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

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November 13, 2018

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ATLANTA, Nov. 13, 2018 /PRNewswire-HISPANIC PR WIRE/ — The Home Depot^®, the world’s largest home improvement retailer, today reported sales of $26.3 billion for the third quarter of fiscal 2018, a 5.1 percent increase from the third quarter of fiscal 2017. Comparable sales for the third quarter of fiscal 2018 were positive 4.8 percent, and comp sales in the U.S. were positive 5.4 percent.

Net earnings for the third quarter of fiscal 2018 were $2.9 billion, or $2.51 per diluted share, compared with net earnings of $2.2 billion, or $1.84 per diluted share, in the same period of fiscal 2017. For the third quarter of fiscal 2018, diluted earnings per share increased 36.4 percent from the same period in the prior year.

“We are pleased with our third quarter results and the growth that we saw from both our professional and do-it-yourself customers. Our customers continue to respond to our expansive assortment and enhancements we are making to drive an interconnected shopping experience. We saw continued strength across the store, as well as healthy growth in our digital business,” said Craig Menear, chairman, CEO and president. “We believe this is a testament to the overall strength of demand in the home improvement market.”

Updated Fiscal 2018 Guidance

Based on its year-to-date performance, the Company updated its fiscal 2018 guidance. The Company will have 53 weeks of operating results in fiscal 2018 and now expects:

Sales growth of approximately 7.2 percent;
Comp sales growth of approximately 5.5 percent for the comparable 52-week period;
Operating margin of approximately 14.5 percent;
Tax rate of approximately 24 percent;
Fiscal 2018 share repurchases of approximately $8 billion;
Diluted earnings-per-share growth of approximately 33.8 percent from fiscal 2017 to $9.75.

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 third 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.

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						Nine Months Ended
in millions, except per share data	October 28, 2018		October 29, 2017		% Change		October 28, 2018		October 29, 2017		% Change
Net sales	$	26,302	$	25,026	5.1	%	$	81,712	$	77,021	6.1	%
Cost of sales	17,151		16,378		4.7		53,579		50,758		5.6
Gross profit	9,151		8,648		5.8		28,133		26,263		7.1
Operating expenses:
Selling, general and administrative	4,808		4,514		6.5		14,591		13,424		8.7
Depreciation and amortization	473		454		4.2		1,390		1,347		3.2
Total operating expenses	5,281		4,968		6.3		15,981		14,771		8.2
Operating income	3,870		3,680		5.2		12,152		11,492		5.7
Interest and other (income) expense:
Interest and investment income	(25)		(22)		13.6		(73)		(51)		43.1
Interest expense	249		269		(7.4)		782		788		(0.8)
Interest and other, net	224		247		(9.3)		709		737		(3.8)
Earnings before provision for income taxes	3,646		3,433		6.2		11,443		10,755		6.4
Provision for income taxes	779		1,268		(38.6)		2,666		3,904		(31.7)
Net earnings	$	2,867	$	2,165	32.4	%	$	8,777	$	6,851	28.1	%

Basic weighted average common shares	1,135		1,168		(2.8)	%	1,144		1,184		(3.4)	%
Basic earnings per share	$	2.53	$	1.85	36.8		$	7.67	$	5.79	32.5

Diluted weighted average common shares	1,141		1,174		(2.8)	%	1,150		1,190		(3.4)	%
Diluted earnings per share	$	2.51	$	1.84	36.4		$	7.63	$	5.76	32.5

	Three Months Ended						Nine Months Ended
Selected Sales Data⁽¹⁾	October 28, 2018		October 29, 2017		% Change		October 28, 2018		October 29, 2017		% Change
Customer transactions (in millions)	394.8		389.5		1.4	%	1,226.0		1,212.0		1.2	%
Average ticket	$	65.11	$	62.84	3.6		$	65.79	$	62.78	4.8
Sales per square foot	433.99		412.49		5.2		449.94		423.60		6.2
_____________

(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*	October 28, 2018		October 29, 2017		January 28, 2018
Assets
Cash and cash equivalents	$	1,764	$	3,549	$	3,595
Receivables, net	2,171		2,166		1,952
Merchandise inventories	14,754		13,419		12,748
Other current assets	1,120		548		638
Total current assets	19,809		19,682		18,933
Net property and equipment	22,054		21,960		22,075
Goodwill	2,258		2,217		2,275
Other assets	1,079		1,164		1,246
Total assets	$	45,200	$	45,023	$	44,529

