That’s supposedly why home depot is worth a mint to private investors. I don’t buy it – there have been loads of improvements and add-ons over the last 5 years (if anyone has statistics disputing or backing this up, I’d love to see them).
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Your Guide to the Seattle Real Estate Market
I agree Galen. Home Depot certainly will continue to market and do well with the do-it-yourselfer, but the bread and butter has been the contractor market. And that is softening. When Home Depot built their local flagship store in Washington next to Sears/Starbucks just south of Safeco Field, many contractors including myself made the drive to get what we felt were exceptionally low prices on plumbling, lumber and hardware. It effectively put Ernst Hardware out of business among others (lumber). Dunn Lumber had years of loyal contractors way, way before the big box stores came and therefore have still flourished.
With the housing market contracting now and HD’s CEO Nardelli commenting a few weeks ago about the company’s bottom line getting hammered due to housing weakness, I imagine that there have been investors looking into HD and others that are sensitive to housing–home builders for example.
The other angle is that of consumer spending in relation to home improvement. A tremendous amount of equity has already been tapped into for home improvement projects. How much more can people extract from the housing ATM? Locally, maybe a bit longer, I don’t know. I took my chips off the table long ago and won’t be encumbering my place for any improvements, or cars, plasma’s etc.
Could Wall Street investors be overly optimistic on HD? Certainly the lower stock price lends itself to getting attention from the long term players.
Galen, and Tim, I agree that there is something else afoot here, and it isn’t about home improvement. I’m sure you’ll both agree that an army of home improvement geeks will never match the dollar volume of home builders in a good market. Nardelli’s next excuse will likely be a continuation of that theme.
Look at it from a different perspective… the situation at HD is similar in many ways to the situation that played out recently with Albertsons. Formerly great company/stock, original owners and CEOs step aside or die, new management comes in from outside the industry (both GE CEO pass-overs), “new” business plan dependant on not enough cheap part-time help and silly sales gimmicks, lack of continuing innovation and freshening of the business model, decreased care of the fixed assets, CEO blaming poor performance on economy/competition/weather… I could go on, but the two situations are very similar.
HD is a shadow of it’s former self, and as such, private equity sees a possible opportunity. The stock spiked, not on the idea that a soft building market will increase home improvement spending, but on the possibility that the company might one day be “in play”. Take over the company, sell off the underperforming stuff, throw the old CEO overboard with his golden parachute, turn the ship around, then sell it for a ton of bucks… that’s the story anyway.
The home improvement angle is some reporter’s idea of “yeah, that sounds logical”. It is often entertaining to hear the reasons given for “why” the market moved one way or the other. This is just another one of those.