Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 989K
2: EX-15.1 Letter re: Unaudited Interim Financial Info HTML 20K
3: EX-31.1 Certification -- §302 - SOA'02 HTML 20K
4: EX-31.2 Certification -- §302 - SOA'02 HTML 20K
5: EX-32.1 Certification -- §906 - SOA'02 HTML 17K
6: EX-32.2 Certification -- §906 - SOA'02 HTML 17K
12: R1 Cover HTML 68K
13: R2 Consolidated Balance Sheets (Unaudited) HTML 119K
14: R3 Consolidated Balance Sheets (Parenthetical) HTML 27K
15: R4 Consolidated Statements of Earnings (Unaudited) HTML 96K
16: R5 Consolidated Statements of Comprehensive Income HTML 46K
(Unaudited)
17: R6 Consolidated Statements of Stockholders' Equity HTML 68K
(Unaudited)
18: R7 Consolidated Statements of Cash Flows (Unaudited) HTML 101K
19: R8 Summary of Significant Accounting Policies HTML 23K
20: R9 Net Sales HTML 57K
21: R10 Property and Leases HTML 38K
22: R11 Debt and Derivative Instruments HTML 33K
23: R12 Stockholders' Equity HTML 50K
24: R13 Fair Value Measurements HTML 45K
25: R14 Weighted Average Common Shares HTML 29K
26: R15 Contingencies HTML 19K
27: R16 Summary of Significant Accounting Policies HTML 27K
(Policies)
28: R17 Net Sales (Tables) HTML 58K
29: R18 Property and Leases (Tables) HTML 38K
30: R19 Stockholders' Equity (Tables) HTML 47K
31: R20 Fair Value Measurements (Tables) HTML 42K
32: R21 Weighted Average Common Shares (Tables) HTML 29K
33: R22 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - HTML 20K
Narrative (Details)
34: R23 Net Sales (Details) HTML 37K
35: R24 Net Sales - Narrative (Details) HTML 22K
36: R25 PROPERTY AND LEASES - Narrative (Details) HTML 18K
37: R26 PROPERTY AND LEASES - Schedule of Assets and HTML 37K
Liabilities Related to Operating and Finance
Leases (Details)
38: R27 PROPERTY AND LEASES - Other Lease Information HTML 21K
(Details)
39: R28 DEBT AND DERIVATIVE INSTRUMENTS - Short-term Debt HTML 38K
(Details)
40: R29 DEBT AND DERIVATIVE INSTRUMENTS - Long-term Debt HTML 68K
(Details)
41: R30 DEBT AND DERIVATIVE INSTRUMENTS - Derivative HTML 31K
Instruments (Details)
42: R31 STOCKHOLDERS' EQUITY - Schedule of Reconciliation HTML 34K
of the Number of Shares of Common Stock and
Dividends Per Share (Details)
43: R32 STOCKHOLDERS' EQUITY - Narrative (Details) HTML 24K
44: R33 STOCKHOLDERS' EQUITY - Repurchases of Common Stock HTML 21K
(Details)
45: R34 FAIR VALUE MEASUREMENTS - Assets and Liabilities HTML 33K
Measured at Fair Value on a Recurring Basis
(Details)
46: R35 FAIR VALUE MEASUREMENTS - Assets and Liabilities HTML 25K
Measured at Fair Value on a Nonrecurring Basis
(Details)
47: R36 WEIGHTED AVERAGE COMMON SHARES - Reconciliation of HTML 28K
Basic to Diluted Weighted Average Common Shares
(Details)
50: XML IDEA XML File -- Filing Summary XML 85K
48: XML XBRL Instance -- hd-20221030_htm XML 960K
49: EXCEL IDEA Workbook of Financial Reports XLSX 69K
8: EX-101.CAL XBRL Calculations -- hd-20221030_cal XML 128K
9: EX-101.DEF XBRL Definitions -- hd-20221030_def XML 181K
10: EX-101.LAB XBRL Labels -- hd-20221030_lab XML 846K
11: EX-101.PRE XBRL Presentations -- hd-20221030_pre XML 455K
7: EX-101.SCH XBRL Schema -- hd-20221030 XSD 80K
51: JSON XBRL Instance as JSON Data -- MetaLinks 238± 350K
52: ZIP XBRL Zipped Folder -- 0000354950-22-000239-xbrl Zip 1.01M
(Exact name of registrant as specified in its charter)
iDelaware
i95-3261426
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
i2455
Paces Ferry Road
iAtlanta,
iGeorgia
i30339
(Address
of principal executive offices)
(Zip Code)
(i770) i433-8211
(Registrant’s telephone number, including area code)
Not Applicable
(Former
name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
iCommon
Stock, $0.05 Par Value Per Share
iHD
iNew York Stock Exchange
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
iLarge accelerated filer☒ Accelerated filer ☐Non-accelerated filer ☐ Smaller reporting company i☐ Emerging growth company i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes☐No i☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
i1,019,186,022
shares of common stock, $0.05 par value, outstanding as of November 15, 2022
Certain statements contained herein, as well as in other filings we make with the SEC and other written and oral information we release, regarding our performance or other events or developments in the future 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 impact of the COVID-19 pandemic and the related recovery on our business, results of operations, cash flows and financial condition (which, among other things, may affect many of the items listed below); the demand for our products and services; net sales growth; comparable sales; the effects of competition; our brand and reputation; implementation of store,
