10-QPeriod: Q2 FY2010

HOME DEPOT, INC. Quarterly Report for Q2 Ended Aug 2, 2009

Filed September 3, 2009For Securities:HD

Summary

Home Depot, Inc. (HD) reported its second-quarter fiscal year 2009 results, showing a decline in net sales and earnings compared to the prior year, reflecting the challenging economic environment and its impact on the home improvement market. For the three months ended August 2, 2009, net sales decreased by 9.1% to $19.1 billion, and diluted earnings per share (EPS) were $0.66, down from $0.71 in the same period last year. The company continued to execute strategic rationalization plans, incurring charges related to store closures and business exits, which impacted earnings. However, excluding these charges, adjusted EPS showed a smaller decline. Despite the revenue downturn, Home Depot demonstrated improved gross profit margins due to a better product mix, fewer markdowns, and improved shrink performance. The company also focused on operational efficiencies, evidenced by a significant reduction in Selling, General, and Administrative (SG&A) expenses as a percentage of net sales over the six-month period. Liquidity remains strong, with substantial cash and cash equivalents and a manageable debt-to-equity ratio, allowing the company to fund capital expenditures and dividend payments.

Financial Highlights

47 data points
Beta

Revenue

$19.07B

33.5% Gross Margin

Net Income

$1.12B

5.9% Net Margin

EPS (Diluted)

$0.66

Total Assets

$44.00B

Cash & Equivalents

$3.11B

Free Cash Flow

$1.60B

Financial Statements
Beta
Revenue$19.07B
Cost of Revenue$12.68B
Gross Profit$6.39B
SG&A Expenses$4.12B
Operating Expenses$4.55B
Operating Income$1.83B
Interest Expense$167.00M
Net Income$1.12B
EPS (Basic)$0.66
EPS (Diluted)$0.66
Shares Outstanding (Basic)1.68B
Shares Outstanding (Diluted)1.69B

Key Highlights

  • 1Net sales for the second quarter decreased 9.1% year-over-year to $19.1 billion, with comparable store sales down 8.5%.
  • 2Diluted Earnings Per Share (EPS) were $0.66 for the quarter, a decrease from $0.71 in the prior year's second quarter.
  • 3Excluding "Rationalization Charges" related to business restructuring and store closures, adjusted diluted EPS for the quarter was $0.67, a slight decrease from $0.72 in Q2 FY2008.
  • 4Gross profit margin improved to 33.5% from 33.2% in the prior year's quarter, driven by product mix and better inventory management.
  • 5Selling, General, and Administrative (SG&A) expenses decreased 7.8% in the quarter, but rose slightly as a percentage of net sales.
  • 6The company maintained a strong liquidity position with $3.1 billion in Cash and Cash Equivalents at quarter-end.
  • 7Inventories were reduced by $1.1 billion year-over-year, indicating successful inventory management efforts.

Frequently Asked Questions

The primary reason for the decline is the continued weakness in the U.S. residential construction and home improvement markets, exacerbated by a challenging economic environment, including higher unemployment and reduced consumer spending. This has led to a significant decrease in comparable store sales.

Rationalization Charges relate to strategic actions like closing underperforming stores, exiting non-core businesses (EXPO, THD Design Center, etc.), and restructuring support functions. These charges reduce reported net earnings and EPS. Excluding these charges provides an 'adjusted' view of the company's operational performance, which, while still showing a slight decline, is less severe than the reported figures.

The company is focusing on improving gross profit margins through better product mix, reduced markdowns, and improved shrink performance. They are also managing Selling, General, and Administrative (SG&A) expenses and investing in operational efficiencies like their supply chain transformation (Rapid Deployment Centers) and customer service training (Customer FIRST).

Home Depot maintains a strong liquidity position, with $3.1 billion in cash and cash equivalents as of August 2, 2009. Their long-term debt-to-equity ratio improved to 50.4% from 60.9% in the prior year, indicating a healthier balance sheet. The company believes its cash flow, cash reserves, and access to capital markets are sufficient to meet its financial obligations, including capital expenditures and dividend payments.