Former Home Depot CEO: ‘We’re in for a long rough patch’ with inflation and supply chain

Bob Nardelli, former CEO of both Home Depot and Chrysler, joins Yahoo Finance Live to discuss Home Depot earnings, its challenges with inflation and supply chain, and the new era of executive communication.

Video transcript

DAVE BRIGGS: Retail sales grew for a fourth straight month, 0.9% in April as inflation remained high. Meanwhile, a tale of two retail stocks as Walmart suffered their worst day since the '87 crash after awful earnings. Well, Home Depot bounced after an earnings beat. We're joined now to talk about this with former Home Depot CEO Bob Nardelli, also the former chief executive of Chrysler. It's great to see you, Bob.

So what do you make of this? What's your big picture takeaway? Same day we see the Walmart woes, we see a Home Depot makeover.

BOB NARDELLI: Yeah, well, David, thanks for having me on today. Craig Maynier and that whole team did an amazing job, not only a fourth quarter, but certainly for the full year up 14%. If you just look at the tale of the tape, square footage was up, average ticket was up. The only thing that was in the wrong direction was customer transactions. And that tells you a little bit about what's going on there.

Transactions may be down, David, but then if you look a little bit deeper, you'll say, OK, it must be price. It must be margin. And it can't be all volume. So I think what we're seeing here in a little bit is that inflation is having a positive impact on the top line, and allowing for the margin because of a richer mix to fall through for Home Depot.

But Craig has done a magnificent job. The company is in great shape to hand it over to Ted Decker in June. And this will be, let's see, one to third, CEO since I left Home Depot, David.

SEANA SMITH: Well, it's interesting because when it comes to inflation, we heard it from Home Depot obviously, Walmart this morning in their earnings call, we've heard it from virtually almost every single earnings report that we have gotten in the most recent quarter. From your perspective, though, what's the playbook for CEOs? How do they navigate their company and the future here when we're seeing inflation sky high?

BOB NARDELLI: Well, let me say that I'm still very active involved. I'm on a couple of public boards. And I got about a dozen private companies in my family office. And we're dealing with inflation every day. Every day. It's not a quarterly thing. It's not a monthly thing. It's every day. And what's happening is we used to when we get a price increase from a supplier, we might sit on it for a while, see if it's going to hold, and then pass it on.

Right now, unfortunately, what we have to do is the minute we get it, we have to pass it on. We're also using fuel surcharges because of fuel going up. We saw diesel is what, $5.55, $5.56? So we're having to pass that on. So inflation is inseparably linked to the supply chain. I look at a global view of the container ships around the world. And we have well over 550 ships right now floating on the water waiting to get unloaded. We have an equal number of tankers floating on the water ready to get unloaded.

So supply chain has caught every company off guard here. And I just don't see it getting better. I know some of your prior guests have indicated a more positive view. I think we're in for a long rough patch, certainly through the balance of this year until we get stability back in the supply chain. If you think about the city they shut down in China, you got 26 million people, fourth largest port in the world. And we're not moving product in to get manufactured. And we're not moving product out on the supply chain.

So we've got a real challenge here globally in our economy or business. And I've never seen the challenges for a CEO greater than they are today. The broad range of constituents that they have to try and satisfy is unbelievable. Unbelievable to date.

SEANA SMITH: Well, Bob, that's interesting what you're saying because I feel like in the last couple of days or several weeks, we've heard many people be a little bit more optimistic about the picture. But you're sounding a pretty concerning alarm here. I guess, how much worse could it potentially get?

BOB NARDELLI: Well, I think one month of reduction in inflation I don't think is enough to justify say that it's going away. I think we're going to see-- I know the fed is going to work on it. I know Secretary Janet Yellen is going to work on it. But they're not going to be able to overcome some of the issues that we have out there. We've got some of our biggest customers reducing sales, their forecasts on us, by 80%. 80% reduction because they were in this boom period, they overbuilt, for example, distribution centers, and now they're going to have to pull back.

And then it rolls downhill, reduce us by 80, and then the people that we were buying from gets reduced. So I think we're in for a little bit of a rough patch. I don't know if it's going to go to 10% inflation, but it's-- I don't think we're through-- I know some of your guests thought we had kind of topped out. I think it's going to be with us.

I spent last Sunday on the phone trying to expedite chips. If you think about it, in Georgia, for example, auto industry, the auto dealers are down 60% in their inventory. 60%. And so that's not going to fix itself real quick. It just isn't.

RACHELLE AKUFFO: And as people have these conversations obviously around the kitchen table about having to make some of these tough choices about what they're willing to spend on and what they're not, it was interesting to see that Walmart shoppers weren't as willing to spend. But when it came to Home Depot, executives said they haven't seen shoppers trading down in the face of higher prices and don't expect them to start either.

What is it about the staying power that comes with perhaps home building, or perhaps home renovation, when we do have obviously very expensive housing right now? Is that what's really helping Home Depot float here?

BOB NARDELLI: Well, Home Depot is in a sweet spot of any economic cycle. When I was there, you're either going to have people that are aggressively remodeling, or you're going to have people doing a lot more maintenance work. If you look at the housing inventory right now, so people are probably going to say, well, I'm kind of have to stay put. So I've got to do what I've called delayed maintenance. So they're going to be spending on maintenance.

