Wednesday, May 20, 2009

Home Depot Girds for Continued Weakness

The New York Times - ATLANTA — When the collapse of Lehman Brothers froze the credit markets last September, Carol Tome quickly ordered hundreds of Home Depot’s store managers to transfer all their spare cash to headquarters — literally cleaning out their registers and each store’s safe.

Then Ms. Tome, the chief financial officer, took other emergency steps to make sure Home Depot would not have to borrow another nickel from the nation’s dysfunctional lenders. Within days, she and her boss, Frank Blake, the chairman and chief executive, had slashed capital spending and suspended a stock buy-back program, saving millions of dollars.

“We no longer needed short-term loans to operate,” Ms. Tome said at the time. And that has remained the case.

The era of operating easily on borrowed money is over, at least for now, for businesses as well as consumers. That in turn is changing the way companies operate, with profound effects on the economy. Unable to borrow on favorable terms, many companies have retrenched and some have gone into survival mode. But their caution has costs: Not only could it prolong the recession, but it could put them at a disadvantage to more aggressive competitors when the economy revives.

While Home Depot has emerged from the credit crisis strong enough to borrow at attractive rates now, it has chosen not to do so. Mr. Blake has charted a course away from expansion, one that he holds out as a template for running a big company in postrecession America. In his view, the hard times and the less generous credit are restricting consumption and undermining the corporate expansion that drove economic growth in recent years. The best response, he decided, is to focus on Home Depot’s most profitable core business: the existing retail outlets.

Wall Street Journal Article on Home Depot's Plight:

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