The Home Depot, Inc. — Form 10-Q Summary
Business context and reporting period
The filing covers the first quarter of fiscal 2013, the three months ended May 5, 2013, compared with the three months ended April 29, 2012. This differs from the request metadata’s “2012 Q1.” Home Depot operates home-improvement stores and online channels. The unaudited interim financial statements were reviewed by KPMG, not audited.
Financial performance
| Metric | Q1 FY2013 | Q1 FY2012 |
|---|---|---|
| Net sales | $19.124 billion | $17.808 billion |
| Gross profit / margin | $6.679 billion / 34.9% | $6.183 billion / 34.7% |
| Operating income / margin | $2.094 billion / 10.9% | $1.714 billion / 9.6% |
| Net earnings | $1.226 billion | $1.035 billion |
| Diluted EPS | $0.83 | $0.68 |
| Operating cash flow | $2.697 billion | $2.490 billion |
| Capital expenditures | $278 million | $228 million |
Sales rose 7.4%, while comparable-store sales increased 4.3% (U.S. stores: 4.8%). Comparable-store average ticket rose 4.2%; transactions increased 0.1%. Gross margin expanded 20 basis points. SG&A was 21.9% of sales versus 22.9%, reflecting sales leverage and expense controls. The effective tax rate was 36.6% versus 36.5%. Dividends declared were $0.39 per share versus $0.29.
Balance sheet, liquidity and capital allocation
At May 5, 2013, cash and cash equivalents were $4.337 billion, total assets $44.195 billion, and total stockholders’ equity $16.393 billion. Total debt, including current installments, was $12.792 billion, compared with $10.796 billion at February 3, 2013. Cash increased from $2.494 billion at fiscal year-end. The company reported $2.697 billion in operating cash flow, $276 million of cash used in investing activities, and $589 million of cash used in financing activities.
In April, Home Depot issued $2.0 billion of senior notes: $1.0 billion at 2.70% due 2023 and $1.0 billion at 4.20% due 2043. Proceeds are for general corporate purposes, including share repurchases. The company repurchased $2.196 billion of stock during the quarter, paid $577 million in dividends, and had $14.9 billion remaining under its $17.0 billion authorization. It had no commercial-paper or related credit-facility borrowings outstanding and stated that cash, operating cash generation and financing access should meet expected needs for several fiscal years.
Changes, outlook and risks
Reported sales growth benefited by approximately $574 million, or 320 basis points, from seasonal timing: fiscal 2013’s first quarter included an additional week of spring relative to the prior-year calendar, which had a 53rd week. Management also cited an improved U.S. housing market. Garden comparable sales were negative, attributed to cooler weather and difficult comparisons with the prior year’s unusually warm spring.
Operating income increased 22.2% and diluted EPS increased from $0.68 to $0.83. Prior-year interest and other results included a $67 million pretax benefit from termination of a guarantee of an HD Supply senior secured loan. Management said repurchases contributed $0.03 to current-quarter diluted EPS. It targeted 60% of store labor hours on customer-facing activity by fiscal year-end and said the BOSS online order pickup rollout was complete. The filing provides no specific full-year earnings or sales guidance.
Management reported no material change in risk factors from the fiscal 2012 Form 10-K and no material change in market-risk exposure. Forward-looking results remain subject to factors including demand, housing and credit markets, costs, execution, and access to debt financing. Disclosure controls were concluded to be effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Separate underlying sales momentum from the approximately 320-basis-point seasonal calendar benefit; comparable-store sales were 4.3% versus 5.8% a year earlier.
- Assess whether margin expansion and SG&A leverage persist, given management’s cited drivers and the mix impact on gross margin.
- Track higher debt following the $2.0 billion note issuance and the scale and settlement terms of the $1.5 billion accelerated share repurchase.
- Monitor cash generation against repurchases, dividends and capital spending, and confirm future guidance in subsequent filings.