Don,
For off balance sheet debt, I get 4.4 Billion at the end of FY '01, which is actually down slightly from FY '00. With cash of 2.5B, operating cash flow of 6B, PP&E of 15.3B, and LT debt of 1.5B, this really isn't unreasonable, IMO, even if you look at this as real debt (which you should). I should mention that I don't have the same issues with the operating leases, conceptually at least, that you do. It does seem to me a legitimate way of structuring these things. The fact that analysts are too lazy or stupid to include them in debt totals is a separate matter that doesn't invalidate the concept itself, in my mind.
Re the management, that's really the issue. I've looked at it and I think that the problems they are experiencing are inherited from the old management, which clung to a 1980's style retail model for far too long. I think the moves that Nardelli has made are intelligent responses to the current environment that will pay off in the long run. Others (including many current and former HD employees) would beg to differ. Time will tell. For that matter, I will certainly be revisiting this when the FY '02 10k comes out.
There are a couple of what I consider to be common misconceptions with this company. First, SSS is not the big issue here. Rightly or wrongly, the company is aggressively cannibalizing sales in their existing store base. (For that matter, the bar on comps is set pretty high for this quarter, and will continue to be into next year.) The big issue is the company's ability in the long term to continue to increase overall sales and cash flow, how they do it is relatively unimportant. Second, this is not primarily a Lowe's vs. HD story. The hard lines sector is very fragmented, and between them Lowe's and HD have less than 20% of their market. Certainly they will compete head to head in many cases, but there is plenty of room for both of them to grow. |
