How did Home Depot perform financially in fiscal 2000?

Home Depot grew net sales 19.0% to $45.7 billion and net earnings 11.3% to $2.58 billion. Diluted EPS was $1.10, up 10% from $1.00. Net margin slipped slightly to 5.6% from 6.0% because operating expenses grew faster than sales.

Why did operating margin decline even though gross margin improved?

Gross margin rose to 29.9% from 29.7%, but operating expenses rose to 20.7% of sales from 19.8%. The main drivers were higher store selling payroll from market wage pressures and longer employee tenure, rising medical costs, and higher store occupancy costs from new store growth and energy rates.

How is Home Depot funding its expansion, and is its balance sheet strained?

Expansion is funded mainly by store cash flow, with operating cash flow of $2.8 billion against $3.6 billion in capital expenditures. The gap was covered by commercial paper and long-term borrowings. Long-term debt rose to $1.5 billion and cash was $167 million. Management views the position as adequate, citing a $1 billion commercial paper program, an $800 million back-up credit facility, and the use of operating leases for about $882 million of store construction financing.

What is the growth outlook for fiscal 2001?

Management plans to open about 200 Home Depot stores and relocate nine, along with 17 EXPO Design Centers and about 13 stores in Canada. Approximately 92% of planned locations are expected to be owned. The company is also expanding its professional customer initiative to about 335 more stores, rolling out the SPI program to most stores, and expanding appliance sales and tool rental. The filing contains forward-looking statements subject to the risks listed, and the company does not commit to updating them.

What are the main risks to Home Depot's business?

Cited risks include adverse weather, instability in commodity costs such as lumber and plywood, difficulty attracting and retaining qualified associates, real estate availability and zoning, general economic conditions affecting consumer and home-building spending, competition from specialty and discount retailers, and changes in laws, accounting standards, or tax rules. The company's market risk from derivatives and other instruments was described as not material.

HD 10-K FY2001 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed April 23, 2001. Cited figures are marked; the original filing is the authoritative source.

The Home Depot's fiscal 2000 (year ended January 28, 2001) was a year of strong top-line growth and profitability, with net sales rising 19.0% to $45.7 billion^a and net earnings increasing 11.3% to $2.58 billion.

Diluted EPS reached $1.10^b, up from $1.00 in fiscal 1999. Growth was driven by 204 new store openings, a 4% comparable store sales increase, and expansion into new markets including Canada, Chile, and Argentina. Gross margin improved modestly to 29.9% from 29.7%, aided by global sourcing and tool rental expansion, but operating margin contracted to 9.2% from 9.9% as selling, store operating, and medical costs rose faster than sales.

Balance sheet and cash flow indicators show a company funding aggressive expansion internally. Operating cash flow was $2.8 billion^c, while capital expenditures of $3.6 billion exceeded it, pushing the company to increase borrowings. Long-term debt rose to $1.5 billion, and commercial paper of $754 million was reclassified as non-current, backed by a $1 billion program and an $800 million credit facility.

Management plans roughly 200 new Home Depot stores, 17 EXPO Design Centers, and 13 Canadian stores in fiscal 2001, with about 92%^d of new locations to be owned. Leadership transitioned in December 2000, with Robert Nardelli named President and CEO and Bernard Marcus and Arthur Blank becoming Co-Chairmen. For investors, the key takeaways are sustained double-digit growth and a leading position as the largest U.S. home improvement retailer (approximately 9.4% share in the U.S. and Canada), offset by margin pressure from labor and benefit costs and a capital-intensive growth model.

The filing also notes a $500 million senior note issuance in April 2001, which was after year-end, and that management does not view inflation as material. Risks cited include weather, sourcing costs, labor availability, real estate conditions, economic cycles, competition, and regulation.

02—Key points

Key Highlights

Net sales grew 19.0% to $45.7 billion in fiscal 2000, with a 4% comparable store sales increase and 204 new stores opened.
Net earnings rose 11.3% to $2.58 billion; diluted EPS increased to $1.10 from $1.00 a year earlier.
Gross profit margin improved to 29.9% from 29.7%, driven by lower merchandise costs, global sourcing, and expansion of tool rental centers to 342 stores.
Operating margin fell to 9.2% from 9.9% as selling and store operating expenses rose to 18.6% of sales from 17.8%, due to wage pressures and higher medical and occupancy costs.
Capital expenditures of $3.6 billion exceeded operating cash flow of $2.8 billion, increasing long-term debt to $1.5 billion from $750 million.
The company operated 1,134 stores at year end and plans roughly 200 new Home Depot stores, 17 EXPO Design Centers, and 13 Canadian stores in fiscal 2001.
Robert L. Nardelli became President and CEO in December 2000, and the company issued $500 million of 5 3/8% Senior Notes due 2006 in April 2001.

03—Questions

Frequently Asked Questions

How did Home Depot perform financially in fiscal 2000?
Home Depot grew net sales 19.0% to $45.7 billion and net earnings 11.3% to $2.58 billion. Diluted EPS was $1.10, up 10% from $1.00. Net margin slipped slightly to 5.6% from 6.0% because operating expenses grew faster than sales.
Why did operating margin decline even though gross margin improved?
Gross margin rose to 29.9% from 29.7%, but operating expenses rose to 20.7% of sales from 19.8%. The main drivers were higher store selling payroll from market wage pressures and longer employee tenure, rising medical costs, and higher store occupancy costs from new store growth and energy rates.
How is Home Depot funding its expansion, and is its balance sheet strained?
Expansion is funded mainly by store cash flow, with operating cash flow of $2.8 billion against $3.6 billion in capital expenditures. The gap was covered by commercial paper and long-term borrowings. Long-term debt rose to $1.5 billion and cash was $167 million. Management views the position as adequate, citing a $1 billion commercial paper program, an $800 million back-up credit facility, and the use of operating leases for about $882 million of store construction financing.
What is the growth outlook for fiscal 2001?
Management plans to open about 200 Home Depot stores and relocate nine, along with 17 EXPO Design Centers and about 13 stores in Canada. Approximately 92% of planned locations are expected to be owned. The company is also expanding its professional customer initiative to about 335 more stores, rolling out the SPI program to most stores, and expanding appliance sales and tool rental. The filing contains forward-looking statements subject to the risks listed, and the company does not commit to updating them.
What are the main risks to Home Depot's business?
Cited risks include adverse weather, instability in commodity costs such as lumber and plywood, difficulty attracting and retaining qualified associates, real estate availability and zoning, general economic conditions affecting consumer and home-building spending, competition from specialty and discount retailers, and changes in laws, accounting standards, or tax rules. The company's market risk from derivatives and other instruments was described as not material.

04—Continue

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