The Home Depot Announces Second Quarter Results; Updates Fiscal Year 2010 Guidance

ATLANTA  (Profitable.com)  The Home Depot®, the world’s largest home improvement retailer, today reported second quarter of fiscal 2010 net earnings of $1.2 billion, or $0.72 per diluted share, compared with net earnings of $1.1 billion, or $0.66 per diluted share, in the same period of fiscal 2009.  

Sales for the second quarter totaled $19.4 billion, a 1.8 percent increase from the second quarter of fiscal 2009. Comparable store sales for the second quarter of fiscal 2010 were positive 1.7 percent, and comp sales for U.S. stores were positive 1.0 percent.

“Our second quarter sales reflect the third consecutive quarter of positive same store sales. We delivered solid results as we continue to build momentum with our merchandising transformation, supply chain enhancements and customer service initiatives,” said Frank Blake, chairman & CEO. “I want to thank our associates for their hard work and dedication, and I am proud to announce 97 percent of our stores qualified for success sharing, our bonus plan for hourly associates, for the first half of fiscal 2010.”

Updated Fiscal 2010 Guidance

Based on its year-to-date performance and expectations for the remainder of the fiscal year, the Company updated its fiscal 2010 guidance and now expects sales to be up approximately 2.6 percent for the year. The Company expects diluted earnings per share from continuing operations as reported to increase by approximately 22.6 percent to $1.90 for the year. This earnings per share guidance includes the benefit of the Company’s year-to-date share repurchases, but excludes the impact of future share repurchases.

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 earnings.homedepot.com.

At the end of the second quarter, the Company operated a total of 2,244 retail stores, which included 1,976 The Home Depot stores in the United States (including the Commonwealth of Puerto Rico, the territory of the U.S. Virgin Islands and the territory of Guam), 179 stores in Canada, 80 stores in Mexico and 9 stores in China.  The Company employs more than 300,000 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.

To provide clarity, internally and externally, about the Company’s operating performance for recently completed fiscal periods, the Company supplemented its reporting with non-GAAP financial measures to reflect the impact of the store rationalization charges, business rationalization charges, related restructuring charges and the charge related to the extension of the Company’s guarantee of a third party senior secured loan.  

The Company believes that these non-GAAP financial measures better enable management and investors to understand and analyze the Company’s performance by providing them with meaningful information relevant to events of unusual nature or frequency.  However, this supplemental information should not be considered in isolation or as a substitute for the related GAAP measures. A reconciliation of the non-GAAP financial measures to the corresponding GAAP measures can be found attached to this press release and at earnings.homedepot.com.

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 store sales, 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, commodity price inflation and deflation, implementation of store initiatives, continuation of reinvestment plans, net earnings performance, earnings per share, stock-based compensation expense, capital allocation and expenditures, liquidity, the effect of adopting certain accounting standards, return on invested capital, management of our purchasing or customer credit policies, the effect of accounting charges, the planned recapitalization of the Company, timing of the completion of the recapitalization, the ability to issue debt securities on terms and at rates acceptable to us,  store openings and closures and financial outlook.  Forward-looking statements are based on currently available information and our current assumptions, expectations and projections about future events. You are cautioned not to place undue reliance 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 31, 2010, and in Part II, Item 1A, “Risk Factors” and elsewhere in our Quarterly Report on Form 10-Q for the fiscal quarter ended May 2, 1010.

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. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF EARNINGS  
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2010 AND AUGUST 2, 2009  
(Unaudited)  
(Amounts in Millions Except Per Share Data and as Otherwise Noted)  
 
 
Three Months Ended % Increase Six Months Ended % Increase  
8-1-10 8-2-09 (Decrease) 8-1-10 8-2-09 (Decrease)  
NET SALES $     19,410 $    19,071 1.8 % $     36,273 $    35,246 2.9 %  
Cost of Sales 12,828 12,683 1.1 23,897 23,408 2.1  
 GROSS PROFIT 6,582 6,388 3.0 12,376 11,838 4.5  
 
