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Home Depot 2007 Financial Outlook And Retail Growth Priorities Announced


ATLANTA - The Home Depot(R), the world’s largest home improvement retailer, today reported its financial outlook and key priorities for driving retail growth in 2007 and beyond at its Annual Investor and Analyst Conference.

Chairman and CEO Frank Blake stated that the Company does not expect residential construction and the housing market to improve until late in the second half of 2007 or early 2008. The Company’s outlook for 2007 reflects this broader economic dynamic, as well as the Company’s customer priorities and strategic investments.

“We are first and foremost a retail business, and our 2007 plans reflect that commitment,” said Frank Blake, chairman & CEO. “While the current home improvement market remains challenging, the long-term fundamentals of our company are strong, and we believe we can improve our performance and grow at, or faster than, the market beyond 2007. That’s why we are making significant investments in our associates and our stores.”

The Company’s five key priorities and the anticipated investment that will be applied to each are outlined below. Total investment in these priorities in fiscal 2007 is projected to be approximately $2.2 billion, comprised of $1.6 billion in capital spending and $600 million in expense.

Associate Engagement

The Home Depot’s goal is to provide a unique warehouse shopping experience characterized by available, helpful and knowledgeable associates. Customers know that the orange apron means something special, and the Company intends to focus on know-how and service as a competitive edge. During 2007, the Company plans investments in associate engagement to total $360 million, including recruitment of master trade specialists, a simplified staffing model, technology-enabled customer assistance, and redesigned compensation and reward plans.

Product Excitement

Product innovation, more focused promotions and everyday low pricing will drive The Home Depot’s merchandising initiatives in 2007. The Company expects to invest $260 million in 2007 on merchandising resets, product innovation, pricing strategies and sourcing initiatives.

Product Availability

Keeping the right quantities of merchandise on the store shelves is a key priority for 2007 and beyond. The Home Depot will focus on improving its in- stock position by investing in its logistics capabilities, including demand forecasting and distribution. The Company plans to invest $275 million in these efforts.

Shopping Environment

The Home Depot consistently hears through surveys that customers want to shop in safe, clean and uncluttered stores. In 2007, the Company plans investments to total $865 million to support the shopping experience, including sustained maintenance and merchandising reset programs.

Own the Pro

The Home Depot’s goal is to be the number one destination for pro customers, primarily repair and remodel professionals. During 2007, the Company expects to spend $415 million on programs such as loyalty programs, a pro bid room to handle large customer orders with volume discounts, direct ship programs, credit programs and other specialty sales initiatives.

“Our 2007 sales and earnings per share targets reflect the reality of the home improvement market and our commitment to invest for the long-term health of our business,” said Carol Tome, CFO & executive vice president -- Corporate Services.

2007 Financial Targets

* Total sales growth of 0 percent to 2 percent, with HD Supply growing
from 13 percent of total sales to approximately 15 percent of total
sales by the end of the year

* Retail comps in the negative mid-single-digit area

* Approximately 115 new store openings; 4.6 percent square footage growth

* Diluted earnings per share decline of 4 percent to 9 percent

* Capital expenditures to increase 29 percent to $4.5 billion, focused on
new stores and retail reinvestment

2007 financial targets reflect 52 weeks and do not include the impact of the 53rd week. The Company will have 53 weeks of operating results in its fiscal 2007 financial results. Including the impact of the 53rd week, consolidated sales are expected to increase by 1 percent to 2 percent, and diluted earnings per share are expected to decline by 3 percent to 8 percent.

Retail Outlook

Beyond 2007, the Company believes that investments made in its retail business will allow sales in the retail business to return to above market growth rates. Additionally, the Company expects that these investments will drive productivity, which will cause earnings to grow faster than sales. Coupled with its commitment to share repurchases, the Company anticipates diluted earnings per share growth of more than 10 percent annually. The overall retail outlook beyond 2007 is as follows:

* Annual sales growth of approximately 5 percent

* Annual earnings growth greater than 5 percent

* Annual diluted earnings per share growth of 10 percent or more

Capital Allocation Outlook
The Company outlined its intent to use available cash after investing to deliver a predictable dividend payout targeting approximately 30 percent, to generate value-creating share repurchases and to maintain a high return on invested capital.

“Speed, flexibility and entrepreneurial spirit are hallmarks of The Home Depot and will guide our decision making in 2007,” said Blake. “We have aligned our leaders and resources around our five key priorities, and we believe this strategy will deliver the most value for our customers, associates and shareholders.”

The Home Depot(R) is the world’s largest home improvement specialty retailer, with more than 2,163 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, 10 Canadian provinces, Mexico and China. Through its HD Supply(SM) businesses, The Home Depot is also one of the largest diversified wholesale distributors in the United States, with nearly 1,000 locations in the United States and Canada offering products and services for building, improving and maintaining homes, businesses and municipal infrastructures. In fiscal 2006, The Home Depot had sales of $90.8 billion and earnings of $5.8 billion. The Company employs approximately 355,000 associates and has been recognized by FORTUNE magazine as the No. 1 Most Admired Specialty Retailer and the No. 13 Most Admired Corporation in America for 2006. The Home Depot’s stock is traded on the New York Stock Exchange (NYSE: HD) and is included in the Dow Jones industrial average and Standard & Poor’s 500 index. HDG


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