The Home Depot Announces Second Quarter Results; Updates Fiscal Year 2018 Guidance

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Aug 14, 2018, 06:00 ET

ATLANTA, Aug. 14, 2018 /PRNewswire/ -- The Home Depot^®, the world's largest home improvement retailer, today reported sales of $30.5 billion for the second quarter of fiscal 2018, an 8.4 percent increase from the second quarter of fiscal 2017. Comparable sales for the second quarter of fiscal 2018 were positive 8.0 percent, and comp sales in the U.S. were positive 8.1 percent.

Net earnings for the second quarter of fiscal 2018 were $3.5 billion, or $3.05 per diluted share, compared with net earnings of $2.7 billion, or $2.25 per diluted share, in the same period of fiscal 2017. For the second quarter of fiscal 2018, diluted earnings per share increased 35.6 percent from the same period in the prior year.

"We were very pleased with our record second quarter sales and earnings. Not only did our seasonal business rebound from the first quarter, but our overall results exceeded our expectations," said Craig Menear, chairman, CEO and president. "These results exemplify the outstanding execution of our combined team of store associates, merchants, suppliers and supply chain."

Updated Fiscal 2018 Guidance

Based on its year-to-date performance, the Company updated its fiscal 2018 sales growth guidance and now expects sales will be up approximately 7.0 percent including the 53^rd week, with comp sales growth of approximately 5.3 percent for the comparable 52-week period. The Company also raised its diluted earnings-per-share growth guidance for the year and now expects diluted earnings-per-share growth of approximately 29.2 percent from fiscal 2017 to $9.42. The Company's diluted earnings-per-share growth guidance includes $6 billion of share repurchases for fiscal 2018.

The Home Depot will conduct a conference call today at 9 a.m. ET to discuss information included in this news release and related matters. The conference call will be available in its entirety through a webcast and replay at http://ir.homedepot.com/events-and-presentations.

Recent Accounting Pronouncement – Revenue Recognition

During the first quarter of fiscal 2018, the Company adopted ASU No. 2014-09, which pertains to revenue recognition. The adoption of this standard will not materially impact the Company's consolidated financial statements or related disclosures.

The Company has adopted this standard on a modified retrospective basis. In accordance therewith, financial information prior to fiscal 2018 will not be recast. The consolidated statements of earnings and balance sheet for periods and dates subsequent to fiscal 2017 reflect the effect of this accounting policy adoption.

Additional information about the impact of the adoption of ASU No. 2014-09 is available at http://ir.homedepot.com/financial-reports/quarterly-earnings/2018.

At the end of the second quarter, the Company operated a total of 2,286 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces and Mexico. The Company employs more than 400,000 associates. The Home Depot's stock is traded on the New York Stock Exchange (NYSE: HD) and is included in the Dow Jones industrial average and Standard & Poor's 500 index.

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Certain statements contained herein constitute "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may relate to, among other things, the demand for our products and services; net sales growth; comparable sales; effects of competition; implementation of store, interconnected retail, supply chain and technology initiatives; issues related to the payment methods we accept; state of the economy; state of the residential construction, housing and home improvement markets; state of the credit markets, including mortgages, home equity loans and consumer credit; demand for credit offerings; inventory and in-stock positions; management of relationships with our suppliers and vendors; continuation of share repurchase programs; net earnings performance; earnings per share; dividend targets; capital allocation and expenditures; liquidity; return on invested capital; expense leverage; stock-based compensation expense; commodity price inflation and deflation; the ability to issue debt on terms and at rates acceptable to us; the impact and expected outcome of investigations, inquiries, claims and litigation; the effect of accounting charges; the effect of adopting certain accounting standards; the impact of the Tax Cuts and Jobs Act of 2017; store openings and closures; guidance for fiscal 2018 and beyond; financial outlook; and the integration of acquired companies into our organization and the ability to recognize the anticipated synergies and benefits of those acquisitions. Forward-looking statements are based on currently available information and our current assumptions, expectations and projections about future events. You should not rely on our forward-looking statements. These statements are not guarantees of future performance and are subject to future events, risks and uncertainties – many of which are beyond our control or are currently unknown to us – as well as potentially inaccurate assumptions that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include but are not limited to those described in Item 1A, "Risk Factors," and elsewhere in our Annual Report on Form 10-K for our fiscal year ended January 28, 2018 and in our subsequent Quarterly Reports on Form 10-Q.

