Don,
I guess it boils down to the fact that, after reviewing the filings, I'm inclined to trust management and you're not. You raise an interesting point on the costs of store openings, although I can think of a few reasons why store opening costs might have been moderated, e.g. economies of scale, opening smaller stores, opening stores in more rural areas, the probability that they were spending a lot more back then building out regional distribution centers, etc. I'd also point out that the negative 10% is SSS, not overall sales, and represents one quarter only (although the problems could certainly continue into next year). I'm in this longer term, and a couple of bad quarters by themselves aren't going to worry me too much. A big test will be how they do the second part of next year when the comps get easier. In any event, most of what you and I differ on is a matter of judgment, and you and I have obviously judged differently.
However, while I concede that the jury is still out on the new management and future prospects, I strongly disagree with your statement that HD wasn't "broken". Their supply chain was a disaster, and it is going to take years to get it fixed. That's one reason I'm willing to cut Nardelli some slack. The slick magazines can talk all they want about Lowe's better looking stores, but the real story behind their success is their superior distribution system. The reason they can have more SKU's on hand and still do great turns is because they have the infrastructure to back it up. HD's cowboy style of store inventory management worked well for a while, and was a key to their early success, but as they grew larger they were choking on it. Maybe Nardelli isn't the man who is going to fix this, but someone is going to have to, and whoever does is going to take some hits in the form of lower margins, out of stocks, lost sales, etc. while they do it. |