If-- prior to this period they were doing remodeling because they were getting their home ready to sell. And they were trying to improve curb appeal So with inventory down, inventory homes are down, I think you're going to see a lot of people working on the maintenance side of this and doing the maintenance work that they've deferred. So Home Depot is in an excellent spot right now. And that's one of the things that I enjoyed when I was there. And I think we'll see this continue.

They do a marvelous job of customer service. They've got very strong products. They've got Home Depot supply that takes care of construction in the service industry. So they've got really a very strong hand to play into the marketplace to date.

DAVE BRIGGS: Bob, you referenced the many challenges of being a CEO today. And they extend well outside the walls. If you were a CEO today, how would you handle this environment in which you see Bob Chapek, the Disney CEO, want to stay out of the political fray, but he wanted to satisfy the rank and file, the thousands of unhappy employees that wanted him to weigh in on the supposed don't say gay legislation down in Florida? Ron DeSantis has been punishing him since he spoke out and now wants to put them on the hook for the billion dollars in debt bond, and take away their special exemption.

And now you've got the issue of abortion across the country. When does CEOs speak out and please their many employees? And when do they stay quiet? There's a new populist, almost anti-business Republican party today. How would you handle it?

BOB NARDELLI: Well, the good news is I'm not sitting in that chair today, David. But here's kind of been my philosophy is all of us have a personal opinion. All of us have a personal opinion. If I was to share that, it might be accepted by a certain group, and it may not be accepted by another group. I've always had the belief in running a company that you have to have market focus, you've got to be laser focused on the customer, the clientele, you've got to make sure that you are able to attract, motivate, and retain a high performance workforce.

And you've got to make sure that your investors understand what you're doing in that company, both short and long term, what kind of return are you giving them? Is it growth or value? Or in the case of Home Depot, it's both. Home Depot is able to deliver growth and value. And so I've tried to-- tried not to get involved in that.

If you think about, again, Home Depot, you got 500,000 associates. At any given time, do you really want to upset 250,000 associates? And again, if you do about two billion transactions a year, you're invariably going to offend one group or another. So I've always believed stick to the business. Do the best thing you can for customers, your associates, your employees, your investors, your suppliers, and stay the course. Stay out of the fray because you're going to upset one group or another.

RACHELLE AKUFFO: And speaking of upsetting groups, obviously we see Bezos and Musk weighing in very publicly with their opinions. We saw Jeff Bezos weighing in on President Biden, Musk obviously having a very public conversation about his deal with Twitter. What is your opinion on using that very public forum for some of these business decisions?

BOB NARDELLI: Yeah, well, when you're a billionaire, I guess you have the privilege of doing that. But again, Jeff owns "The Washington Post". So I don't know if he was coming through the paper on some of that. Elon Musk, who is just a brilliant, brilliant individual, has been known to make comments like that. And I guess they're in a position where they're not going to get the same repercussion that, for example, Disney is getting right now, unfortunately.

It's very sad because that's a great company. And it is the happiest place on Earth when you get to visit there. So they're in a rough patch right now. I just I don't have any criticism of Jeff or Elon for doing that. It's just not something I would do. And at one point, to be honest, they came out against Craig and said, he didn't say anything. So let's boycott Home Depot.

And I said, well, we ought to have instead of a boycott, we have a buycott because you got 500,000 associates. Why do you want to punish the men and women that work hard every day because a CEO, he or she, didn't say something, or did say something? So I'd like to get back to the basics of running a company and doing what is fiduciary responsible for running that company. That's my opinion. And again, that may upset some people out there. But that's the way I feel about it.

SEANA SMITH: Bob, we want to get your take before we let you go. We want to get your take on exactly what Jeff Bezos was saying to President Biden and the White House's response to Jeff Bezos. Because in his tweet or in the president's tweet, he linked the fact that higher corporate taxes could help address inflation. And Jeff Bezos simply responded saying that that is not true. You should not link those two things together. And in fact, it's misinformation.

From your perspective, do you think raising corporate taxes will help address inflation at all?

BOB NARDELLI: Well, we've been there. I've lived through that cycle where corporate taxes were raised. And what that caused was an offshoring of a lot of manufacturing because I know personally myself, I never had an outsourcing strategy. But I had to have a global competitive strategy. So for me to compete with ABB, or Siemens, or Toshiba, I had to find the highest quality lowest cost to be able to put these products together.

So I do agree with Jeff from the standpoint that higher taxes are not going to help inflation. What will help inflation is reverse the policies that were instituted on inauguration day. Let's get back to pumping oil as opposed to buying oil. We were energy independent. I'm a zealot on energy independence, not only for low cost, but geopolitical positions opportunities to help Germany, for example now.

The other thing that would help inflation is, let's get something done in the ports. The National Guard, or the Corps of Engineers, know how to drive trucks. They know how to unload containers. If we were serious about helping supply chain and reducing inflation, we would activate and get some things going. So I just don't think we're aggressive enough at trying to solve the fundamental problems of running a business and getting inflation under control, and being able to--

It's not a demand problem. People aren't going out saying, well, I'm going to drive more because gas is now $4.50 a gallon. It's the supply side that's hurting us with inflation. And I don't see anything being done positively to be able to do that. Your prior guest talked about the 15% ethanol. He's exactly right. That's not designed to burn in today's combustion engines.

SEANA SMITH: We'll let Rick Newman know that you, in fact, agree with him. Bob Nardelli, great to have you on this show. Great to get your perspective. Former Chrysler CEO, also the former CEO of Home Depot. We hope to have you back soon.