10-QPeriod: Q1 FY2012

HOME DEPOT, INC. Quarterly Report for Q1 Ended May 1, 2011

Filed June 2, 2011For Securities:HD

Summary

Home Depot reported a slight decline in net sales for the first quarter of fiscal 2011, down 0.2% to $16.8 billion. This was primarily driven by a 0.6% decrease in comparable store sales, influenced by unfavorable weather impacting the outdoor garden categories, and a 2.1% drop in customer transactions. However, the average ticket size saw a modest increase of 1.5%. Despite the top-line pressure, the company demonstrated strong operational improvements, leading to a 12.0% increase in net earnings to $812 million and a 16.3% rise in diluted earnings per share to $0.50. The company's focus on key initiatives like customer service (including the FIRST-for-Pro program), product authority through catalog digitization, and productivity/efficiency through supply chain improvements (like RDCs) appears to be contributing to margin expansion and expense control. SG&A as a percentage of sales decreased, and gross profit margin improved. This operational discipline allowed Home Depot to generate robust cash flow from operations of $2.1 billion, enabling significant capital allocation towards share repurchases and dividends.

Financial Highlights

48 data points
Beta

Revenue

$16.82B

34.6% Gross Margin

Net Income

$812.00M

4.8% Net Margin

EPS (Diluted)

$0.50

Total Assets

$42.80B

Cash & Equivalents

$1.81B

Free Cash Flow

$2.10B

Financial Statements
Beta
Revenue$16.82B
Cost of Revenue$10.99B
Gross Profit$5.83B
SG&A Expenses$4.01B
Operating Expenses$4.41B
Operating Income$1.42B
Interest Expense$141.00M
Net Income$812.00M
EPS (Basic)$0.51
EPS (Diluted)$0.50
Shares Outstanding (Basic)1.60B
Shares Outstanding (Diluted)1.61B

Key Highlights

  • 1Net sales for Q1 FY2011 were $16.8 billion, a slight decrease of 0.2% year-over-year.
  • 2Comparable store sales decreased by 0.6%, with a 2.1% decrease in customer transactions, partially offset by a 1.5% increase in average ticket price.
  • 3Net earnings increased by 12.0% to $812 million, and diluted EPS rose 16.3% to $0.50.
  • 4Gross profit margin improved by 28 basis points to 34.6% due to merchandising and supply chain efficiencies.
  • 5Selling, General, and Administrative (SG&A) expenses decreased by 1.7% and improved as a percentage of net sales to 23.8%.
  • 6The company generated $2.1 billion in cash flow from operations.
  • 7Home Depot repurchased $1.0 billion of common stock through an Accelerated Share Repurchase (ASR) agreement and returned $403 million in dividends to shareholders.

Frequently Asked Questions

Net sales saw a slight decrease of 0.2% to $16.8 billion in the first quarter of fiscal 2011. This was mainly due to a 0.6% decline in comparable store sales, which was impacted by a 2.1% decrease in customer transactions, attributed partly to unfavorable weather affecting outdoor garden categories. However, the average ticket price increased by 1.5%.

Despite the modest decline in net sales, Home Depot achieved substantial growth in net earnings (up 12.0% to $812 million) and diluted EPS (up 16.3% to $0.50). This was driven by improved gross profit margins (up 28 bps to 34.6%) resulting from merchandising and supply chain efficiencies, and a reduction in SG&A expenses as a percentage of sales (down to 23.8%). The prior year's results were also impacted by a $51 million charge related to the HD Supply Guarantee Extension.

The company generated strong operating cash flow of $2.1 billion in the quarter. Home Depot actively returned capital to shareholders through $403 million in dividends declared. Additionally, it significantly engaged in share repurchases, including a $1.0 billion Accelerated Share Repurchase (ASR) program and other open market repurchases, totaling $1.3 billion in financing activities for repurchases during the quarter.

Home Depot is concentrating on four key initiatives: enhancing Customer Service (including a new FIRST-for-Pro program), improving Product Authority through catalog digitization, driving Productivity and Efficiency via supply chain improvements and disciplined capital allocation, and developing Interconnected Retail capabilities like 'buy online, pick up in store' for a seamless customer experience.