Home Depot Co-Founder Blank to Retire From Board

Arthur M. Blank, co-founder and co-chairman of Home Depot Inc., said Wednesday that he will retire from the company and its board of directors at the end of May.

The decision puts Wall Street’s focus on a newcomer to Home Depot, Chief Executive Robert Nardelli, as he navigates the retail powerhouse through increased competition and a rocky economic cycle.

“Bob Nardelli is at Home Depot for Bob Nardelli to run the company, and while everybody seems to be getting along just fine, having the shadow of your predecessor looming large doesn’t make that any easier,” said Matt Fassler, an analyst with Goldman Sachs & Co. in New York. “This is now obviously Bob Nardelli’s show, but people admire his stepping into a tough situation and no one will fault him if the company has another stumble or two on its way to recovery,”

Nardelli, 52, joined Home Depot in December, taking Blank’s place at the helm of the company. A former division head at General Electric, Nardelli left after being passed over as the successor to GE Chairman John F. “Jack” Welch Jr.

Fassler said Nardelli’s experience at GE might prove a boon to Home Depot.

“Nardelli appears to be making efficiency, productivity and returns a priority, with growth being the hoped-for end result,” Fassler said, “rather than growth being the priority with productivity and returns following where they may.”

During its last full quarter, Home Depot had sluggish sales and a 20% earnings loss. The company said it is slowing expansion plans.

In 22 years at the company, Blank, 58, was often thought of as the numbers and details half of the partnership with Bernie Marcus. Marcus headed what was known as “orange culture,” the notion that customers of a giant warehouse retailer were entitled to high levels of service.

With their combination of talents and a new retail concept, Blank and Marcus transformed two Atlanta home-improvement stores into one of the country’s largest chains, growing to more than 1,100 stores over the last 20 years.

The company, called Big Orange for the color sprinkled around its otherwise plain stores, acknowledged this week that it faces a series of challenges in addition to overall sluggishness in the retail and housing markets.

After twice revising estimates downward, Home Depot reported fourth-quarter earnings of $465 million, down 20% from $578 million in the same period the previous year.

For the company’s fiscal year, earnings rose 11% to $2.6 billion despite increasing pressures from competitors such as Lowe’s Cos.

Company executives said despite slightly slower sales, they expect to meet Wall Street expectations for the first quarter of this year of 26 cents per share, or a penny below the first quarter of 2000.

But that contrasts sharply with last year’s growth, when the first quarter’s earnings rose 26%, second quarter, 22%, and third quarter, 12%.

The end-of-the-year challenges seemed to take the company by surprise, some analysts said.

Nardelli said slower consumer spending accounted for part of the decline. In addition, the company faced an eight-year low in lumber prices as well as lower rates on other building materials.

Sales at stores open at least a year were flat in the fourth quarter compared with 1999, when Y2K worries had people stocking up on building materials and survival gear, Nardelli said. Analysts also said the company, which had a storewide sale just before Christmas, suffered from those 10% markdowns.

Also in the fourth quarter, operating expenses as a percentage of sales climbed to 23.49%, from 21.71% a year ago, due to higher labor costs, utility bills, property taxes and rental costs.

Although the company said the tough retail environment made it difficult to give specific targets going forward, executives said the first half of 2001 will probably continue to put pressure on earnings, with modest improvements expected during the latter part of the year.

Analysts said they weren’t very surprised by Blank’s announcement. As the day-to-day leader, one company follower said, Blank was the right part of the Home Depot duo to step aside.

During Wednesday’s conference call, Blank said he thought his presence gave a mixed message to employees about who was in charge.

“I don’t think that was fair to Bob [Nardelli], and I don’t think that was fair to the associates,” Blank said. “People need to be loyal to the culture and to the one person who does represent that culture as CEO.”

Shares of Home Depot closed down $3.14 on Wednesday at $40.95 on the New York Stock Exchange.

Blank said he will expand his efforts on behalf of his family’s charitable foundation and spend more time with his family, which will grow this summer--Blank’s wife is expected to give birth to twins.

“I’ve seen founders stay way past, in my judgment, where they should and trying to run the company from the grave,” Blank said. “I didn’t want to be in that position.”