10-QPeriod: Q3 FY2019

HOME DEPOT, INC. Quarterly Report for Q3 Ended Oct 28, 2018

Filed November 20, 2018For Securities:HD

Summary

The Home Depot, Inc. reported solid financial results for the third quarter and the first nine months of fiscal 2018, demonstrating continued revenue growth and improved profitability. Net sales increased by 5.1% to $26.3 billion for the quarter and 6.1% to $81.7 billion year-to-date. This growth was driven by comparable sales increases, fueled by higher average ticket prices and a modest rise in customer transactions, indicating strong customer demand across various product categories and online channels. Profitability saw a significant boost, with net earnings rising 36.4% to $2.9 billion ($2.51 per diluted share) for the quarter and 32.5% to $8.8 billion ($7.63 per diluted share) year-to-date. This improvement was substantially influenced by the lower effective income tax rate resulting from the Tax Cuts and Jobs Act of 2017, as well as operational efficiencies and the adoption of new revenue recognition standards. The company also maintained a strong cash flow from operations, which supported substantial capital returns to shareholders through dividends and share repurchases, alongside continued investments in the business.

Financial Highlights

49 data points
Beta

Revenue

$26.30B

34.8% Gross Margin

Net Income

$2.87B

10.9% Net Margin

EPS (Diluted)

$2.51

Total Assets

$45.20B

Cash & Equivalents

$1.76B

Free Cash Flow

$2.13B

Financial Statements
Beta
Revenue$26.30B
Cost of Revenue$17.15B
Gross Profit$9.15B
SG&A Expenses$4.81B
Operating Expenses$5.28B
Operating Income$3.87B
Interest Expense$249.00M
Net Income$2.87B
EPS (Basic)$2.53
EPS (Diluted)$2.51
Shares Outstanding (Basic)1.14B
Shares Outstanding (Diluted)1.14B

Key Highlights

  • 1Net sales increased by 5.1% to $26.3 billion for the third quarter of fiscal 2018, and by 6.1% to $81.7 billion for the first nine months.
  • 2Comparable sales grew by 4.8% in the third quarter and 5.8% year-to-date, driven by a 3.5% increase in average ticket (quarter) and 4.7% (year-to-date), and a 1.2% increase in customer transactions (quarter) and 1.0% (year-to-date).
  • 3Net earnings increased significantly by 36.4% to $2.9 billion for the quarter and 32.5% to $8.8 billion for the nine months, largely due to the impact of the Tax Cuts and Jobs Act of 2017.
  • 4Diluted earnings per share rose to $2.51 for the quarter and $7.63 for the nine months, a substantial increase from the prior year.
  • 5The company generated $10.0 billion in cash flow from operating activities for the first nine months of fiscal 2018, demonstrating strong operational cash generation.
  • 6Home Depot returned significant capital to shareholders, repurchasing $5.5 billion in common stock and paying $3.5 billion in dividends during the first nine months of fiscal 2018.
  • 7Online sales continued to be a strong growth driver, representing 7.5% of net sales and growing 28.1% in the third quarter.

Frequently Asked Questions

The primary driver of the substantial increase in net earnings and diluted EPS was the lower effective income tax rate resulting from the enactment of the Tax Cuts and Jobs Act of 2017. This legislation significantly reduced the company's tax expense, thereby boosting net income. The adoption of ASU No. 2014-09 (new revenue recognition standard) also provided some benefit.

Comparable sales showed healthy growth, increasing by 4.8% for the third quarter and 5.8% for the first nine months. This growth was driven by a combination of factors, including an increase in the average ticket price (partly due to higher sales of big-ticket items like appliances and flooring) and a modest increase in comparable customer transactions. Growth was observed across most departments, with Lighting being a notable exception due to LED price deflation.

The company maintains a strong liquidity position with $1.8 billion in cash and cash equivalents at the end of the quarter. It generated $10.0 billion in operating cash flow for the first nine months. This strong cash flow is being used to fund capital expenditures, pay dividends, and repurchase shares, indicating a disciplined approach to capital allocation. The company also has access to credit facilities, suggesting robust financial flexibility.

The company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), using a modified retrospective method. This adoption impacted the presentation of certain expenses and revenues, particularly related to the PLCC program, gift cards, and sales returns, but management expects the ongoing impact to be immaterial. Additionally, the company is preparing to adopt ASU No. 2016-02, Leases (Topic 842), effective February 2019, which is expected to materially impact the balance sheet by requiring recognition of right-of-use assets and lease liabilities.