Home Depot to Investors: Mea Culpa on Home Services

Dec

Home Depot to Investors: Mea Culpa

posted by admin in Home Depot

In a basement hotel ballroom in Delaware, with the board nowhere in sight and huge timers on stage to cut off angry investors, Home Depot held a hasty annual meeting last year that attendees alternately described as appalling and arrogant.

Donâ€™t expect a repeat performance this year.

Home Depot annual meeting, scheduled for tomorrow, will strike a far warmer, inviting tone, with members of the board in prominent attendance and the company folksy new chief executive fielding dozens of shareholder questions sans digital timers.

Frank Blake, the chief executive, will purposefully distance himself from his predecessor, Robert L. Nardelli, by reviewing the state of the chain;s business (in 2006, Mr. Nardelli didn bother), acknowledging the problems it faces (ditto) and laying out his vision for the chain future (Mr. Nardelli left the stage after a vote on shareholder proposals).

There is a lot riding on the performance. Mr. Blake has won over critics of Mr. Nardelli with his low-key, humble approach, but this meeting is his biggest chance to show investors publicly how much the company and the board have changed since last year debacle.

;It would be impossible to have a meeting worse than last year,said Richard Ferlauto, director of pension investment policy at the American Federation of State, County and Municipal Employees, a union. Anything they would do is an improvement.

Attendees are looking for change in another area, too: Home Depot flagging performance. Profit fell 30 percent in the first quarter of this year, and sales at stores open at least a year plunged 8 percent. As the typically candid Mr. Blake put it: ;While we expected a tough quarter, this was worse than we anticipated.

The company has blamed the weak housing market, which has also put a dent in the profits of its main rival, Lowe. But analysts worry that low morale among Home Depot employees, combined with management lack of investment in the stores, has turned off shoppers who have decks to build and kitchens to renovate.

Mr. Blake has begun to confront both issues, considered a legacy of Mr. Nardelli tenure, hiring experienced plumbers and electricians as store employees, eliminating unattainable sales goals for managers and setting up a $3,000 fund at every store to reward workers.

But a turnaround could take time, and it is unclear how much patience Wall Street will have for quarter after quarter of slipping sales. So far, many analysts are giving Mr. Blake, who was named to the top job in January, the benefit of the doubt. I am confident enough to give him the time, said Steve Chick, an analyst at JPMorgan.

The good will toward Mr. Blake has much to do with his break from Mr. Nardelli%26#8217;s imperial style. He took a far smaller salary ($8.9 million a year, compared with $39.7 million for Mr. Nardelli) and has earned a reputation for humility, frequently admitting to mistakes (like ill-timed clearance sales during the last quarter, which he said werent the smartest thing to do).

That kind of transparency is expected throughout tomorrow%26#8217;s meeting.

What struck investors about Home Depot%26#8217;s 2006 annual meeting was not just its beat-the-clock brevity, but the fact that Mr. Nardelli tossed aside such rituals as a discussion of the retailer%26#8217;s performance and the presence of board members up for re-election.

Given the debate swirling around Mr. Nardelli%26#8217;s pay at the time, the absence of both struck investors as an attempt to gloss over the company%26#8217;s problems and deny investors a chance to question %26#151; or more likely criticize %26#151; the directors who set his pay.

This year, in a symbolic gesture, Home Depot will return to its headquarters city of Atlanta, holding its meeting at the same convention center as it did for years before Mr. Nardelli moved the event around the country.