Home Depot, Inc. (HD, Financial) is the largest home improvement center in the U.S., with 2,260 stores (1,977 U.S., 180 Canada, 103 Mexico) versus Lowe's with 1,748 stores (1,714 U.S.). Based on a $600 billion addressable market, Home Depot has an approximately 12% market share (Lowe's 8.4%). Sales by product category are: 31% plumbing/electrical/kitchen, 29% hardware/seasonal, 21% building materials/lumber/millwork, 19% paint/flooring. Only 3% of sales come via the Internet. The company owns 90% of its stores. We believe corporate initiatives to unlock real estate value could result in additional share price appreciation.
We recently attended Home Depot's management investor conference. We believe the company is "best-in-class" and has several competitive advantages including scale, distribution efficiencies, great management, interconnected retail through stores and the Internet, excellent customer service, and a rock-solid balance sheet. In the next few years, we believe the company will continue to benefit from an improvement in home sales and repair and remodel activity. We see a path to generating mid-teen annual returns in the next few years.
From Ron Baron (Trades, Portfolio)'s Baron Funds' fourth quarter 2013 commentary.
