Charlotte, NC, June 19--Home Depot Inc. Chief Financial Officer Carol Tome reiterated the home-improvement giant's guidance that 2003 earnings will increase 9% to 14% on a sales increase of 9% to 12%.
As we told you at the end of the first quarter, our second-quarter comps are running better than first-quarter comps," Tome said during a presentation at the Credit Suisse First Boston retail conference broadcast on the Internet.
Home Depot's comparable same-store sales fell 1.6% in the first quarter. The Atlanta company's guidance implies 2003 per-share earnings of between $ 1.70 and $1.78, compared with $1.56 last year. Analysts surveyed by Thomson First Call produced a mean earnings estimate of $1.73.
Tome also reiterated Home Depot's plans to spend $250 million this year on store remodelings to spruce up some older stores and some with heavier sales volumes. Home Depot gutted and renovated six stores in the first quarter, including four using a new prototype format, and has started another 22, Tome said. The major overhauls cost about $4.5 million for each store.
"It's early in the whole remodeling process, but the results are promising," in sales and customer feedback, Tome said.
While some might wish Home Depot would remodel stores more quickly, Tome said the company will go slowly to make sure the remodeling program is effective from an economic perspective and not disruptive from a customer service perspective.
Home Depot is also continuing to reset its merchandise, with 19 stores planned for merchandise overhauls in the second quarter, she said.
"We're committed to this because we like the financial results once the resets are complete," she said.
Home Depot also expects to have new signs that improve shoppers' ability to navigate the stores in place at 576 stores by year-end, she said.
Home Depot CFO Tome said stores that underwent major overhauls have experienced an average sales increase of 12% following their remodeling, although increases ranged from 0 to 25%. Remodeled stores need "something considerably less" than a 12% sales increase to hit Home Depot's targeted return on capital for the renovation program, she said.
The average age of Home Depot's 1,582 stores is about five years, but 26% of stores are older than seven years. Some stores also generate such high-volume sales that their effective ages are much higher than their chronological ages.
Tome said the company continues to try to make its supply chain more efficient. It is increasing the use of imports, which should make up about 10% of its merchandise by year end, she said. The company is also increasing its number of cross-docked distribution facilities, which allow it to break down full truckloads of merchandise from suppliers and quickly send those products out to stores. Home Depot expects to have 14 such facilities by year end. In 2001, 80% of the merchandise in Home Depot's stores went directly from the vendor to the store. By year end, that figure should be 54%, she said.
Expo Design stores were marginally profitable in 2002, and Home Depot continues to feel good about the direction of that chain, Tome said. Home Depot has 53 Expo stores and one more opening planned for this year, she said.
Recent changes to Expo's strategy include narrowing the price range of items sold there and opening stores in major metropolitan markets before saturating existing markets with stores. "Customers are telling us they will drive 30 miles to go to an Expo store," she said.
Home Depot believes its eight Landscape Supply stores in test mode are reaching a different customer than the usual shopper at its orange, big-box stores. "It's very early in the test, but we're encouraged," Tome said. The average sales ticket is notably higher than the average ticket of the garden department in Home Depot stores, and the productivity, or sales per square foot, is also higher, she said.
