At Home Depot, out with PFRI, in with GDP
Analysts, investors and anyone with more than a passing interest in the performance of The Home Depot have grown accustomed to repeated references to the PFRI stat — or private fixed residential investment as a share of GDP.
Today, a statistical changing of the guard is underway at the world’s largest home improvement retailer. As far as forecasting and key metrics are concerned, PFRI is out, and good old-fashioned GDP is in.
The company’s comp sales have “disconnected” from the PFRI metric, said CFO Carol Tomé during the company’s recent analyst meeting.
She added, “Housing’s grip on the economy is as loose as it has been in 60 years.”
Other measures — among them foreclosure rates and home prices — have strengths and weaknesses as tools.
What’s a better indicator?
“Our current thinking is that our business will grow at the rate of GDP growth.”
For 2011, Goldman Sachs is forecasting a GDP increase of 3.4%, and Home Depot is expecting low single-digit sales growth.
The company’s emphasis on the PFRI stat lasted about four years.
“When we first showed this chart in February 2007, the main message was that we’re going to see a correction in the housing market,” CEO Frank Blake said. Instead, it’s been a steady downhill ride. At its last reading the stat stood at another record-breaking 60-year low of 2.2% of GDP.
“When we started these charts, we used 2% of GDP as the bottom of the graph,” Blake said. “Maybe, I hope, we were prescient.”