10-QPeriod: Q3 FY2018

HOME DEPOT, INC. Quarterly Report for Q3 Ended Oct 29, 2017

Filed November 21, 2017For Securities:HD

Summary

Home Depot reported robust financial results for the third quarter and the first nine months of fiscal year 2017, demonstrating strong sales growth and improved profitability. Net sales increased by 8.1% in the third quarter and 6.4% year-to-date, driven by comparable store sales growth across most departments, an increase in average ticket price, and a rise in customer transactions. This top-line growth translated into significant bottom-line performance, with diluted earnings per share (EPS) rising to $1.84 for the quarter and $5.76 for the year-to-date period, up from $1.60 and $5.00 respectively in the prior year. The company's operational efficiency also improved, with Selling, General, and Administrative (SG&A) expenses growing at a slower pace than sales, resulting in operating income growth of 10.8% for the quarter. The company continued its commitment to shareholder returns, repurchasing approximately $5.9 billion of stock and paying $3.2 billion in dividends year-to-date. Despite facing some hurricane-related expenses, Home Depot maintained a strong cash flow from operations and a healthy liquidity position, underscoring its financial resilience and strategic execution.

Financial Statements
Beta
Revenue$25.03B
Cost of Revenue$16.38B
Gross Profit$8.65B
SG&A Expenses$4.51B
Operating Expenses$4.97B
Operating Income$3.68B
Interest Expense$269.00M
Net Income$2.17B
EPS (Basic)$1.85
EPS (Diluted)$1.84
Shares Outstanding (Basic)1.17B
Shares Outstanding (Diluted)1.17B

Key Highlights

  • 1Net sales increased by 8.1% to $25.0 billion in Q3 2017 and 6.4% to $77.0 billion for the first nine months of fiscal 2017.
  • 2Comparable store sales grew by 7.9% in Q3 2017, with a 5.1% increase in average ticket and a 2.7% increase in customer transactions.
  • 3Diluted EPS reached $1.84 for Q3 2017 and $5.76 for the year-to-date period, representing significant year-over-year growth.
  • 4Operating income increased by 10.8% in Q3 2017 due to strong sales and effective expense management.
  • 5The company repurchased $5.9 billion of its common stock and paid $3.2 billion in dividends during the first nine months of fiscal 2017.
  • 6Online sales grew by 18.6% in Q3 2017, representing 6.2% of total net sales, highlighting the importance of digital channels.
  • 7Despite incurring approximately $104 million in hurricane-related expenses, the company managed its operations effectively, with a net negative impact of $51 million on operating profit for the quarter.

Frequently Asked Questions

The hurricanes positively impacted total sales by approximately $282 million in the third quarter of fiscal 2017. However, the gross margin on these sales was lower than the company average. The company also incurred approximately $104 million in hurricane-related expenses, leading to a net negative impact of about $51 million on operating profit for the quarter. Management expects continued hurricane recovery-related sales in the fourth quarter.

Home Depot is committed to returning capital to shareholders through dividends and share repurchases. In February 2017, the Board increased the targeted dividend payout ratio to 55% of Diluted EPS and authorized a new $15.0 billion share repurchase program. Year-to-date in fiscal 2017, the company repurchased $5.9 billion of common stock and paid $3.2 billion in dividends.

The company's online channels are showing strong growth. In the third quarter of fiscal 2017, online sales increased by 18.6% compared to the prior year and represented 6.2% of total net sales. For the first nine months of fiscal 2017, online sales grew by 21.6% and accounted for 6.4% of total net sales, indicating a successful integration of digital and in-store experiences.

Home Depot has a strong liquidity position, supported by $3.5 billion in cash and cash equivalents as of October 29, 2017, robust cash flow from operations, and access to capital markets. Management believes these resources are sufficient to cover operating requirements, capital expenditures, dividend payments, share repurchases, and debt obligations for the coming fiscal years.