Forward-looking statements speak only as of the date they are made, and we do not undertake to update these statements other than as required by law. You are advised, however, to review any further disclosures we make on related subjects in our periodic filings with the Securities and Exchange Commission.

THE HOME DEPOT, INC. CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited)

	Three Months Ended						Six Months Ended
*in millions, except per share data*	July 29, 2018		July 30, 2017		% Change		July 29, 2018		July 30, 2017		% Change
Net sales	$	30,463	$	28,108	8.4	%	$	55,410	$	51,995	6.6	%
Cost of sales	20,098		18,647		7.8		36,428		34,380		6.0
Gross profit	10,365		9,461		9.6		18,982		17,615		7.8
Operating expenses:
Selling, general and administrative	5,004		4,549		10.0		9,783		8,910		9.8
Depreciation and amortization	460		449		2.4		917		893		2.7
Total operating expenses	5,464		4,998		9.3		10,700		9,803		9.2
Operating income	4,901		4,463		9.8		8,282		7,812		6.0
Interest and other (income) expense:
Interest and investment income	(26)		(16)		62.5		(48)		(29)		65.5
Interest expense	272		265		2.6		533		519		2.7
Interest and other, net	246		249		(1.2)		485		490		(1.0)
Earnings before provision for income taxes	4,655		4,214		10.5		7,797		7,322		6.5
Provision for income taxes	1,149		1,542		(25.5)		1,887		2,636		(28.4)
Net earnings	$	3,506	$	2,672	31.2	%	$	5,910	$	4,686	26.1	%

Basic weighted average common shares	1,144		1,183		(3.3)	%	1,148		1,191		(3.6)	%
Basic earnings per share	$	3.06	$	2.26	35.4		$	5.15	$	3.93	31.0

Diluted weighted average common shares	1,149		1,189		(3.4)	%	1,154		1,197		(3.6)	%
Diluted earnings per share	$	3.05	$	2.25	35.6		$	5.12	$	3.91	30.9

	Three Months Ended						Six Months Ended
Selected Sales Data ⁽¹⁾	July 29, 2018		July 30, 2017		% Change		July 29, 2018		July 30, 2017		% Change
Customer transactions (in millions)	455.4		441.8		3.1	%	831.2		822.6		1.1	%
Average ticket	$	66.20	$	63.05	5.0		$	66.12	$	62.74	5.4
Sales per square foot	504.20		464.38		8.6		458.07		429.17		6.7
—————
(1) Selected Sales Data does not include results for Interline Brands, Inc., which was acquired in fiscal 2015.

THE HOME DEPOT, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

*in millions*	July 29, 2018		July 30, 2017		January 28, 2018
Assets
Cash and cash equivalents	$	3,490	$	4,830	$	3,595
Receivables, net	2,164		2,187		1,952
Merchandise inventories	14,044		12,868		12,748
Other current assets	1,104		626		638
Total current assets	20,802		20,511		18,933
Net property and equipment	21,909		22,035		22,075
Goodwill	2,251		2,235		2,275
Other assets	1,270		1,178		1,246
Total assets	$	46,232	$	45,959	$	44,529

Liabilities and Stockholders' Equity
Short-term debt	$	—	$	—	$	1,559
Accounts payable	9,407		8,541		7,244
Accrued salaries and related expenses	1,535		1,503		1,640
Current installments of long-term debt	2,203		545		1,202
Other current liabilities	5,281		5,234		4,549
Total current liabilities	18,426		15,823		16,194
Long-term debt, excluding current installments	23,295		24,422		24,267
Other liabilities	2,502		2,160		2,614
Total liabilities	44,223		42,405		43,075
Total stockholders' equity	2,009		3,554		1,454
Total liabilities and stockholders' equity	$	46,232	$	45,959	$	44,529

