Home Depot Plans 400 Units

By Jennifer D. Duell
Globe St. Retail
January 20, 2006

ATLANTA-Already the number-one home improvement retailer in North America, the Home Depot will continue to expand its domestic and international market presence through new store formats and new concepts. Over the next five years, the retailer plans to open 400 to 500 new retail stores totaling 40 million to 55 million sf using multiple formats.

The expansion plans were detailed in the Home Depot's annual meeting with the investment community. Additionally, the retailer will grow its Home Depot Supply brand and launch a new convenience store and fuel station concept called Fuel.

"We are focused on suburbs that are growing, under-penetrated urban areas and emerging small markets," said Frank Blake, executive vice president of business development and corporate operations. The new formats, which include a 60,000-sf store and smaller infill stores for urban areas, represent a $4-billion to $8-billion opportunity, he noted.

Since 2000, the Home Depot has grown from 1,134 stores to 2,043 retail stores and from 41 Home Depot Supply Stores to 450. Home Depot Supply expects to operate more than 1,500 locations, covering all 50 states, by 2010. By the end of this decade, the retailer expects that Home Depot Supply will generate 18% to 19% of overall sales and will be the largest diversified wholesale distribution business in the US.

On the international front, the Home Depot plans to continue its expansion in both Mexico and Canada, where it is the number-one home-improvement retailer. These two markets represent a $36-billion market opportunity, and at the end of fiscal 2005, 9% of the company's store base will be located outside of the US. The company also plans to continue its expansion efforts into China. Since 2000, the retailer's international sales have increased from $1.9 billion to $4 billion.

Back in the US, the Home Depot will open its first new convenience store and fuel station in early February. The retailer plans to open four convenience stores during the first half of 2006. Each store, which offers 3,000 sf and 14 fueling stations, is expected to achieve annual sales of $5 million to $7 million.

"We are excited about this expansion opportunity," Blake said during the presentation, adding that if the first four stores are successful, the concept could grow to 300 units by 2010, representing a market opportunity of $1.5 billion.

Part of the company's growth initiatives is to capitalize on the "do-it-for-me" trend through the Home Depot's services business. By 2010, the retailer expects that 5% to 6% of its sales will come from services, which offer a $110 billion market opportunity. Today, the Home Depot offers 25 national service programs through its At-Home Services division and does 11,000 installations daily, according to Blake.

The Home Depot's growth strategies should allow it to achieve compounded annual sales growth of 9% to 12% and compounded earnings-per-share growth of 10% to 14%, according to a company statement. Since 2000, the company's sales have increased from $45.7 billion to $80.4 billion. For 2006, the retailer is projecting 14% to 17% sales growth if its acquisition of Hughes Supply Inc. closes during the first quarter.

In conjunction with the investor meeting, the Home Depot announced a fourth quarter dividend of 60 cents, an increase of 50% compared to the same period last year. The fourth-quarter fiscal 2005 is the 76th consecutive quarter the company has paid a cash dividend. Since 2000, the retailer has increased its dividend by 150%, according to executive vice president and CFO Carol Tome.

For 2006, prior to the Hughes Supply acquisition announcement, sales growth is projected at 9% to 12% and EPS growth of 10% to 14%, which is aligned with the company's 2010 growth targets. The Hughes acquisition is expected to close near the end of the first quarter or at the beginning of the second quarter.