10-KPeriod: FY2006

HOME DEPOT, INC. Annual Report, Year Ended Jan 29, 2006

Filed March 29, 2006For Securities:HD

Summary

The Home Depot, Inc.'s 2006 10-K filing highlights a strong fiscal year 2005, marked by significant net sales growth to $81.5 billion and diluted earnings per share of $2.72. The company experienced a 3.8% increase in comparable store sales, supported by strategic merchandising initiatives and investments in store modernization and technology. A key strategic move was the announcement of the acquisition of Hughes Supply for approximately $3.5 billion, aimed at expanding its professional services business. The company demonstrated a robust balance sheet with a return on invested capital of 22.4% and maintained a disciplined capital allocation strategy, investing heavily in new store openings, modernization, technology, and returning capital to shareholders through dividends and significant share repurchases. Despite facing competitive pressures and economic factors like rising costs and credit availability, The Home Depot reported record gross profit and operating margins, underscoring its operational efficiency and market leadership in the home improvement sector.

Key Highlights

  • 1Achieved net sales of $81.5 billion and diluted EPS of $2.72 in fiscal year 2005.
  • 2Reported a 3.8% increase in comparable store sales, driven by performance across most selling departments.
  • 3Announced a definitive merger agreement to acquire Hughes Supply, Inc. for approximately $3.5 billion, bolstering its professional services segment.
  • 4Invested $3.9 billion in capital expenditures, focusing on new stores, modernization, and technology.
  • 5Returned significant capital to shareholders through $3.9 billion in dividends and share repurchases.
  • 6Achieved record gross profit margin of 33.5% and operating margin of 11.5% in fiscal 2005.
  • 7Expanded its store footprint to 2,042 locations globally, with plans for continued growth.

Frequently Asked Questions

The company anticipates sales growth of 14% to 17% for fiscal 2006, assuming the acquisition of Hughes Supply closes. This growth is expected to be driven by comparable store sales, sales from new stores opened in fiscal 2005 and 2006, and sales from newly acquired businesses, including Hughes Supply.

The Home Depot operates in a highly competitive market and estimates its share of the U.S. home improvement and professional supply industry at approximately 11%. The company competes on price, store location, customer service, and merchandise depth. It strategically opens new stores near existing markets (cannibalization) to enhance service levels and market penetration, although this impacts comparable store sales growth.

The company is extending its business by offering a variety of installation and home maintenance programs, particularly to do-it-for-me customers, with services revenue increasing by 21.4% in fiscal 2005. Expansion into the professional market is being driven by acquisitions under the Home Depot Supply banner, with a significant focus on expanding capabilities in construction, repair, and maintenance product distribution.

The acquisition of Hughes Supply, a leading distributor of construction and repair products, is a significant part of The Home Depot's strategy to capture a growing share of the professional residential, commercial, and heavy construction markets. Upon closing, Hughes Supply will be integrated into Home Depot Supply, further enhancing its offerings to professional customers.