CASTING A SSUM PTI ONS -
H D F Y 2 01 1 Q4 E A RN I N G S CA LL T RA N SC RIP T
 IN-STORE CUSTOMER SERVICE IMPROVEMENTS
 53% OF STORE LABOR HOURS TO CUSTOMER FACING ACTIVITIES,
COMPARED TO 40% FROM LAST YEAR
 NEW IN-STORE SERVICE OFFERINGS, INCLUDING IN-STORE REPAIR
SERVICES (PREVIOUSLY MOSTLY DONE OFF -SITE)
 ONLINE BUSINESS – BEST-IN-CLASS PLATFORM; HELP DRIVE
SALES
 HAS INVESTED $1.1B TO ENHANCE ITS ONLINE PRESENCE
 ACQUISTION OF REDBEACON.COM
 IMPROVED INVENTORY TURNOVER
 BIG TICKET ITEMS – UP 9% YEAR -OVER -YEAR
 CEO HAS REPORTED SOLID REVENUE NUMBERS FOR
JANUARY AND FEBRUARY 2012

40. FORECASTING ASSUMPTIONS
 COST OF GOODS SOLD / SALES
 EXPECTED TO GROW AT 50% OF SALES GROWTH (EXPECTED TO GROW 2.5% YOY IN
RELATION TO 5% SALES GROWTH YOY)
 EXPECT INTEREST RATES TO STAY LOW THROUGH AT LEAST FY 2012
 COMMODIT Y PRICES – INPUT PRICES
 SG&A EXPENSES
 FROM FY 2011 EARNINGS CALL TRANSCRIPT
 EF F ECTIVE TAX RATE
 37%: ACCORDING TO MANAGEMENT ASSUMPTIONS IN 2011 Q4 8 -K

41. HD INCOME STATEMENT –
GROWTH (2005 – 2011)

42. EVAL
EVAL – FINANCIAL STATEMENTS

43. EVAL – FORECASTING ASSUMPTIONS
INCOME STATEMENT
• Management Guidance of 4% Sales Growth is conservative – from 8-K
• 5.7% same-store comps
• Average ticket sales rose 2.4%
• Continued Gross Margins Growth
• Effective Tax Rate: 37% for FY 2012

44. EVAL – FY 2012 FORECAST
INCOME STATEMENT

45. EVAL – FORECASTING ASSUMPTIONS
BALANCE SHEET

46. EVAL – FISCAL YEAR 2012 FORECAST
BALANCE SHEET

47. EVAL – STATEMENT OF CASH FLOWS

48. EVAL – FORECASTING ASSUMPTIONS
STATEMENT OF RETAINED EARNINGS

49. EVAL – FISCAL YEAR 2012 FORECAST
STATEMENT OF RETAINED EARNINGS

50. EVAL – RATIO ANALYSIS

51. HOME DEPOT
EPS - FORECASTING

52. BLOOMBERG – EPS ESTIMATES

53. WALL STREET JOURNAL –
EPS ESTIMATES

54. HOME DEPOT CONSENSUS REVENUE
FORECAST

55. QUARTERLY EPS - HISTORICAL
Q1
Q1
Q1

56. QUARTER 4 EPS - HISTORICAL
RECENT
TREND

57. QUARTER 1 EPS - HISTORICAL
RECENT
TREND

58. FORECASTING SALES – AVERAGES
 Quar ter 1 Sales / Annual Sales
 Quar ter 4 Previous Year Sales / Quar ter 1 Sales

59. EVAL – EPS FORECASTER

60. FORECASTED Q1 2012 - EPS

61. QUESTIONS???
ANY OTHER QUESTIONS?

62. SOURCES
1. BLOOMBERG TERMINAL
 GRAPHS, CHARTS, FIGURES
2. WIKINVEST.COM