THE HOME DEPOT, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Six Months Ended
*in millions*	July 29, 2018		July 30, 2017
Cash Flows from Operating Activities:
Net earnings	$	5,910	$	4,686
Reconciliation of net earnings to net cash provided by operating activities:
Depreciation and amortization	1,062		1,015
Stock-based compensation expense	234		148
Changes in working capital and other, net of acquisition effects	791		2,013
Net cash provided by operating activities	7,997		7,862

Cash Flows from Investing Activities:
Capital expenditures, net of non-cash capital expenditures	(1,091)		(846)
Payments for business acquired, net	—		(268)
Proceeds from sales of property and equipment	16		23
Net cash used in investing activities	(1,075)		(1,091)

Cash Flows from Financing Activities:
Repayments of short-term debt, net	(1,559)		(710)
Proceeds from long-term debt, net of discounts	—		1,994
Repayments of long-term debt	(28)		(21)
Repurchases of common stock	(3,121)		(3,921)
Proceeds from sales of common stock	35		137
Cash dividends	(2,373)		(2,130)
Other financing activities	142		2
Net cash used in financing activities	(6,904)		(4,649)
Change in cash and cash equivalents	18		2,122
Effect of exchange rate changes on cash and cash equivalents	(123)		170
Cash and cash equivalents at beginning of period	3,595		2,538
Cash and cash equivalents at end of period	$	3,490	$	4,830

THE HOME DEPOT, INC. ASU NO. 2014-09 IMPACT OF ADOPTION (Unaudited)

The Company adopted ASU No. 2014-09, which pertains to revenue recognition, in the first quarter of fiscal 2018. The following table shows the impact of adopting ASU No. 2014-09 on the consolidated statement of earnings for the three and six month periods ended July 29, 2018. The implementation of this accounting standard resulted in an increase in net sales, gross profit, selling, general and administrative, and total operating expenses and a decrease in cost of sales. There was no impact on operating income, net earnings, or earnings per share.

	Three Months Ended July 29, 2018
*in millions*	As Reported		*% of* *Net Sales*		ASU No. 2014-09 Impact		Excluding ASU No. 2014-09 Impact		*% of* *Net Sales*
Net sales	$	30,463	100.0	%	$	33	$	30,430	100.0	%
Cost of sales	20,098		66.0		(119)		20,217		66.4
Gross profit	10,365		34.0		152		10,213		33.6
Selling, general and administrative	5,004		16.4		152		4,852		15.9
Total operating expenses	5,464		17.9		152		5,312		17.5


	Six Months Ended July 29, 2018
*in millions*	As Reported		*% of* *Net Sales*		ASU No. 2014-09 Impact		Excluding ASU No. 2014-09 Impact		*% of* *Net Sales*
Net sales	$	55,410	100.0	%	$	66	$	55,344	100.0	%
Cost of sales	36,428		65.7		(217)		36,645		66.2
Gross profit	18,982		34.3		283		18,699		33.8
Selling, general and administrative	9,783		17.7		283		9,500		17.2
Total operating expenses	10,700		19.3		283		10,417		18.8

THE HOME DEPOT, INC. ASU NO. 2014-09 IMPACT OF ADOPTION (Unaudited)

The Company adopted ASU No. 2014-09, which pertains to revenue recognition, in the first quarter of fiscal 2018. The following table shows the impact of adopting ASU No. 2014-09 on the consolidated balance sheet as of July 29, 2018.

