HOME DEPOT WILL NOT GO QUIETLY

Implications: A so called "activist investor" owning less than .06% of Home Depot's stock announces that it knows more than all the people running Home Depot about how best to run Home Depot.

Mr. Whitworth, principal of Relational Investors, a manager of a 6.5 billion fund, further suggests that he should have a seat on the Board and have everyone listen to his ideas about how best to increase the value of the stock for the maximum short term gain.

Mr. Whitworth cites HD's new efforts to acquire building supply companies as the reason their stock has not increased in value and wants the company sold so that the "hidden value" of their real estate can be realized.

Analysis: Mr. Nardelli was named CEO of HD in 2000. Since then per share earnings have doubled and the company has grown in a rational manner according to most retail observers that I respect.

The fact that HD's comp store sales have increased less than Lowe's is understandable for several reasons.

For one thing HD has had a policy of cannibalizing sales from its' highest volume stores by locating another store (or sometimes 2 or 3 other stores) nearby so as to provide a more pleasant shopping experience for its' customers.  This takes guts and shows a lack of concern for what Wall Street thinks.  Such intentional reduction in comp store sales is considered a no-no by folks whose only concern is the short term value of their shares.

For another thing HD is clearly a more mature company and as such is not likely to show the same kind of sales increases as a newer company.  Lowe's is playing catch-up while at the same time targeting HD's best stores to try and carve out market share.  I think it is most impressive that HD is able to show ANY same store increases under such difficult competitive conditions which are exacerbated by a declining market due to higher interest rates and lower new home sales.

HD is clearly looking at the long term.  If this troubles Mr. Whitworth, Mr. Nardelli should not be concerned.