Home Depot CEO builds on first-year success on Home Services

Jan

Home Depot CEO builds on first-year success

posted by admin in Home Depot

Heading a home improvement chain during the worst housing slump in decades is no picnic. Just ask Frank Blake, who’s just marked his first year as chief executive of Home Depot. The Atlanta company’s earnings and share price have suffered amid the drumbeat of bad news about housing and mortgages.

But Blake also has had some success in steadying the company after the controversial Bob Nardelli’s rocky six-year ride at the helm.

Home Depot CEO Frank Blake

For starters, Blake gets paid a lot less, which makes him decidedly un-controversial compared with Nardelli. He has sought to restore the company’s focus on retail store operations and service, and he’s smoothed local relations.

Some themes of the new regime’s first year:

BACK TO BASICS

Blake’s biggest strategic move: reversing Home Depot’s dramatic expansion into wholesale supply via an HD Supply division catering to builders and municipalities. The unit generated close to 15 percent of revenue but critics said it had lower margins and clashed with the core retail business. Weeks after Blake’s appointment, Depot abruptly put the unit on the block, eventually selling it for $8.5 billion. Blake also shuttered stand-alone landscape and flooring stores and put the focus on improving operations and service.

SETTING A NEW TONE

Whereas Nardelli made lots of headlines many for his $30 million pay package and stony public demeanor Blake came across as a quiet, “regular guy” type of leader. He told employees he wanted to foster an inverted pyramid corporate culture, with customers and workers on top and “me as CEO at the bottom.” His base salary is $975,000, less than half of Nardelli’s. Possible bonuses and add-ons are capped at about $8 million and depend on performance.

BATTLING HOUSING WOES

Anything with “home” in its name had a tough 2007, and Home Depot was no exception. The company hoped for an upturn in the second half, but the housing slump and mortgage crunch got worse. Home Depot’s third-quarter profit of $1.09 billion was off 27 percent from a year earlier, while same-store sales slumped 6.2 percent. Navigating the choppy housing waters will be Blake’s toughest challenge. “Given the sharp recent drops in housing turnover, we do not expect business to turn until the second quarter of 2008,” Goldman Sachs analyst Matthew Fassler said last fall.

STRONGER LOCAL TIES

Nardelli’s reign frayed local ties and even spawned rumors of a possible headquarters move to Florida. Blake squelched that idea, saying Atlanta will be the home base “forever, I hope.” He had his first shareholder meeting at Cobb Galleria, with the board of directors present and questions allowed. That was in stark contrast to Nardelli’s final meeting, held in Delaware with most of the board AWOL. The company recently said local charitable giving for 2008-11 will be up 50 percent from the prior four years.

POOR RETURNS

One of the raps on Nardelli was poor stock performance. So far, the vicissitudes of Wall Street have been even less kind to Blake. Home Depot stock was just under $40 a share when he was named CEO. It bounced around that price for the first half of the year, but since July shares have steadily tumbled, trading Monday at under $26. Ouch.