15 Companies That Management Can’t Fix: Home Depot

By Douglas A. McIntyre Published Feb 21, 12:04PM EST

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There are certain companies that probably cannot be turned around no matter who runs them. They tend to be in industries where macro-economic trends are against them, like the buggy whip business 150 years ago.

Investors are not likely to get much out of these firms, unless and until the trend that is hurting them is reversed

It is popular to think that Home Depot’s (HD) problem was Robert L. Nardelli, the recently departed CEO. He may have been arrogant and overpaid, but the chances that he could have reversed a trend in the housing market is highly unlikely.

Home Depot’s share price actually peaked in late 1999 at almost $70. The stock now trades at $$41.

Home Depot’s revenue grew 27% in 2000. In 2001, it grew 19%. Then 17% in 2002. Then, less than 9% in 2003. In 2004, the growth rate moved up to 11%. Probably not due to much that management did. The housing boom was in its prime. The revenue increase for 2005 was almost 13%. Last year, it dropped back to 11%.

For the quarter ending January 28, 2007, revenue growth dropped to 4%. The company’s temp CEO gave the reason: "Reflecting the challenging housing market, our 2006 retail results were disappointing," said Frank Blake, chairman & CEO.

Most of Home Depot’s costs are in the field and cannot be cut unless the company wants to surrender market share. The company has almost 1,900 stores in the US.

The company is using cash to buy back a lot of stock, but that does not solve any of its fundamental problems. With housing starts down over 14% in December, it is hard to imagine where Home Depot is going to get any significant increase in new customers.

It may be tempting to turn to Home Depot’s only real competitor Lowe’s to look for answers, but its stock is up about 3% over the last year while HD’s is down about 1%. While HD’s same store sales dropped 6.6% last year, and Lowe’s seems to have held up a bit better, it is growing from a much smaller base.

Where this nets out is that Home Depot’s board can hire an extremely talented CEO from inside the industry. But, given the metrics of the industry, HD’s stock is likely to continue to lag the Dow until the housing market warms again.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.

About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.