Home Depot Company Analysis
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INTRODUCTION: Traded as HD on the New York Stock Exchange (NYSE), Home Depot is a well-known international home improvement store headquartered in Atlanta, Georgia. According to Yahoo! Finance (2015) has the company listed in the Services sector and Home Improvement Stores industry. Yahoo! Finance also states that the company has approximately 300,000 full time (Yahoo! Finance, 2015). The organization has offices in the Unites States, Canada, Mexico, and India (www.corporate.homedepot.com). The corporate webpage also states that the company is “the largest home improvement retailer in the U.S., Canada, and Mexico” (www.corporate.homedepot.com). FINANCIAL ANALYSIS: According to Reuters.com, as of March 16, 2015 Home Depot was considered a financially healthy company. A company’s return on assets, or ROA, tells a company their earnings after taxes as compared to their total assets. With an ROA of 15.77 Home Depot receives more earnings after taxes than the industry as a whole, which only has an ROA of 5.35. To know the ratio of a company’s current assets to its current liabilities, a company looks at its current ratio, or CR. With a CR of 1.36 Home Depot has 0.36 more assets than it does liabilities, however the industry as a whole has a better CR of 1.54. A total debt-to-equity ratio, or DE, tells a company how much total debt it has compared to its total equity. Unfortunately, the company has a high DE of 184.48 compared to the industry’s DE of 63.11 (Reuters, 2015). MAIN ISSUE: Unemployment and a slow growing economy were only two of the things that were affected by the Great Recession of 2008. According to stateofworkingamerica.org, the recession began with the housing market crash (stateofworkingamerica.org,2010). It is well known that when the economy crashed, money was tight and people did not have extra money to just spend on unnecessary purchases. These unnecessary purchases were often purchases involving home improvement projects and supplies that can be purchased at Home Depot. Recently, the housing market has begun to improve, but the company must work to improve and maintain its profits, so that it is prepared in case another recession hits. MAIN ISSUSE IMPACTS: According to abcnews.go.com, because of the housing market crash, Home Depot lost nearly $54 million. This is a devastating loss, as in the same article it was stated that the company planned to eliminate approximately 2% of jobs. The company also reported a three cent loss on their shares during the economic hard times of 2008. (Heher, 2009). All of these factors had a major impact on the company as a whole and the economy. MAIN ISSUE CAUSES: The housing crisis has played a major part in how Home Depot was run its business the past several years. The cause of the housing crisis, according to www.downsizinggovernemt.org, was “the expansion in risky mortgages to under qualified borrowers.” (White,2009). Lending money to borrowers who were not qualified hurt the economy as a whole, but it really affected Home Depot, who rely on contractors, builders, and private customers who are looking to for “do it yourself” projects. This is because these people were trying to make sure that they had a roof over their heads, they did not have the money to just go spend on projects simply because they wanted to do some improvements to their homes. They has to be tight with their money and spending money on projects that could wait was not the way they chose to spend any extra money they had.
RECOMMENDATIONS:Fortunately, Home Depot was able to recognize early that a recession was going to hit and was able to start making decisions early in the recession that helped the business not go under during the economic hard times of 2008 (Duff,2010). The company should continue to keep a careful eye on the economy so that if and when another recession hits, they can make changes to the way they do business and continue to thrive in an unfavorable market. The ability to acknowledge there is a downturn in the economy and find solutions that will be help the company remain successful is a strength that Home Depot cannot afford to lose. The company did a lot of things well during the recession like launching a “commitment to veterans’ housing” in 2011 (careers.homedepot.com,2011). However, the company needs to remain involved in programs like this long after the recession ends. These programs develop and allow the company to keep a good social image with the community’s where it is. A strong social image can keep customers coming back to the company even during hard times. If the company can demonstrate that it cares about the community during good and bad times, customers will be more likely to be loyal to the company during good and bad economic times as well (ir.homedepot.com, 2015). However, the company could expand these types of classes an educate those in “tornado alley” about how to prepare for tornado season, and those who get a lot of snow or winter weather how to prepare for that type of weather. The classes could also teach those who live in extremely warm weather how to prepare their homes for the harsh summer months. Expanding these classes would show consumers that the company cares about them and they want their customers to be prepared for any type of weather they are likely to come across in their region. Updated SWOTStrengths Former CEO takes responsibility for security breach (Reingold, 2014)Home Depot revamps supply chain to improve customer shopping experience (Bond,2015)Home Depot Vice President gives presentation at prestigious investors conference (ir.homedepot.com, 2015)WeaknessesCompeting company begins focus on financial performance (Derousseau, 2013)DYI home renovations improve competing company’s financial reports (Investor’s Business 2015)Competing company redesigns displays to improve sales (Corral, 2013)OpportunitiesThe company uses data breach as a learning experience (Jaeger ,2014)Home Depot hires 80,000 employees in preparation for the Spring rush (ir.homedepot.com, 2015)The company holds hurricane workshops to educate and prepare its consumers (ir.homedepot.com, 2015)The company notices a change in the housing market, makes changes to the business to avoid too much financial loss (ir.homedepot.com, 2015)ThreatsCompetitor and Famous athlete team up to build Habitat for Humanity Home (Newswire,2015)Competitor funds over 500 projects for public schools nationwide (Newswire, 2015) Competing company aligns itself Porch to improve consumers ability to locate contractors (Clark, 2014)Initial SWOT (MarketLine,2015)Strengths Being the largest home improvement retailer in the worldHome depot has significant bargaining powerProprietary brands offer exclusivity and increase customer footfall Focus on offering eco-friendly productsWeaknessesExcessive dependence on the us involvement in legal proceedings OpportunitiesHome improvement market provides opportunity to increase salesRising immigrants population Increasing preference to shop online Growth in the us home building industryThreatsIncreased regulation on private label credit cards may impact the appeal of cards AdverselyIncreasing labor wagesSWOT ReferencesReingold, J. (2014). WHEN YOUR LEGACY GETS HACKED.Fortune, 170(7), 90-98.Bond, J. (2015). The Home Depot builds an omni-channel supply chain. (cover story). Modern Materials Handling, 70(2), 18-22.Jaeger, J. (2014). Lessons Learned From Home Depot Data Breach. Compliance Week, 11(130), 52-67.Derousseau, R. (2013). LOWES IS STARTING TO NAIL IT.Fortune, 167(7), 94.Investors Business, D. (2015, February 26). Housing recovery aids Lowes. Investors Business Daily. p. A02.CORRAL, C. B. (2013). Face to Face: Home Depot vs. Lowes – Area Rugs. (cover story). Home Textiles Today, 33(16), 1-11.Clark, P. (2014). How Porch Landed a Partnership With Lowes.Businessweek.Com, 6.