interconnected retail, supply chain and technology initiatives; inventory and in-stock positions; the state of the economy; the state of the housing and home improvement markets; the state of the credit markets, including mortgages, home equity loans, and consumer credit; impact of tariffs; issues related to the payment methods we accept; demand for credit offerings; management of relationships with our associates, potential associates, suppliers and service providers; cost and availability of labor; costs of fuel and other energy sources; international trade disputes, natural disasters, climate change, public health issues (including pandemics and quarantines, related shut-downs and other governmental orders, and similar restrictions, as well as subsequent re-openings), cybersecurity events, military conflicts or acts of war, and other business interruptions that could disrupt operation of our stores, distribution centers and other facilities, our ability to operate
or access communications, financial or banking systems, or supply or delivery of, or demand for, the Company’s products or services; our ability to meet environmental, social and governance (“ESG”) goals; continuation or suspension of share repurchases; net earnings performance; earnings per share; dividend targets; capital allocation and expenditures; liquidity; return on invested capital; expense leverage; commodity or other price inflation and deflation; our ability to issue debt on terms and at rates acceptable to us; the impact and expected outcome of investigations, inquiries, claims, and litigation, including compliance with related settlements; the effect of accounting charges; the effect of adopting certain accounting standards; the impact of regulatory changes, including changes to tax laws and regulations; store openings and closures; financial outlook; and the impact
of acquired companies on our organization and the ability to recognize the anticipated 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, dependent on the actions of third parties, or currently unknown to us – as well as potentially inaccurate assumptions that could cause actual results to differ materially from our historical experience and our expectations and projections. These risks and uncertainties include, but are not limited to, those described in Part II, Item 1A,
Risk Factors and elsewhere in this report and also as may be described from time to time in future reports we file with the SEC. You should read such information in conjunction with our consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report. There also may be other factors that we cannot anticipate or that are not described herein, generally because we do not currently perceive them to be material. Such factors could cause
results to differ materially from our expectations.
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 filings with the SEC and in our other public statements.
The Home Depot, Inc., together with its subsidiaries (the “Company,”“Home Depot,”“we,”“our” or “us”), is a home improvement retailer that sells a wide assortment of building materials, home improvement products, lawn and garden products, décor items, and facilities maintenance, repair and operations products, and provides a number of services, in stores and online. We operate in the U.S.
(including the Commonwealth of Puerto Rico and the territories of the U.S. Virgin Islands and Guam), Canada, and Mexico, each representing one of our ithree operating segments, which we aggregate into ione
reportable segment due to the similar nature of their operations and economic characteristics.
/i
Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by GAAP for
complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for interim periods are not necessarily indicative of results for the entire year. As a result, these consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2021 Form 10-K.
There were no significant changes to our significant accounting policies as disclosed in the 2021 Form 10-K.
i
Recently
Adopted Accounting Pronouncements
We did not adopt any new accounting pronouncements during the first nine months of fiscal 2022 that had a material impact on our consolidated financial condition, results of operations or cash flows.
Recently Issued Accounting Pronouncements
ASU No. 2022-04. In September 2022, the FASB issued ASU No. 2022-04, “Liabilities—Supplier Finance Programs (Topic 405-50) - Disclosure of Supplier Finance Program Obligations,” to enhance the transparency of supplier finance programs used by an entity in connection with the purchase of goods and services. The standard requires entities that use supplier finance programs to disclose the key terms, including a description of payment terms, the confirmed amount outstanding under the program at the end of each reporting period, a description
of where those obligations are presented on the balance sheet, and an annual rollforward, including the amount of obligations confirmed and the amount paid during the period. The guidance does not affect the recognition, measurement, or financial statement presentation of obligations covered by supplier finance programs. ASU No. 2022-04 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the requirement on rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption is permitted. We are currently evaluating the impact of the standard on our consolidated financial statements and related disclosures.
