10-QPeriod: Q2 FY2019

HOME DEPOT, INC. Quarterly Report for Q2 Ended Jul 29, 2018

Filed August 21, 2018For Securities:HD

Summary

Home Depot reported robust financial performance for the second quarter and first half of fiscal year 2018, demonstrating significant year-over-year growth in net sales and net earnings. Net sales increased by 8.4% to $30.5 billion for the quarter and 6.6% to $55.4 billion for the six-month period, driven by strong comparable sales growth across most departments, with particular strength in areas like building materials and appliances. This sales momentum was bolstered by a higher average ticket, reflecting increased customer spending and some commodity price inflation. The company also saw substantial improvement in profitability, with net earnings rising to $3.5 billion ($3.05 per diluted share) for the quarter and $5.9 billion ($5.12 per diluted share) for the six months. A key factor contributing to the improved earnings per share was the beneficial impact of the Tax Cuts and Jobs Act of 2017, which significantly lowered the effective tax rate. Home Depot continued its commitment to returning capital to shareholders through substantial share repurchases and an increased quarterly dividend.

Financial Highlights

50 data points
Beta

Revenue

$30.46B

34.0% Gross Margin

Net Income

$3.51B

11.5% Net Margin

EPS (Diluted)

$3.05

Total Assets

$46.23B

Cash & Equivalents

$3.49B

Free Cash Flow

$3.93B

Financial Statements
Beta
Revenue$30.46B
Cost of Revenue$20.10B
Gross Profit$10.37B
SG&A Expenses$5.00B
Operating Expenses$5.46B
Operating Income$4.90B
Interest Expense$272.00M
Net Income$3.51B
EPS (Basic)$3.06
EPS (Diluted)$3.05
Shares Outstanding (Basic)1.14B
Shares Outstanding (Diluted)1.15B

Key Highlights

  • 1Net sales for the second quarter reached $30.5 billion, an 8.4% increase year-over-year, driven by an 8.0% rise in comparable sales.
  • 2Diluted earnings per share (EPS) for the quarter was $3.05, a 35.6% increase from $2.25 in the prior year, significantly aided by a lower effective tax rate due to the Tax Act.
  • 3For the first six months of fiscal 2018, net sales grew 6.6% to $55.4 billion, with comparable sales up 6.2%.
  • 4Diluted EPS for the six-month period was $5.12, a 30.9% increase from $3.91 in the prior year, also benefiting from the lower tax rate.
  • 5Gross profit margin improved to 34.0% for the quarter and 34.3% for the six months, up from 33.7% and 33.9% respectively, driven partly by the adoption of new accounting standards (ASU No. 2014-09) and sales mix.
  • 6Online sales showed strong growth, increasing by 25.7% for the quarter and 23.1% for the six months, representing 7.5% of total net sales.
  • 7The company repurchased $3.0 billion of common stock in the first six months of fiscal 2018, demonstrating a strong commitment to capital return to shareholders.

Frequently Asked Questions

The increase in net sales was primarily driven by a robust 8.0% rise in comparable sales, which reflects the performance of existing stores and online channels. This growth was supported by an increase in both comparable average ticket (up 4.9%) and comparable customer transactions (up 2.9%). Favorable weather patterns following a delayed spring season and strong execution of the company's strategy across various departments contributed to this performance.

The Tax Cuts and Jobs Act of 2017 significantly reduced Home Depot's effective tax rate. For the second quarter, the rate dropped to 24.7% from 36.6% in the prior year, and for the first six months, it decreased to 24.2% from 36.0%. This tax benefit directly boosted net earnings and diluted earnings per share, providing an estimated $0.47 per diluted share for the quarter and $0.79 per diluted share for the six-month period.

Home Depot continues to prioritize returning capital to shareholders. In the first six months of fiscal 2018, the company repurchased $3.0 billion of common stock, including under Accelerated Share Repurchase (ASR) agreements, and paid $2.4 billion in cash dividends. The company also announced a 15.7% increase in its quarterly cash dividend to $1.03 per share in February 2018. These actions reflect a disciplined approach to capital allocation, balancing investments in the business with shareholder returns.

The filing shows a significant increase in merchandise inventories, up by $1,355 million year-over-year for the six-month period, which is noted as a change in assets and liabilities impacting operating cash flow. While comparable sales are strong, this inventory build-up may warrant investor attention. The company also mentioned that higher transportation and fuel costs in its supply chain partially offset improvements in gross profit margin.