10-QPeriod: Q1 FY2016

HOME DEPOT, INC. Quarterly Report for Q1 Ended May 3, 2015

Filed May 27, 2015For Securities:HD

Summary

The Home Depot reported a strong first quarter for fiscal year 2015, demonstrating robust sales growth and improved profitability. Net sales increased by 6.1% to $20.9 billion, driven by a solid 6.1% comparable store sales increase, which was fueled by a 4.4% rise in customer transactions and a 1.7% increase in average ticket size. Diluted Earnings Per Share (EPS) rose to $1.21 from $1.00 in the prior year's quarter, reflecting both operational improvements and a beneficial tax settlement. The company's operational efficiency is highlighted by a reduction in SG&A as a percentage of net sales and an increase in inventory turnover. While the company continues to execute its key initiatives in customer service, product authority, and interconnected retail, a significant ongoing concern is the aftermath of the 2014 data breach. The company is incurring expenses related to the breach and anticipates potential material liabilities from payment card network claims, litigation, and government investigations, though a specific range of loss remains unestimatable at this time. Despite this significant contingent liability, The Home Depot's core business performance remains strong, supported by healthy cash flow generation and disciplined capital allocation, including substantial share repurchases and dividend payments.

Financial Highlights

49 data points
Beta

Revenue

$20.89B

34.4% Gross Margin

Net Income

$1.58B

7.6% Net Margin

EPS (Diluted)

$1.21

Total Assets

$42.51B

Cash & Equivalents

$2.83B

Free Cash Flow

$3.40B

Financial Statements
Beta
Revenue$20.89B
Cost of Revenue$13.71B
Gross Profit$7.18B
SG&A Expenses$4.16B
Operating Expenses$4.58B
Operating Income$2.60B
Interest Expense$197.00M
Net Income$1.58B
EPS (Basic)$1.22
EPS (Diluted)$1.21
Shares Outstanding (Basic)1.30B
Shares Outstanding (Diluted)1.30B

Key Highlights

  • 1Net sales increased by 6.1% to $20.9 billion in Q1 FY2015 compared to Q1 FY2014.
  • 2Comparable store sales grew by 6.1%, indicating strong demand and market position.
  • 3Diluted EPS increased to $1.21 from $1.00 year-over-year, supported by sales growth and a favorable tax settlement.
  • 4Operating income saw a significant 14.1% increase, demonstrating improved operational leverage.
  • 5The company returned substantial capital to shareholders through $1.1 billion in share repurchases and $769 million in dividends.
  • 6The ongoing data breach continues to be a significant risk, with ongoing investigations and potential material liabilities, although insurance is partially offsetting costs.
  • 7Online sales grew by 29.4% and represented 5.1% of total net sales, showcasing the company's progress in interconnected retail.

Frequently Asked Questions

The increase in net sales was primarily driven by strong comparable store sales growth of 6.1%, which was a result of both an increase in customer transactions (4.4%) and a rise in the average ticket size (1.7%). This indicates robust customer demand and the effectiveness of the company's sales strategies.

The Home Depot is actively managing the aftermath of the data breach. This includes incurring expenses for legal and professional services, partially offset by insurance proceeds. The company is also enhancing its payment security systems, including rolling out enhanced encryption and EMV chip-and-PIN technology. However, potential material liabilities from payment card network claims, litigation, and government investigations remain a significant unquantifiable risk.

The company is actively returning capital to shareholders through a combination of share repurchases and dividend payments. In the first quarter of fiscal 2015, The Home Depot repurchased $1.1 billion of its common stock, including through an Accelerated Share Repurchase program, and paid $769 million in dividends. A new $18 billion share repurchase program was also authorized.

Yes, The Home Depot changed its accounting policy for shipping and handling costs and online fulfillment center costs. These costs are now included in Cost of Sales, rather than Operating Expenses, to better align them with revenue. This change was applied retrospectively for the prior year's comparative period and did not impact Net Sales, Operating Income, Net Earnings, or Earnings Per Share, but it did affect the presentation of Cost of Sales and Operating Expenses.