- Give a brief description of whats going on in the Home Depot Case.
- What would be Home Depots competitive advantage? Please explain in detail.
- What opportunities does Home Depot have to maintain this advantage?
- What are the threats that could cause the competitive advantage to deteriorate?
- Based on your answers above, what do you think is Home Depots Terminal Value? Please explain how you arrive at your estimate
- Please do a sensitivity analysis presenting a best case and worst case scenario for Home Depot maintaining their competitive advantage.
Home Depot, Inc. in the New Millennium n October 12, 200, Home Depot, the largest and fastest Do-IT-Younel (DIY) home improvement and building supply retailer, and the third-largest retailer of any sort in the United States, shocked many investors byamuning that earnings in the third and fourth quarters of 2000 wold be a deal lower than expected. In response, the company's stock price experienced its langest oneday drop. falling 29% (to S35), which erased $33 billion from its market val Arthur Blank,Home Depot's CEO, saild that the earnings shortfall was primarily the result of a slowing economy. In fact, retail stocks generally had been down all year, and when Home Depot made its announcement, other retail stocks fell as well. To many analysts, however, Home Depot had competencies that very few other retailers had. was one of the most saccessful retailers in American history. From the all o1981, when the company went public, to the end of 1999, its stock had risen at a compound anmual rate of 52% During the decade of the 199s, its diluted earnings per share had risen at a compound annual rate of 29% on oktober 12, however, the company said that it expected earnings for the third quarter (ending at the end of October) to be only $.28 per share, compared with $.25 in the third quarter of 1999. For the fourth quarter ending in January), it espected carnings to be $.26 or $.25, compared with $.25 in the fourth quarter of the previous year. For the full year, it expected carnings to be $1.16 or 1.17, compared with $1.00 in 1999 The US. economy had experienced uninterrapted growth since 1992. Between June 1999 and May 2000, however, the Federal Reserve had raised interest rates six times- or a total of 1.75 percentage points-in an effioet to slow the economy, and economists had been noticing some softening of overall consumer demand Because of the nature of Home Depot's business, many observers regarded it as, if not recession protfarty protected from the vossitudes of the ecmmy It was primarily involved in selling materials that ordinary people used for home improvement projects The company was undertaking several significant growth initiatives, and it wasn't clear whether the decline in the company's stock price was primarily a function of a slowing economy, a reaction to an overvaluation of the stock, or a reflection of possible peoblems with the company's strategy for the future. Despite a fourth quarter that was deemed to be the most challenging in the company's history, during which earnings declined KishnaPa HBS nes are developed solely as the basis for class discussion Canes are not intended t tp/www.ing harvandade No part of thia neconding or otherwiewithost the pemision of Harvard usiness Scoo 8-21 8-22 PART 2Business Analsis and Valuation Tools 20% compared to the prior year's quarter, by the time Home Depot released financial results for the carrent fiscal year (iscal 2000, ended January 31, 2001), the company's tock price had rebounded to $48. Eshibit I provides a graph of Home Depot's stock prie from January 1. 2000 through January 31, 2001. Exhibit 2 compares changes Home Depot, Inc. in the New Millennium n October 12, 200, Home Depot, the largest and fastest Do-IT-Younel (DIY) home improvement and building supply retailer, and the third-largest retailer of any sort in the United States, shocked many investors byamuning that earnings in the third and fourth quarters of 2000 wold be a deal lower than expected. In response, the company's stock price experienced its langest oneday drop. falling 29% (to S35), which erased $33 billion from its market val Arthur Blank,Home Depot's CEO, saild that the earnings shortfall was primarily the result of a slowing economy. In fact, retail stocks generally had been down all year, and when Home Depot made its announcement, other retail stocks fell as well. To many analysts, however, Home Depot had competencies that very few other retailers had. was one of the most saccessful retailers in American history. From the all o1981, when the company went public, to the end of 1999, its stock had risen at a compound anmual rate of 52% During the decade of the 199s, its diluted earnings per share had risen at a compound annual rate of 29% on oktober 12, however, the company said that it expected earnings for the third quarter (ending at the end of October) to be only $.28 per share, compared with $.25 in the third quarter of 1999. For the fourth quarter ending in January), it espected carnings to be $.26 or $.25, compared with $.25 in the fourth quarter of the previous year. For the full year, it expected carnings to be $1.16 or 1.17, compared with $1.00 in 1999 The US. economy had experienced uninterrapted growth since 1992. Between June 1999 and May 2000, however, the Federal Reserve had raised interest rates six times- or a total of 1.75 percentage points-in an effioet to slow the economy, and economists had been noticing some softening of overall consumer demand Because of the nature of Home Depot's business, many observers regarded it as, if not recession protfarty protected from the vossitudes of the ecmmy It was primarily involved in selling materials that ordinary people used for home improvement projects The company was undertaking several significant growth initiatives, and it wasn't clear whether the decline in the company's stock price was primarily a function of a slowing economy, a reaction to an overvaluation of the stock, or a reflection of possible peoblems with the company's strategy for the future. Despite a fourth quarter that was deemed to be the most challenging in the company's history, during which earnings declined KishnaPa HBS nes are developed solely as the basis for class discussion Canes are not intended t tp/www.ing harvandade No part of thia neconding or otherwiewithost the pemision of Harvard usiness Scoo 8-21 8-22 PART 2Business Analsis and Valuation Tools 20% compared to the prior year's quarter, by the time Home Depot released financial results for the carrent fiscal year (iscal 2000, ended January 31, 2001), the company's tock price had rebounded to $48. Eshibit I provides a graph of Home Depot's stock prie from January 1. 2000 through January 31, 2001. Exhibit 2 compares changes