Recent accounting pronouncements pending adoption not discussed above or in the
2021 Form 10-K are either not applicable or will not have or are not expected to have a material impact on our consolidated financial condition, results of operations or cash flows.
For products and services sold in stores or online, payment is typically due at the point of sale. When we receive payment from customers before the customer has taken possession of the merchandise or the service has been performed, the amount received is recorded as deferred revenue until the sale or service is complete. Such performance obligations are part of contracts with expected original durations of typically three months or less. As of October 30, 2022 and January 30, 2022, deferred revenue for products and services was $i2.2
billion and $i2.6 billion, respectively.
We further record deferred revenue for the sale of gift cards and recognize the associated revenue upon the redemption of those gift cards, which generally occurs within isix
months of gift card issuance. As of both October 30, 2022 and January 30, 2022, our performance obligations for unredeemed gift cards were $ii1.0/
billion. Gift card breakage income, which is our estimate of the portion of our gift card balance not expected to be redeemed, was immaterial during the three and nine months ended October 30, 2022 and October 31, 2021.
3.iPROPERTY AND LEASES
Net Property and Equipment
Net
property and equipment includes accumulated depreciation and finance lease amortization of $i27.5 billion as ofOctober 30, 2022 and $i26.1
billion as of January 30, 2022.
(1) Finance
lease assets are recorded net of accumulated amortization of $i1.2 billion as of October 30, 2022 and $i1.0
billion as of January 30, 2022.
i
The following table presents supplemental non-cash information related to leases:
Lease assets obtained in exchange for new operating lease liabilities
$
i1,308
$
i637
Lease
assets obtained in exchange for new finance lease liabilities
i234
i581
/
4.iDEBT
AND DERIVATIVE INSTRUMENTS
Short-Term Debt
In July 2022, we expanded our commercial paper program from $i3.0 billion to $i5.0 billion
to further enhance our financial flexibility. All of our short-term borrowings in the first nine months of fiscal 2022 were under our commercial paper program, and the maximum amount outstanding at any time was $i2.7 billion. In connection with our program, we have back-up credit facilities with a consortium of banks. In July 2022, we also expanded the borrowing capacity under these back-up facilities from $i3.0 billion
to $i5.0 billion, by entering into a ifive-year $i3.5 billion
credit facility scheduled to expire in July 2027 and a i364-day $i1.5 billion credit facility scheduled to expire in July 2023. These facilities replaced our previously existing ifive-year
$i2.0 billion credit facility, which was scheduled to expire in December 2023, and our i364-day $i1.0 billion
credit facility, which was scheduled to expire in December 2022. At October 30, 2022, we had ino outstanding borrowings under our commercial paper program, and at January 30, 2022, we had $i1.0
billion of outstanding borrowings under our commercial paper program.
Long-Term Debt
September 2022 Issuance. In September 2022, we issued ithree tranches of senior notes.
•The first tranche consisted of $i750 million
of i4.00% senior notes due September 15, 2025 at a discount of $i0.3 million. Interest on these notes is due semi-annually
on March 15 and September 15 of each year, beginning March 15, 2023.
•The second tranche consisted of $i1.25 billion of i4.50%
senior notes due September 15, 2032 at a discount of $i1 million. Interest on these notes is due semi-annually on March 15 and September 15 of each year, beginning March 15, 2023.
•The
third tranche consisted of $i1.0 billion of i4.95% senior notes due September 15, 2052 at a discount of $i14 million.
Interest on these notes is due semi-annually on March 15 and September 15 of each year, beginning March 15, 2023.
•Issuance costs totaled $i15 million.
March 2022 Issuance. In March 2022, we issued ifour
tranches of senior notes.
•The first tranche consisted of $i500 million of i2.70% senior notes due April
15, 2025 at a discount of $i1 million. Interest on these notes is due semi-annually on April 15 and October 15 of each year, beginning October 15, 2022.
•The second tranche consisted of $i750 million
of i2.875% senior notes due April 15, 2027 at a discount of $i4 million. Interest on these notes is due semi-annually
on April 15 and October 15 of each year, beginning October 15, 2022.
•The third tranche consisted of $i1.25 billion of i3.25%
senior notes due April 15, 2032 at a discount of $i6 million. Interest on these notes is due semi-annually on April 15 and October 15 of each year, beginning October 15, 2022.
