Don, you are certainly entitled to interpret that data and reach your own conclusions. Personally, I think you are seeing gremlins where they don't exist.
>>Off balance sheet lease agreements amount to close to a billion dollars.
GAAP does not require capitalization of operating leases. Non-capitalized lease and other commercial obligations are typically disclosed as a footnote. If they capitalized the lease obligations, they would have a corresponding asset that would have to be regularly and arbitrarily revalued based on a variety of subjective factors. Why encourage that when it is unlikely that a material amount of these leases will be liquidated prior to their scheduled termination. It certainly would not improve transparency, and could even be manipulated, since change resulting from revaluation of the remaining life would have to flow to the income statement. So, what's your issue here? Can you cite a major retailer that capitalizes all of their operating leases on their balance sheet?
At a glance, it looked to me like non-capitalized lease obligations were something like $7 Billion, not $1 Billion. Even if for some stupid reason they chose to capitalize them, their debt/equity ratio would only increase to 30%. I don't see anything sinister here.
>Same store sales are down, which shouldn't be the case with low interest rates and a strong new construction market for the past year.
It shouldn't be the case IF store growth is stagnant and no cannibalization is occurring. You have to look at same store growth within the context of overall sales and store unit growth. Total growth was there to the tune of $8 Billion. By comparison, Lowes grew their share of the total market by something like $3 Billion.
"While these openings may initially have a negative impact on comparable
store-for-store sales, we believe this "cannibalization" strategy increases
customer satisfaction and overall market share by reducing delays in shopping,
increasing utilization by existing customers and attracting new customers to
more convenient locations. During fiscal 2001, approximately 30% of our stores
were cannibalized by new store openings."
In summary, many new stores coupled with cannibalization results in significant market share growth while diluting same-store growth. Not a bad trade-off, if you ask me, especially when you grow total sales by a whopping $8 Billion in a single year, without acquisition. Nothing flat or down about that.
>>Interest payments are a current expense and any other treatment is cooking the books as far as I'm concerned.
Huh? Interest expenses are often, in fact, are REQUIRED to be capitalized in certain circumstances according to GAAP. I don't know how you arrived at your numbers, but your opinion is not supported by fact.
>>Legislation in the process of becoming law strikes me as having a huge potential to affect a company like Home Depot. There are NO large cap value plays out there until the endemic abuse of GAAP has been cured.
Maybe, maybe not. However, I don't see anything here that constitutes an "abuse" of GAAP.
Disclosure: I have no position in HD. Good luck on your puts. |
