10-QPeriod: Q2 FY2014

HOME DEPOT, INC. Quarterly Report for Q2 Ended Aug 4, 2013

Filed August 28, 2013For Securities:HD

Summary

The Home Depot, Inc. reported a strong second quarter and first half of fiscal year 2013, demonstrating significant year-over-year growth in net sales and earnings. Net sales increased by 9.5% for the quarter and 8.5% for the first six months, driven by a robust 10.7% comparable store sales increase in Q2. This growth was attributed to several key initiatives, including enhanced customer service, product authority, and a focus on interconnected retail, alongside a supportive housing market. Profitability saw substantial gains, with operating income up 17.5% for the quarter and 19.4% for the six-month period. Diluted Earnings Per Share (EPS) rose to $1.24 in Q2 and $2.07 for the first half, reflecting this improved performance and the positive impact of significant share repurchases. The company's financial health remains strong, with substantial operating cash flow and sufficient liquidity to fund its capital expenditures, dividends, and share repurchase programs.

Financial Highlights

49 data points
Beta

Revenue

$22.52B

34.3% Gross Margin

Net Income

$1.79B

8.0% Net Margin

EPS (Diluted)

$1.24

Total Assets

$42.19B

Cash & Equivalents

$3.42B

Free Cash Flow

$2.02B

Financial Statements
Beta
Revenue$22.52B
Cost of Revenue$14.80B
Gross Profit$7.72B
SG&A Expenses$4.29B
Operating Expenses$4.70B
Operating Income$3.02B
Interest Expense$174.00M
Net Income$1.79B
EPS (Basic)$1.25
EPS (Diluted)$1.24
Shares Outstanding (Basic)1.43B
Shares Outstanding (Diluted)1.44B

Key Highlights

  • 1Net sales increased by 9.5% to $22.5 billion in Q2 FY2013 and 8.5% to $41.6 billion in the first six months, indicating strong top-line growth.
  • 2Comparable store sales surged by 10.7% in Q2 FY2013, a significant acceleration from 2.1% in the prior year, driven by increased transactions and average ticket size.
  • 3Diluted EPS grew to $1.24 in Q2 and $2.07 in the first six months, up from $1.01 and $1.68 respectively in the prior year, reflecting improved profitability.
  • 4The company repurchased approximately $4.3 billion of common stock in the first six months of fiscal 2013, including significant Accelerated Share Repurchase (ASR) programs totaling $3.2 billion, demonstrating a strong commitment to returning capital to shareholders.
  • 5Operating income saw robust growth, increasing by 17.5% for the quarter and 19.4% for the six-month period, driven by increased sales and improved gross margins.
  • 6Gross profit margin expanded to 34.3% in Q2 and 34.6% for the first six months, an improvement over the prior year, benefiting from acquired businesses and supply chain efficiencies.
  • 7Cash flow from operations was strong at $4.7 billion for the first six months of fiscal 2013, providing ample liquidity to support business operations and capital return initiatives.

Frequently Asked Questions

The primary drivers of sales growth were a significant increase in comparable store sales (10.7% in Q2 FY2013), driven by a 5.7% rise in customer transactions and a 4.8% increase in average ticket. The company also benefited from strong performance in key departments like appliances, kitchen, and outdoor garden, alongside an improving U.S. and Canadian housing market and the successful execution of its strategic initiatives.

Home Depot is actively returning capital through substantial share repurchases and dividend payments. In the first six months of fiscal 2013, the company repurchased approximately $4.3 billion of its common stock, including two large Accelerated Share Repurchase (ASR) agreements totaling $3.2 billion. Additionally, dividends paid to stockholders amounted to $1.1 billion during the same period. A $17.0 billion share repurchase program was authorized in Q1 FY2013.

The company maintains a strong liquidity position, with $3.4 billion in cash and cash equivalents as of August 4, 2013. It generated $4.7 billion in operating cash flow in the first six months of fiscal 2013. Management believes this cash position, along with access to debt capital markets and ongoing operational cash flow, is sufficient to meet capital expenditure programs, dividend payments, share repurchases, and debt obligations through the next several fiscal years.

In April 2013, Home Depot issued $2.0 billion in senior notes: $1.0 billion of 2.70% notes due in 2023 and $1.0 billion of 4.20% notes due in 2043. The net proceeds were used for general corporate purposes, including share repurchases. The company's long-term debt, excluding current installments, increased from $9.475 billion at February 3, 2013, to $11.450 billion at August 4, 2013, reflecting this issuance. The indenture covenants are not expected to impact liquidity.