<<<80% of their massive amount of property is owned with no debt.>>>
Double check the wording.
"Of our 1,333 Home Depot stores, EXPO Design Center stores, Villager's Hardware stores and The Floor Store, at February 3, 2002, approximately 80% were owned (including those owned subject to a ground lease) consisting of approximately 116,901,000 square feet and approximately 20% were leased consisting of approximately 28,541,000 square feet."
They may own 80% of the buildings, but not the ground those buildings sit on. There doesn't seem to be any disclosure as to how much of that ground is actually owned by the company. Is it 1% or 79%? So... why aren't the numbers broken down? What's the point of "(including those owned subject to a ground lease)" to investors who may wish to know if the company owns 40 acres of prime commercial real estate under each building.
At best it's a material omission of facts, at worst it's intentionally misleading.
<<<Walmart and Kroger are quite similar.>>>
So is K-Mart.
From the 10K:
"If the estimated present value of future payments under the operating and other off-balance sheet leases were capitalized, our debt to equity ratio would increase to approximately 30%."
Shareholder equity is stated as being $18 billion. The difference between 6.9% and 30% is $4.1 billion in off balance sheet debt.
Another item where disclosure appears to be noticeably absent is their credit card accounts. According to the filing, 21% of purchases are on Home Depot accounts. 21% of $53 billion in sales comes to $11 billion. According to the filing, receivables total $.9 billion. Do over 90% of their credit card customers pay the balance in full each month? Unless things have change a great deal since the last time I looked, those credit cards are issued at over 20% interest. Where is the interest income from those accounts? Is there additional off balance sheet debt in the form of the kind of securitizations typical of credit card issuers? The balance sheet certainly isn't strong enough to carry $11 billion a year in that kind of paper in house, and it doesn't show up on the balance sheet anyhow. In an economy where consumer defaults on credit card debt is at record levels, what is the Home Depot exposure to that risk?
I understand your argument that these kind of practices are generally allowed by GAAP and that nearly every company in the S&P 500 does the same thing. I guess where we disagree is you are able to perceive some kind of value in the stock of those companies, where I don't. Investors can afford to ignore games with accounting in a bull market where no one pays attention to what they are buying as long as the hype makes them happy. This is NOT a bull market. |
