Home Depot 2007 Annual Report Download - page 4

DEAR SHAREHOLDERS, ASSOCIATES,
CUSTOMERS, SUPPLIERS AND COMMUNITIES:
This past year was one of the most difficult our company
has faced. Year-over-year retail sales declined by 2.1
percent, with comp sales down 6.7 percent. Our operating
margin declined 186 basis points and our earnings per
share from continuing operations were down 11 percent.
We began the year with the objectives of focusing on our
retail business, investing in our associates and stores,
and improving our customer service. We stayed true
to those objectives despite the economic headwinds
and invested over $2 billion in five key priorities:
associate engagement, product excitement, product
availability, shopping environment and own the pro.
These investments put additional pressure on earnings
in a difficult environment, but we are convinced the right
long-term strategy starts with the customer experience
in our stores. In each priority area, we made significant
progress.
ASSOCIATE ENGAGEMENT:
Our founders emphasized the importance of taking
care of our associates who take care of our customers.
This is as important today as it was twenty years ago.
It is an investment we know will strengthen our market
leadership position. This past year, we took significant
steps to improve the compensation and recognition
of our associates and to build on the expertise in our
stores. We implemented a new restricted stock bonus
program for our assistant store managers. We are the
only retailer of our size to award equity grants at that
level of management. For us, it is important that our
assistant store managers feel and act like owners. We
significantly increased participation and payout of our
Success Sharing bonuses for hourly associates and rolled
out a new Homer Badge merit program to recognize
great customer service. I hope as you shop our stores
you will notice the associates who are proudly wearing
these badges. We hired more than 2,500 Master Trade
Specialists in our plumbing and electrical departments.
These associates are licensed plumbers and electricians
and provide both knowledgeable service to our customers
and great training for associates. As a result of these
and other efforts, full time voluntary attrition was down
almost 20 percent in 2007.
PRODUCT EXCITEMENT:
Our customers expect great value and exciting products
in our stores. In 2007, as in the past, we focused on
meeting those expectations. We invested significantly in
merchandising resets, drove product innovation through
our successful launch of the Ryobi Lithium One+ line of
power tools and our Eco Options program, and revamped
product lines to drive greater value for our customers. We
are particularly proud of the leadership we maintained
in a number of categories including appliances, outdoor
living, live goods, and paint.
PRODUCT AVAILABILITY:
In 2007, we took an important first step in transforming
our supply chain. We piloted a new distribution network
and technology - Rapid Deployment Centers (RDCs). The
pilot was successful, and we will be rolling out RDCs
throughout 2008 and 2009. We are confident that our
future supply chain will dramatically improve our supply
chain efficiency, improve our in stock levels, improve
our asset efficiency, and improve our ability to meet
increasingly differentiated customer needs.
SHOPPING ENVIRONMENT:
Our store base is getting older, and we have to protect
one of our most important assets. We increased store
maintenance in 2007, spending 38 percent more than
our 2006 maintenance levels and two times our 2005
maintenance levels. We developed a sustainable
programmatic approach to maintenance, with specific
schedules for polishing floors, remodeling restrooms,
and replacing major equipment such as air conditioners
and service desks. As shown through our “Voice of the
Customer” surveys, our customers appreciate these
investments.
OwN THE PRO:
We know that the professional customer is a critically
important customer for us. This year we rolled out several
programs aimed at better serving our pros. One of these is
our pro bid room, which allows us to better manage large
customer orders. Our professional customers look to us for
the right products in the right quantities to make their jobs
easier. We reinforced our job lot quantity program in our
stores and revised our delivery service for better utilization.
We are also leveraging our customer data to build stronger
relationships with this key customer segment.
INTERNATIONAL:
While discussing progress in 2007, I’d like to give
special recognition to our international businesses in
Mexico, Canada and China. Our stores in Mexico had
double digit positive comps for the year. Our stores in
Canada posted positive comps. In China, once we
launched our Home Depot brand in August 2007, our
stores posted positive comps. Our international stores
contributed almost 10 percent of sales and 12 percent of
operating profit in 2007. These results demonstrate how
well our format translates and the sizable opportunity to
THE HOME DEPOT04