Operating Expenses:  
  Selling, General and Administrative 4,127 4,121 0.1 8,205 8,163 0.5  
  Depreciation and Amortization 406 434 (6.5) 817 862 (5.2)  
    Total Operating Expenses 4,533 4,555 (0.5) 9,022 9,025  
 
 OPERATING INCOME 2,049 1,833 11.8 3,354 2,813 19.2  
 
Interest and Other (Income) Expense:  
 Interest and Investment Income (3) (6) (50.0) (7) (11) (36.4)  
 Interest Expense 151 167 (9.6) 293 347 (15.6)  
 Other 51 N/M  
    Interest and Other, net 148 161 (8.1) 337 336 0.3  
 
EARNINGS BEFORE PROVISION FOR INCOME TAXES 1,901 1,672 13.7 3,017 2,477 21.8  
 
Provision for Income Taxes 709 556 27.5 1,100 847 29.9  
 
 NET EARNINGS $       1,192 $      1,116 6.8 % $       1,917 $      1,630 17.6 %  
 
 
Weighted Average Common Shares 1,653 1,683 (1.8) % 1,666 1,684 (1.1) %  
 
BASIC EARNINGS PER SHARE $         0.72 $        0.66 9.1 $         1.15 $        0.97 18.6  
 
Diluted Weighted Average Common Shares 1,663 1,691 (1.7) % 1,676 1,690 (0.8) %  
 
DILUTED EARNINGS PER SHARE $         0.72 $        0.66 9.1 $         1.14 $        0.96 18.8  
 
 
 
 
SELECTED HIGHLIGHTS Three Months Ended % Increase Six Months Ended % Increase  
8-1-10 8-2-09 (Decrease) 8-1-10 8-2-09 (Decrease)  
Number of Customer Transactions 369 362 1.9 % 692 672 3.0 %  
Average Ticket (actual) $       52.30 $      52.25 0.1 $       52.41 $      52.45 (0.1)  
Weighted Average Weekly Sales  
   per Operating Store (in thousands) $          662 $         650 1.8 $          621 $         600 3.5  
Square Footage at End of Period 235 235 235 235  
Capital Expenditures $          240 $         181 32.6 $          407 $         353 15.3  
Depreciation and Amortization (1) $          428 $         458 (6.6) % $          866 $         911 (4.9) %  
 
 
(1) Includes depreciation of distribution centers and tool rental equipment included in Cost of Sales and amortization of deferred financing costs included in Interest Expense.  
N/M – Not Meaningful  
                             
THE HOME DEPOT, INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF EARNINGS ITEMS EXCLUDING CERTAIN ADJUSTMENTS (NON-GAAP)  
FOR THE THREE MONTHS AND SIX MONTHS ENDED AUGUST 1, 2010 AND AUGUST 2, 2009  
(Unaudited)  
(Amounts in Millions Except Per Share Data)  
 
 
Three Months Ended 8-1-10 Six Months Ended 8-1-10  
Actuals Adjustment As Adjusted
(Non-GAAP)
Actuals Adjustment(1) As Adjusted
(Non-GAAP)
 
 
 Net Sales $        19,410 $            – $     19,410 $       36,273 $           – $   36,273  
 Gross Profit 6,582 6,582 12,376 12,376  
 Total Operating Expenses 4,533 4,533 9,022 9,022  
 Operating Income 2,049 2,049 3,354 3,354  
 Interest and Other, net 148 148 337 51 286  
 Net Earnings $          1,192 $            – $       1,192 $         1,917 $       (33) $     1,950  
 Diluted Earnings Per Share $            0.72 $            – $         0.72 $           1.14 $    (0.02) $       1.16  
 
 
Three Months Ended 8-2-09 Six Months Ended 8-2-09  
Actuals Adjustments(2) As Adjusted
(Non-GAAP)
Actuals Adjustments(2) As Adjusted
(Non-GAAP)
 