Liabilities and Stockholders’ Equity
Short-term debt	$	1,398	$	125	$	1,559
Accounts payable	9,054		8,570		7,244
Accrued salaries and related expenses	1,495		1,488		1,640
Current installments of long-term debt	1,054		1,198		1,202
Other current liabilities	5,195		4,621		4,549
Total current liabilities	18,196		16,002		16,194
Long-term debt, excluding current installments	23,332		24,266		24,267
Other liabilities	2,352		2,212		2,614
Total liabilities	43,880		42,480		43,075
Total stockholders’ equity	1,320		2,543		1,454
Total liabilities and stockholders’ equity	$	45,200	$	45,023	$	44,529

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

	Nine Months Ended
*in millions*	October 28, 2018		October 29, 2017
Cash Flows from Operating Activities:
Net earnings	$	8,777	$	6,851
Reconciliation of net earnings to net cash provided by operating activities:
Depreciation and amortization	1,603		1,533
Stock-based compensation expense	204		214
Changes in working capital and other, net of acquisition effects	(548)		1,143
Net cash provided by operating activities	10,036		9,741

Cash Flows from Investing Activities:
Capital expenditures, net of non-cash capital expenditures	(1,711)		(1,354)
Payments for business acquired, net	—		(260)
Proceeds from sales of property and equipment	21		38
Other investing activities	(3)		—
Net cash used in investing activities	(1,693)		(1,576)

Cash Flows from Financing Activities:
Repayments of short-term debt, net	(161)		(585)
Proceeds from long-term debt, net of discounts	—		2,991
Repayments of long-term debt	(1,192)		(534)
Repurchases of common stock	(5,518)		(6,067)
Proceeds from sales of common stock	140		157
Cash dividends	(3,548)		(3,174)
Other financing activities	99		(41)
Net cash used in financing activities	(10,180)		(7,253)
Change in cash and cash equivalents	(1,837)		912
Effect of exchange rate changes on cash and cash equivalents	6		99
Cash and cash equivalents at beginning of period	3,595		2,538
Cash and cash equivalents at end of period	$	1,764	$	3,549

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 nine month periods ended October 28, 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 October 28, 2018
*in millions*	As Reported		*% of* *Net Sales*		ASU No. 2014- 09 Impact		Excluding ASU No. 2014- 09 Impact		*% of* *Net Sales*
Net sales	$	26,302	100.0	%	$	64	$	26,238	100.0	%
Cost of sales	17,151		65.2		(83)		17,234		65.7
Gross profit	9,151		34.8		147		9,004		34.3
Selling, general and administrative	4,808		18.3		147		4,661		17.8
Total operating expenses	5,281		20.1		147		5,134		19.6

	Nine Months Ended October 28, 2018
*in millions*	As Reported		*% of* *Net Sales*		ASU No. 2014- 09 Impact		Excluding ASU No. 2014- 09 Impact		*% of* *Net Sales*
Net sales	$	81,712	100.0	%	$	130	$	81,582	100.0	%
Cost of sales	53,579		65.6		(300)		53,879		66.0
Gross profit	28,133		34.4		430		27,703		34.0
Selling, general and administrative	14,591		17.9		430		14,161		17.4
Total operating expenses	15,981		19.6		430		15,551		19.1

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 October 28, 2018.

	October 28, 2018
*in millions*	As Reported		ASU No. 2014-09 Impact		Excluding ASU No. 2014-09 Impact
Assets
Receivables, net	$	2,171	$	(44)	$	2,215
Other current assets	1,120		268		852
Total current assets	19,809		224		19,585
Total assets	45,200		224		44,976

Liabilities and Stockholders’ Equity
Other current liabilities	$	5,195	$	125	$	5,070
Total current liabilities	18,196		125		18,071
Other liabilities	2,352		24		2,328
Total liabilities	43,880		149		43,731
Total stockholders’ equity	1,320		75		1,245
Total liabilities and stockholders’ equity	45,200		224		44,976

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