01—Abstract
Summary
Summary of the 10-Q filed August 20, 2024. Cited figures are marked; the original filing is the authoritative source.
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 billiona, 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%b 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.
02—Key points
Key Highlights
- Net sales increased by 0.6% to $43.2 billion for Q2 FY2024, largely attributed to the SRS acquisition which contributed $1.3 billion.
- Comparable 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.
- Net earnings decreased by 2.1% to $4.6 billion, and diluted EPS fell to $4.60 from $4.65 year-over-year.
- Gross 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.
- Operating 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.
- The company significantly increased its long-term debt and short-term borrowings to finance the $17.7 billion cash portion of the SRS acquisition.
- Return 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.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2025, Home Depot, Inc. kept $0.11.
- Revenue$43.17B100.0%
- Cost of revenue−$28.76B66.6%
- Gross profit$14.42B33.4%
- Operating costs−$7.88B18.3%
- Operating income$6.53B15.1%
- Interest, other & tax−$1.97B4.6%
- Net income$4.56B10.6%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2025filed August 20, 2024Financial Statements
Q2 FY2025 against Q2 FY2024
| Line item | Q2 FY2025Q2 FY2024 | Change |
|---|---|---|
| Revenue | $43.17B$42.92B | +0.6% |
| Cost of Revenue | $28.76B$28.76B | 0.0% |
| Gross Profit | $14.42B$14.16B | +1.8% |
| SG&A Expenses | $7.14B$6.92B | +3.3% |
| Operating Expenses | $7.88B$7.57B | +4.1% |
| Operating Income | $6.53B$6.59B | −0.8% |
| Net Income | $4.56B$4.66B | −2.1% |
| EPS (Basic) | $4.61$4.66 | −1.1% |
| EPS (Diluted) | $4.60$4.65 | −1.1% |
| Shares Outstanding (Basic) | 990.00M1.00B | −1.0% |
| Shares Outstanding (Diluted) | 992.00M1.00B | −1.1% |
05—Questions
Frequently Asked Questions
What was the financial impact of the SRS acquisition on Home Depot's results?
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.
Why did comparable sales decline, and what is the outlook for the core business?
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.
How did the company finance the SRS acquisition, and what is its current debt position?
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.
What is the trend in profitability and earnings per share?
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.
06—Continue