The board of The Home Depot® and Bob Nardelli announced in early January that by mutual agreement Nardelli would leave his position as The Home Depot’s chairman, president and CEO, and also as a director, effective Jan. 2, 2007. Frank Blake, the company’s vice chairman of the board of directors and executive vice president, was elected chairman and CEO of The Home Depot and a full voting member of its board, succeeding Nardelli.

Prior to joining The Home Depot in 2002, Blake served as deputy secretary for the U.S. Department of Energy and before that, he served in a variety of executive roles at General Electric.

The Board also announced that Carol Tomé, executive vice president and CFO, and Joe DeAngelo, executive vice president, HD Supply, would assume additional duties. Tomé will now take charge of mergers and acquisitions, credit services and additional strategic responsibilities. DeAngelo was appointed to the newly created position of chief operating officer, and as such, he will continue to oversee HD Supply while also assuming additional responsibilities for the retail business.

What impact will these changes have on HD Supply, the pro supply business of The Home Depot that acquired giant PHCP wholesaler Hughes Supply last year?

This was discussed in an informal Q and A with Joe DeAngelo:

Q What impact will the change in leadership at Home Depot have on HD Supply?

DeAngelo:“HD Supply is an important part of The Home Depot’s strategy to fully serve professional customers. I will continue to lead HD Supply as part of my new COO role.”

Q What impact will your newly expanded responsibilities as chief operating officer of Home Depot have, given your position as executive vice president of HD Supply?

DeAngelo:“In my [expanded] role, I have oversight of the strategic responsibilities of the company’s retail platform, including store operations, asset protection and customer service. I am also responsible for providing enterprise-wide leadership for The Home Depot’s pricing strategy, sourcing, home services, logistics and inventory management.

“As the leader of HD Supply, I guide the company’s initiatives in the wholesale distribution market to serve builders, contractors, government entities, industrial businesses and maintenance professionals.

“The Home Depot and HD Supply share a common supply chain and a common customer.”

Q How should the industry view this move: To have the executive overseeing the wholesale business segment taking on additional duties on behalf of the retail part of the business?

DeAngelo:“I will ensure that the entire company, both retail and wholesale, works together to fully serve our customers. My background is diverse, including both retail and wholesale experience.”

The Home Depot: “Joe DeAngelo brings tremendous knowledge and proven expertise to his new role. Prior to his role at HD Supply, he led the pro initiatives in The Home Depot’s retail stores. His background prior to The Home Depot includes a wide range of experience leading consumer and wholesale organizations.”

Supply House Times also spoke with an analyst, David J. Manthey, CFA, Industrial Distribution Analyst at Robert W. Baird & Co. Inc., about the changes. Here are his comments:

“We are seeing mixed signals from Home Depot right now. First, Nardelli’s departure may signal that shareholder concerns are being heard, which could potentially lead to a change in strategy. The No. 1 concern with some shareholders is that Home Depot is taking the capital from the maturing retail business and reinvesting in HD Supply, which is a lower return on capital business. Those concerns are understandable. However, when you look at the returns of good industrial distribution businesses, they are actually very solid. The issue is that Home Depot has to pay a premium to acquire their way into these markets, which lowers the company’s overall returns on invested capital.

“Second, the promotion of Joe DeAngelo to chief operating officer may be sending the opposite signal - that HD Supply will continue to be a central part of the long-term strategy. The fact that he was running the HD Supply division tells you that the reformulated Home Depot may still be very interested in pursuing the pro supply segment of the market. So far, there has been no indication that Home Depot is planning to change the current strategy as it relates to HD Supply.

“The activist shareholders of Home Depot are concerned enough about the company’s strategy that, if they are successful, could potentially lead to a change in strategy. This could mean divesting or spinning off the HD Supply segment. I believe that sounds pretty drastic for an initiative that seems as central to the strategy as HD Supply is to Home Depot. The company has spent the last several years exploring this area and more recently made some large acquisitions, such as National Waterworks, Hughes Supply and Williams Bros. It would almost seem counter-productive to exit the business so soon after entering it in a meaningful way. So I don’t expect the company to exit the pro supply market, but anything is possible. In the near term, it will likely reduce the company’s appetite for acquisitions, as they sort out the long-term strategy.”

Frank Blake, Carol Tomé and Joe DeAngelo met with analysts on January 11 and 12 to discuss the change in leadership and the future of The Home Depot and HD Supply. According to The Home Depot, analysts came away from the meetings with a positive impression that management is focused on the right objectives.

One analyst said that the focus at the meeting was retail. HD Supply trends have likely slowed more than anticipated. Despite the downturn, HD will accelerate investments in the business.

by Pat Lenius