10-QPeriod: Q2 FY2017

HOME DEPOT, INC. Quarterly Report for Q2 Ended Jul 31, 2016

Filed August 23, 2016For Securities:HD

Summary

Home Depot, Inc. reported robust financial performance for the second quarter and first six months of fiscal year 2016, demonstrating strong sales growth and improved profitability. Net sales increased by 6.6% and 7.7% for the respective periods, driven by comparable store sales growth across all departments, indicating healthy consumer demand for home improvement products. The company also saw an increase in both average ticket prices and customer transactions, signaling effective merchandising and customer engagement strategies. Profitability improved significantly, with operating income up 12.5% and 15.0% for the quarter and year-to-date periods, respectively. This was supported by effective expense management, leading to a decrease in Selling, General, and Administrative expenses as a percentage of net sales, despite increased investments in interconnected retail initiatives. The company also continued its commitment to shareholder returns through substantial share repurchases and dividend payments. While managing the lingering impacts of a past data breach, Home Depot's core business operations appear strong and growing.

Financial Highlights

50 data points
Beta

Revenue

$26.47B

33.7% Gross Margin

Net Income

$2.44B

9.2% Net Margin

EPS (Diluted)

$1.97

Total Assets

$44.25B

Cash & Equivalents

$4.02B

Free Cash Flow

$3.24B

Financial Statements
Beta
Revenue$26.47B
Cost of Revenue$17.55B
Gross Profit$8.93B
SG&A Expenses$4.39B
Operating Expenses$4.82B
Operating Income$4.10B
Interest Expense$236.00M
Net Income$2.44B
EPS (Basic)$1.98
EPS (Diluted)$1.97
Shares Outstanding (Basic)1.24B
Shares Outstanding (Diluted)1.24B

Key Highlights

  • 1Net sales increased by 6.6% to $26.5 billion in Q2 FY16 and 7.7% to $49.2 billion for the first six months of FY16, compared to the prior year periods.
  • 2Comparable store sales increased by 4.7% in Q2 FY16 and 5.5% for the first six months of FY16, with U.S. stores showing even stronger growth.
  • 3Diluted Earnings Per Share (EPS) rose to $1.97 for Q2 FY16 from $1.73 in Q2 FY15, and to $3.40 for the first six months of FY16 from $2.94 in the prior year.
  • 4Operating income grew by 12.5% in Q2 FY16 and 15.0% for the first six months of FY16, reflecting improved operational efficiency and sales leverage.
  • 5Selling, General, and Administrative (SG&A) expenses as a percentage of net sales decreased to 16.6% in Q2 FY16 from 17.3% in Q2 FY15.
  • 6The company generated strong operating cash flow of $6.9 billion in the first six months of FY16.
  • 7Online sales continued to grow, increasing by 18.8% in Q2 FY16 and 20.0% for the first six months of FY16, representing 5.6% of total net sales.

Frequently Asked Questions

The primary driver of sales growth was a combination of increased comparable store sales, which rose 4.7% in the second quarter and 5.5% year-to-date, fueled by both a higher average ticket price (up 2.5%) and an increase in customer transactions (up 2.2% and 3.0% for the quarter and year-to-date, respectively). Sales from the acquired Interline business also contributed to the overall net sales increase.

Home Depot demonstrated effective expense management. Selling, General, and Administrative (SG&A) expenses grew at a slower pace than net sales. As a percentage of net sales, SG&A decreased to 16.6% in the second quarter of fiscal 2016 from 17.3% in the prior year's second quarter, indicating expense leverage and improved operational efficiency.

While the company has settled with payment card networks and U.S./Canadian customer class actions, U.S. financial institution class actions remain ongoing. The company has recorded $165 million in pretax net expenses related to the data breach, partially offset by $100 million in expected insurance proceeds. The ultimate cost is still uncertain and could adversely affect future financial results, though specific accruals for the ongoing financial institution actions have not yet been made as a loss is not yet probable or estimable.

The company is actively returning value to shareholders through its share repurchase program and dividend payments. In the first six months of fiscal 2016, Home Depot used $2.4 billion for share repurchases and paid $1.7 billion in dividends. The company has an $18.0 billion share repurchase program authorized, with approximately $8.5 billion remaining as of July 31, 2016.