10-QPeriod: Q2 FY2025

HOME DEPOT, INC. Quarterly Report for Q2 Ended Jul 28, 2024

Filed August 20, 2024For Securities:HD

Summary

Home Depot's second quarter fiscal year 2024 filing reveals a mixed financial performance. While reported net sales saw a slight increase of 0.6% to $43.2 billion, this was primarily driven by the recent acquisition of SRS, which contributed $1.3 billion in sales. Excluding the impact of acquisitions, comparable sales declined by 3.3% due to a decrease in both customer transactions and average ticket size, indicating softness in the core business amid macroeconomic uncertainties and high interest rates impacting home improvement demand. Profitability metrics show a decrease in net earnings to $4.6 billion from $4.7 billion in the prior year period, resulting in diluted EPS of $4.60, down from $4.65. This decline is attributed to lower net earnings and increased operating expenses, particularly SG&A and depreciation/amortization, which rose as a percentage of net sales due to deleverage from the comparable sales decline. Despite these challenges, the company generated strong operating cash flow and maintained a robust balance sheet, though its Return on Invested Capital (ROIC) decreased to 31.9% from 41.5% year-over-year, largely due to increased debt from the SRS acquisition. The company has paused share repurchases and is prioritizing debt reduction.

Financial Highlights

50 data points
Beta

Revenue

$43.17B

33.4% Gross Margin

Net Income

$4.56B

10.6% Net Margin

EPS (Diluted)

$4.60

Total Assets

$96.85B

Cash & Equivalents

$1.61B

Free Cash Flow

$5.41B

Financial Statements
Beta
Revenue$43.17B
Cost of Revenue$28.76B
Gross Profit$14.42B
SG&A Expenses$7.14B
Operating Expenses$7.88B
Operating Income$6.53B
Net Income$4.56B
EPS (Basic)$4.61
EPS (Diluted)$4.60
Shares Outstanding (Basic)990.00M
Shares Outstanding (Diluted)992.00M

Key Highlights

  • 1Net sales increased by 0.6% to $43.2 billion for Q2 FY2024, largely attributed to the SRS acquisition which contributed $1.3 billion.
  • 2Comparable sales decreased by 3.3% in Q2 FY2024, reflecting declines in both customer transactions (-2.2%) and average ticket size (-1.3%), indicating weakness in the core business.
  • 3Net earnings decreased by 2.1% to $4.6 billion, and diluted EPS fell to $4.60 from $4.65 year-over-year.
  • 4Gross profit margin improved slightly to 33.4% from 33.0%, driven by lower transportation and shrink costs, partially offset by the SRS acquisition margin profile.
  • 5Operating expenses as a percentage of net sales increased, with SG&A rising to 16.5% and D&A to 1.7%, primarily due to deleverage from lower comparable sales.
  • 6The company significantly increased its long-term debt and short-term borrowings to finance the $17.7 billion cash portion of the SRS acquisition.
  • 7Return on Invested Capital (ROIC) declined to 31.9% from 41.5%, impacted by higher average debt levels from the SRS financing and lower operating income.

Frequently Asked Questions

The SRS acquisition, completed on June 18, 2024, contributed $1.3 billion to net sales in the second quarter of fiscal year 2024. While it boosted overall reported sales, it also increased long-term debt and associated interest expenses, and its lower gross profit margin profile partially offset improvements in the primary segment. The acquisition also led to a significant increase in goodwill and intangible assets on the balance sheet.

Comparable sales decreased by 3.3% in Q2 FY2024 due to a persistent high interest rate environment and other macroeconomic factors pressuring home improvement demand. Both customer transactions and the average ticket size declined. Management attributes this softness to heightened macroeconomic uncertainties. The company's outlook suggests continued challenges in the comparable sales environment, with only the Plumbing department showing positive comparable sales.

Home Depot financed the SRS acquisition primarily through a combination of commercial paper borrowings (over $15 billion raised initially), followed by the issuance of $10 billion in long-term debt, and cash on hand. As of July 28, 2024, the company had $2.5 billion in outstanding commercial paper borrowings and total liabilities increased significantly to $92.4 billion from $75.5 billion at the start of the fiscal year. The company has paused share repurchases and intends to prioritize debt reduction.

Net earnings for the second quarter of fiscal year 2024 decreased to $4.6 billion from $4.7 billion in the prior year. Consequently, diluted earnings per share (EPS) also saw a slight decrease to $4.60 from $4.65. This decline is primarily due to lower overall net earnings, exacerbated by increased operating expenses as a percentage of net sales and higher interest expenses related to the recent debt financing.