This is Matt Reustle and today we are breaking down the home improvement giant, The Home Depot. In the US, The Home Depot is a key ingredient to a nice little Saturday but beyond the power tools and building supplies is an excellent story of business execution. Why has Home Depot been such a strong performer following a housing crash in the e-commerce revolution? I’m joined by Sean Stannard-Stockton of Ensemble Capital to break that down. We cover how Home Depot transitioned their approach to business, from customer focus to capital allocation, and while Home Depot has reported strong earnings growth over the past decade, and beyond that, this isn't a simple story about a growing footprint. Please enjoy this breakdown of The Home Depot.

Don’t miss our first written Breakdown. David Kim from scuttleblurb joined us to break down the best in class trucking business, Old Dominion Freight Line. You can read the interview here.

For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.

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Show Notes

[00:03:10] - [First question] - What the customer strategy is for Home Depot and how it differs from Lowe’s

[00:05:28] - How the sales process works for a pro versus a DIY builder 

[00:07:38] - The size of the addressable market and how much of it Home Depot controls

[00:08:47] - Home Depot’s history and its role in developing and growing their industry 

[00:11:39] - When Home Depot was founded and their original go-to-market strategy 

[00:13:38] - What drove their decision to stop expanding stores and honing their offering

[00:14:56] - Their revenue model and growth over time and the correlation between revenue and the housing market 

[00:18:10] - How much revenue growth can be traced to in-store traffic and what’s driving it

[00:21:55] - Overview of their economic model as a whole

[00:23:42] - Their earnings profile and overall leverage compared to Lowe’s 

[00:24:54] - How they position themselves for more of their business to be done online and thoughts on their CAPEX budget

[00:27:56] - Who Home Depot purchases from and how they navigated the pandemic

[00:37:09] - Thoughts about Home Depot’s growth over the next three to five years

[00:41:40] - How much historically there has been a growth lag after bubbles and crashes 

[00:44:12] - Whether or not new home purchases and refinancing during the pandemic might impact Home Depot’s trajectory

[00:47:27] - Thoughts on Amazon potentially becoming a competitive threat

[00:49:37] - Other risks that are top of mind when thinking about Home Depot’s future

[00:53:51] - Lessons for investors and builders when studying Home Depot’s story