Orange You Sane?

In a post-Nardelli return to sanity, The Home Depot (HD) is focused on "three yards and a cloud of dust." The most recent quarterly discussion emphasizes that HD will slow down the rate of new store expansion, will not borrow money to repurchase stock and will improve the customer experience.

After years of "re-engineering" by Nardelli, these calls seem like a return to Home Planet Earth. CEO Frank Blake was astute in quickly selling HD Supply. This freed up capital and narrowed focus. Rather than engage Nardelliesque language, HD also depicted the new changes: lights that don't glare, bathrooms that are refurbished and clean, and floors that are polished.

When analysts focused on the macro environment, HD management brought them back to reality by simply asserting that cyclicality is a part of life. HD has presented the following graph showing "It's not different this time":


It stands to reason that a slow down in the economy would lead to greater "do-it-yourself" work, an interest in lower cost materials and repairing existing houses, rather than buying new ones. All of these trends are in HD's favor.