Home Depot Plan Includes Sales Shift Away From Retail

Home Depot Inc. announced a bold five-year plan Thursday to shift more of its overall sales away from its retail core to its division serving professional contractors.

The company said it would slow the pace of new store openings but still maintain strong earnings growth.

The nation’s largest home-improvement store chain has nearly doubled its number of stores in Bob Nardelli’s first five years as chief executive, but the company doesn’t expect that kind of increase in his next five years.

The Atlanta-based company said it would open 400 to 500 more stores by 2010, compared with the 941 it has opened since Nardelli was appointed to Home Depot’s top job Dec. 5, 2000. The chain has 2,028 stores in the United States, Canada and Mexico.

“It’s certainly not business as usual,” said Eric Bosshard, an analyst at FTN Midwest Research in Cleveland. “There’s clearly a pretty meaningful transformation in the strategy at the company that’s taking place.”

He added, “I think the market is working to digest exactly what that means.”

Home Depot shares fell 62 cents to $41.28.

For Nardelli, his strategy means getting more out of the company’s existing assets and giving more resources to Home Depot Supply, the division that serves business customers such as home builders, professional contractors, municipalities and maintenance professionals.

By 2010, the company expects that Home Depot Supply will generate 18% to 19% of overall sales, compared with 4% at the end of 2005. It expects the 91% in sales it now generates from its core retail division to be reduced to 75% to 77% in the next five years. The company is testing gas stations outside a handful of stores in the U.S., and depending on how that goes, it could have the pumps at 300 locations by 2010.

Nardelli said new store formats and products would be just as important as new stores. He also said the company wanted to continue increasing its online and catalog business.

As part of its plan, Home Depot said it expected annual earnings-per-share growth of 10% to 14% from 2006 to 2010, coupled with annual sales growth over the next five years of 9% to 12%.