	July 29, 2018
*in millions*	As Reported		ASU No. 2014-09 Effect		Excluding ASU No. 2014-09 Effect
Assets
Receivables, net	$	2,164	$	(46)	$	2,210
Other current assets	1,104		272		832
Total current assets	20,802		226		20,576
Total assets	46,232		226		46,006

Liabilities and Stockholders' Equity
Other current liabilities	$	5,281	$	127	$	5,154
Total current liabilities	18,426		127		18,299
Other liabilities	2,502		24		2,478
Total liabilities	44,223		151		44,072
Total stockholders' equity	2,009		75		1,934
Total liabilities and stockholders' equity	46,232		226		46,006

THE HOME DEPOT, INC. PRO FORMA EFFECT OF ASU NO. 2014-09 (Unaudited)

The Company adopted ASU No. 2014-09, which pertains to revenue recognition, in the first quarter of fiscal 2018 using the modified retrospective method. In accordance therewith, financial information prior to fiscal 2018 will not be recast as the modified retrospective method does not permit recasting pre-adoption financial information. The following tables present selected as-reported financial results and the pro forma effect of ASU No. 2014-09 as if the recognition and presentation guidance in the accounting standard had been applied in fiscal 2017. There was no impact on operating income, net earnings, or earnings per share. The fiscal 2017 pro forma financial information included in the tables below is presented for informational purposes only.

	Three Months Ended April 30, 2017
*in millions*	As Reported		*% of* *Net Sales*		ASU No. 2014-09 Effect		Including ASU No. 2014-09 Effect		*% of* *Net Sales*
Net sales	$	23,887	100.0	%	$	48	$	23,935	100.0	%
Cost of sales	15,733		65.9		(90)		15,643		65.4
Gross profit	8,154		34.1		138		8,292		34.6
Selling, general and administrative	4,361		18.3		138		4,499		18.8
Total operating expenses	4,805		20.1		138		4,943		20.7


	Three Months Ended July 30, 2017
*in millions*	As Reported		*% of* *Net Sales*		ASU No. 2014-09 Effect		Including ASU No. 2014-09 Effect		*% of* *Net Sales*
Net sales	$	28,108	100.0	%	$	33	$	28,141	100.0	%
Cost of sales	18,647		66.3		(114)		18,533		65.9
Gross profit	9,461		33.7		147		9,608		34.1
Selling, general and administrative	4,549		16.2		147		4,696		16.7
Total operating expenses	4,998		17.8		147		5,145		18.3


	Three Months Ended October 29, 2017
*in millions*	As Reported		*% of* *Net Sales*		ASU No. 2014-09 Effect		Including ASU No. 2014-09 Effect		*% of* *Net Sales*
Net sales	$	25,026	100.0	%	$	44	$	25,070	100.0	%
Cost of sales	16,378		65.4		(85)		16,293		65.0
Gross profit	8,648		34.6		129		8,777		35.0
Selling, general and administrative	4,514		18.0		129		4,643		18.5
Total operating expenses	4,968		19.9		129		5,097		20.3


	Three Months Ended January 28, 2018
*in millions*	As Reported		*% of* *Net Sales*		ASU No. 2014-09 Effect		Including ASU No. 2014-09 Effect		*% of* *Net Sales*
Net sales	$	23,883	100.0	%	$	41	$	23,924	100.0	%
Cost of sales	15,790		66.1		(85)		15,705		65.6
Gross profit	8,093		33.9		126		8,219		34.4
Selling, general and administrative	4,440		18.6		126		4,566		19.1
Total operating expenses	4,904		20.5		126		5,030		21.0


	Fiscal Year Ended January 28, 2018
*in millions*	As Reported		*% of* *Net Sales*		ASU No. 2014-09 Effect		Including ASU No. 2014-09 Effect		*% of* *Net Sales*
Net sales	$	100,904	100.0	%	$	166	$	101,070	100.0	%
Cost of sales	66,548		66.0		(374)		66,174		65.5
Gross profit	34,356		34.0		540		34,896		34.5
Selling, general and administrative	17,864		17.7		540		18,404		18.2
Total operating expenses	19,675		19.5		540		20,215		20.0