Hi folks:

Since we have only one page, the write up for number 4 will have to be very 
brief.  Before writing it, though, I wanted to offer a few bullets regarding 
what angle we might take, and let folks respond, comment, counter, etc. 
before writing it up.  I'll clean and beef up once we've agreed to the 
approach we'd like to take to question #4.  Finally, I can work from my 
office on this this evening, which means that I can use the conference call 
capability of my office phone to patch everyone in if we'd like to do a 
conference call. If that's what folks would like to do, I'd prefer to do the 
call at around 7 PM.  Just let me know.  

Best,
Jeff

The question for #4 is:

Stock price is down 23%, significant debt has already been tapped to support 
massive growth and covenants on that debt restrict taking on a lot more 
debt.  

What should HD do w.r.t. current operations and future growth strategy?
 In the near term focus less on growth and more on getting margins and EBIT 
growth back in line with results from previous years.  (Management,s Letter 
to Shareholders alludes to this, but it,s difficult to determine whether 
management is just paying lip service to the need to capitalize on the growth 
spurt and grown earnings, or continue on the growth effort.)

 With respect to funding future (more moderate growth), the company does have 
some room to increase long-term debt (e.g., current ratio for 1986 = 2.26).  
It seems that HD would get better terms and have increased flexibility by 
issuing additional debt rather than relying on lines of credit.  As such, HD 
ought to look those sources of funding and fill in any &funding gaps8 with 
funds from the line of credit.

 Given the significant drop in stock price, HD is likely better off in the 
near term 1) moderating growth, 2) improving performance to generate cash 
internally, and 3) using long-term debt issuance to provide the funds 
needed.  Once performance and stock price improves, then HD should consider a 
stock issuance.

How can company improve operating performance?
Reduce selling, store operating expenses and pre-opening expenses
Improve receivables turnover
Improve inventory turnover
Improve per store/sales
Consider closing poor-performing stores
All of which will improve margins
 
Should company change its strategy?  If so how?
Shift from meteoric growth to moderate, targeted growth, and focus on 
generating positive cash flow from operations
Focus on improving performance at existing stores; specifically focus on 
controlling costs and asset turnover and productivity
Consider another debt issuance rather than rely extensively on credit line in 
order to decrease cost of funds and increase flexibility