 
 Net Sales $        19,071 $              – $      19,071 $       35,246 $       221 $     35,025  
 Gross Profit 6,388 (1) 6,389 11,838 28 11,810  
 Total Operating Expenses 4,555 19 4,536 9,025 165 8,860  
 Operating Income 1,833 (20) 1,853 2,813 (137) 2,950  
 Interest and Other, net 161 161 336 336  
 Net Earnings $          1,116 $           (11) $        1,127 $         1,630 $       (84) $       1,714  
 Diluted Earnings Per Share $            0.66 $        (0.01) $          0.67 $           0.96 $    (0.05) $         1.01  
 
(1) Adjustment is comprised of a charge related to the extension of the Company’s guarantee of a third-party senior secured loan.  
(2) Adjustments are comprised of store rationalization charges related to the closing of 15 stores and the removal of 50 stores from our future growth pipeline, business rationalization charges related to the exit of EXPO, THD Design Center, Yardbirds and HD Bath businesses, as well as net sales, gross profit and operating expenses of those exited businesses during the period from closing announcement to actual closing, and charges related to restructuring of support functions.  
                       
THE HOME DEPOT, INC. AND SUBSIDIARIES  
CONSOLIDATED BALANCE SHEETS  
AS OF AUGUST 1, 2010, AUGUST 2, 2009 AND JANUARY 31, 2010  
(Unaudited)  
(Amounts in Millions)  
 
8-1-10 8-2-09 1-31-10  
 
ASSETS  
  Cash and Cash Equivalents $         2,395 $         3,107 $       1,421  
  Receivables, net 1,218 1,225 964  
  Merchandise Inventories   10,759 10,797 10,188  
  Other Current Assets 1,385 1,434 1,327  
     Total Current Assets 15,757 16,563 13,900  
 
  Property and Equipment, net 25,190 25,851 25,550  
  Goodwill 1,187 1,168 1,171  
  Other Assets 401 416 256  
     TOTAL ASSETS $       42,535 $       43,998 $     40,877  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
  Accounts Payable $         5,919 $         6,018 $       4,863  
  Accrued Salaries and Related Expenses 1,226 1,159 1,263  
  Current Installments of Long-Term Debt 2,022 1,769 1,020  
  Other Current Liabilities 3,572 3,617 3,217  
     Total Current Liabilities 12,739 12,563 10,363  
 
  Long-Term Debt 7,727 9,661 8,662  
  Other Long-Term Liabilities 2,624 2,605 2,459  
     Total Liabilities 23,090 24,829 21,484  
 
  Total Stockholders’ Equity   19,445 19,169 19,393  
     TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $       42,535 $       43,998 $     40,877  
             
THE HOME DEPOT, INC. AND SUBSIDIARIES    
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
FOR THE SIX MONTHS ENDED AUGUST 1, 2010 AND AUGUST 2, 2009  
(Unaudited)  
(Amounts in Millions)  
 
 
Six Months Ended  
8-1-10 8-2-09  
CASH FLOWS FROM OPERATING ACTIVITIES:  
Net Earnings $        1,917 $        1,630  
Reconciliation of Net Earnings to Net Cash Provided by Operating Activities:  
    Depreciation and Amortization   866 911  
    Stock-Based Compensation Expense 112 109  
    Changes in Working Capital and Other 468 678  
    Net Cash Provided by Operating Activities 3,363 3,328  
 
CASH FLOWS FROM INVESTING ACTIVITIES:  
Capital Expenditures (407) (353)  
Other 44 139  
    Net Cash Used in Investing Activities (363) (214)  
 
CASH FLOWS FROM FINANCING ACTIVITIES:  
Repurchases of Common Stock (1,209)  
Cash Dividends Paid to Stockholders (793) (762)  
Other (28) 233  
   Net Cash Used in Financing Activities (2,030) (529)  
 
Increase in Cash and Cash Equivalents 970 2,585  
 
Effect of Exchange Rate Changes on Cash and Cash Equivalents 4 3  
Cash and Cash Equivalents at the Beginning of the Period 1,421 519  
 
Cash and Cash Equivalents at the End of the Period $        2,395 $        3,107