01—Abstract
Summary
Summary of the 10-Q filed August 22, 2023. Cited figures are marked; the original filing is the authoritative source.
Home Depot, Inc. (HD) reported its fiscal second quarter 2023 results, showing a slight decrease in net sales and net earnings compared to the prior year.
For the quarter ended July 30, 2023, net sales were $42.9 billiona, down 2.0% year-over-year, while net earnings came in at $4.7 billion, a decrease from $5.2 billion in the same period last year. Diluted earnings per share also declined to $4.65 from $5.05. Despite the top-line and bottom-line dip, the company demonstrated strong operational cash flow generation, with $12.2 billion in net cash provided by operating activities for the first six months of fiscal 2023.
Management highlighted a disciplined capital allocation strategy, prioritizing reinvestment in the business, followed by dividends and share repurchases. The company also increased its quarterly dividend by 10%b and continued its significant share repurchase program, underscoring a commitment to returning capital to shareholders.
02—Key points
Key Highlights
- Net sales for Q2 FY2023 decreased by 2.0% to $42.9 billion compared to Q2 FY2022.
- Net earnings for Q2 FY2023 decreased by 7.9% to $4.7 billion, with diluted EPS falling to $4.65 from $5.05.
- For the first six months of FY2023, net sales decreased by 3.1% to $80.2 billion, and net earnings decreased by 7.3% to $8.5 billion.
- The company generated robust operating cash flow, with $12.2 billion in the first six months of FY2023, a significant increase from $7.2 billion in the prior year period.
- Capital expenditures for the first six months of FY2023 were $1.7 billion, with plans to invest approximately $3 billion for the full fiscal year.
- The company repurchased $5.0 billion of common stock in the first six months of FY2023 and announced a new $15.0 billion share repurchase authorization.
- Dividends paid in the first six months of FY2023 totaled $4.2 billion, reflecting a 10% increase in the quarterly dividend.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, Home Depot, Inc. kept $0.11.
- Revenue$42.92B100.0%
- Cost of revenue−$28.76B67.0%
- Gross profit$14.16B33.0%
- Operating costs−$7.57B17.6%
- Operating income$6.59B15.4%
- Interest, other & tax−$1.93B4.5%
- Net income$4.66B10.9%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed August 22, 2023Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $42.92B$43.79B | −2.0% |
| Cost of Revenue | $28.76B$29.31B | −1.9% |
| Gross Profit | $14.16B$14.48B | −2.3% |
| SG&A Expenses | $6.92B$6.66B | +3.9% |
| Operating Expenses | $7.57B$7.27B | +4.1% |
| Operating Income | $6.59B$7.21B | −8.6% |
| Interest Expense | $469.00M$381.00M | +23.1% |
| Net Income | $4.66B$5.17B | −9.9% |
| EPS (Basic) | $4.66$5.06 | −7.9% |
| EPS (Diluted) | $4.65$5.05 | −7.9% |
| Shares Outstanding (Basic) | 1.00B1.02B | −2.2% |
| Shares Outstanding (Diluted) | 1.00B1.02B | −2.1% |
05—Questions
Frequently Asked Questions
What drove the decrease in net sales and earnings during the second quarter?
The decrease in net sales and earnings was primarily attributed to a negative comparable sales environment, characterized by a decline in comparable customer transactions and the impact of lumber price deflation. This was partially offset by an increase in comparable average ticket, driven by inflation across several product categories. Higher operating expenses, particularly in Selling, General & Administrative (SG&A) due to wage investments and deleverage from lower sales, also contributed to the earnings decline.
How is Home Depot managing its inventory levels?
The company's merchandise inventories decreased to $23.3 billion at the end of Q2 FY2023 from $24.9 billion at the end of Q1 FY2023. For the first six months of FY2023, changes in merchandise inventories resulted in a positive cash flow contribution of $1.75 billion, indicating effective inventory management and a reduction from the prior year's build-up. The inventory turnover ratio remained stable at 4.4x.
What is Home Depot's approach to capital allocation and returning value to shareholders?
Home Depot follows a disciplined capital allocation strategy that prioritizes reinvesting in the business through capital expenditures. Following that, the company focuses on paying dividends, which it increased by 10% in February 2023. Finally, excess cash is returned to shareholders through share repurchases. The company repurchased $5.0 billion of stock in the first six months of FY2023 and has a new $15.0 billion authorization in place.
How are interest rate changes affecting the company?
The company's interest expense increased in the current period compared to the prior year, primarily due to increased variable rate interest on floating rate debt resulting from interest rate swaps and higher overall debt balances. The company actively uses interest rate swap agreements to hedge against changes in fair values of certain senior notes by swapping fixed for variable rates, and has transitioned these to SOFR. While higher rates have increased interest expenses, the impact on net earnings has been partially offset by higher interest income and robust operating cash flow.
06—Continue