10-QPeriod: Q2 FY2007

HOME DEPOT, INC. Quarterly Report for Q2 Ended Jul 30, 2006

Filed September 6, 2006For Securities:HD

Summary

Home Depot Inc. reported strong financial performance for the second quarter and first half of fiscal year 2006. Net sales increased by 16.7% to $26.0 billion in the quarter and 15.0% to $47.5 billion for the six months, driven significantly by the expansion of its Supply segment through strategic acquisitions, notably Hughes Supply, Inc. The Retail segment also saw modest sales growth, bolstered by an increase in average ticket prices and growth in services revenue. The company maintained healthy operating margins and demonstrated effective cost management, with operating expenses as a percentage of net sales decreasing year-over-year. Financially, Home Depot generated substantial cash flow from operations and utilized it, along with debt financing, for significant investments in acquisitions, capital expenditures, share repurchases, and dividends. The company's balance sheet shows an increase in long-term debt, primarily due to the issuance of senior notes to fund its growth initiatives. Despite a one-time tax charge related to Quebec legislation, the company reported increased net earnings and diluted earnings per share compared to the prior year. The company also highlighted ongoing share repurchase programs and an increase in authorized repurchases, signaling a commitment to returning value to shareholders.

Key Highlights

  • 1Net sales grew by 16.7% to $26.0 billion in Q2 2006 and by 15.0% to $47.5 billion in the first six months of fiscal 2006.
  • 2Significant contribution from the Supply segment, boosted by acquisitions like Hughes Supply, Inc., with its sales increasing by 325.3% in Q2 2006.
  • 3Retail segment sales increased by 5.1% in Q2 2006, supported by a 4.2% rise in average ticket prices.
  • 4Net earnings increased to $1.9 billion in Q2 2006 and $3.3 billion in the first six months, with diluted EPS rising to $0.90 and $1.60, respectively.
  • 5Operating income margin remained strong at 12.2% for the quarter and 11.8% for the six months.
  • 6Generated $5.2 billion in cash flow from operations in the first six months of 2006, funding $3.8 billion in acquisitions and $3.4 billion in share repurchases and dividends.
  • 7Announced a $2.0 billion accelerated share repurchase in May 2006 and a subsequent increase in the share repurchase authorization to $17.5 billion.
  • 8A $57 million tax assessment and $12 million interest from Quebec legislation resulted in a $0.03 per share charge in Q2 2006.

Frequently Asked Questions

The primary driver of Home Depot's significant net sales growth was the expansion of its Supply segment, largely due to acquisitions such as Hughes Supply, Inc. This segment's sales increased by 325.3% in the second quarter of fiscal 2006 compared to the prior year.

Profitability remained strong. Net earnings increased to $1.9 billion for the second quarter and $3.3 billion for the first six months. The company maintained healthy operating margins, with operating income as a percentage of net sales at 12.2% for the quarter and 11.8% for the six-month period. Diluted earnings per share also saw an increase.

Home Depot generated substantial cash flow from operations, totaling $5.2 billion in the first six months of fiscal 2006. This cash was strategically deployed to fund $3.8 billion in acquisitions, $1.5 billion in capital expenditures, and $3.4 billion in share repurchases and dividends. The company also announced a $2.0 billion accelerated share repurchase and increased its overall share repurchase authorization.

Yes, Home Depot reported a one-time charge of $57 million in taxes and $12 million in interest related to a retroactive tax law change in Quebec, Canada. This resulted in a $0.03 per share impact on diluted earnings per share for the second quarter of fiscal 2006.