•The fourth tranche consisted of $i1.5 billion
of i3.625% senior notes due April 15, 2052 at a discount of $i32 million. Interest on these notes is due semi-annually on April 15 and October 15 of each year, beginning
October 15, 2022.
•Issuance costs totaled $i22 million.
Each of these senior notes may be redeemed by us at any time, in whole or in part, at the redemption price plus accrued interest up to the redemption date. Prior to the Par Call Date, as defined in the notes, the redemption price is equal to the greater of (1) ii100/%
of the principal amount of the notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest to the Par Call Date. On or after the Par Call Date, the redemption price is equal to ii100/%
of the principal amount of the notes. Additionally, if a Change in Control Triggering Event occurs, as defined in the notes, holders of all such notes have the right to require us to redeem those notes at ii101/%
of the aggregate principal amount of the notes plus accrued interest up to the redemption date.
The indenture governing the notes does not generally limit our ability to incur additional indebtedness or require us to maintain financial ratios or specified levels of net worth or liquidity. The indenture governing the notes contains various customary covenants; however, none are expected to impact our liquidity or capital resources.
Repayments. In March 2022, we repaid our $i700 million
i3.25% senior notes and $i300 million floating rate senior notes at maturity. In May 2022, we repaid our $i1.25 billion
i2.625% senior notes, which had a maturity date of June 2022, at the Par Call Date for the notes.
Derivative Instruments and Hedging Activities
We had outstanding interest rate swap agreements with combined notional amounts of $ii5.4/
billion at both October 30, 2022 and January 30, 2022. These agreements are accounted for as fair value hedges that swap fixed for variable rate interest to hedge changes in the fair values of certain senior notes. At October 30, 2022, the fair values of these agreements totaled $i1.0 billion, all of which is recognized
within other long-term liabilities on the consolidated balance sheet. At January 30, 2022, the fair values of these agreements totaled $i191 million, with $i249
million recognized in other long-term liabilities and $i58 million recognized in other assets on the consolidated balance sheet.
All of our interest rate swap agreements designated as fair value hedges meet the shortcut method requirements under GAAP. Accordingly, the changes in the fair values of these agreements offset the changes in the fair value of the hedged long-term debt.
There
were no material changes to the other hedging arrangements disclosed in our 2021 Form 10-K, and all related activity was immaterial for the periods presented within this document.
Collateral. We generally enter into master netting arrangements, which are designed to reduce credit risk by permitting net settlement of transactions with the same counterparty. To further limit our credit risk, we enter into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain derivative instruments exceeds or falls below contractually established thresholds. The cash collateral posted by the Company related to derivative instruments under our collateral security arrangements was $i883
million as of October 30, 2022, which was recorded in other current assets on the consolidated balance sheet. We did not hold any cash collateral as of October 30, 2022, and cash collateral both held and posted was immaterial as of January 30, 2022.
In August 2022, our Board of Directors approved a $i15.0 billion share repurchase authorization that replaced the previous authorization of $i20.0 billion,
which was approved in May 2021. This new authorization does not have a prescribed expiration date. As of October 30, 2022, $i14.0 billion of the $i15.0 billion
share repurchase authorization remained available.
i
The following table presents information about our repurchases of common stock, all of which were completed through open market purchases:
These
amounts may differ from the repurchases of common stock amounts in the consolidated statements of cash flows due to unsettled share repurchases at the end of a period.
6.iFAIR VALUE MEASUREMENTS
The fair value of an asset is considered to be the price at which the asset could be sold in an orderly transaction between unrelated knowledgeable and willing parties.
A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, rather than the amount that would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The levels of the fair value hierarchy are:
•Level 1: observable inputs such as quoted prices in active markets for identical assets or liabilities;
•Level 2: inputs other than quoted prices in active markets in Level 1 that are either directly or indirectly observable; and
•Level 3: unobservable inputs for which little or no market data exists, therefore requiring management judgment to develop the
Company’s own models with estimates and assumptions.
The
fair values of our derivative instruments are determined using an income approach and Level 2 inputs, which include the respective interest rate or foreign currency forward curves and discount rates. Our derivative instruments are discussed further in Note 4.
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
Long-lived assets, goodwill, and other intangible assets are subject to nonrecurring fair value measurement for the assessment of impairment.
During the third quarter of fiscal 2022, we completed our annual assessment of the recoverability of goodwill for our U.S., Canada and Mexico
reporting units based on qualitative factors. We performed a qualitative assessment to determine if there were any indicators of impairment and concluded that while there have been events and circumstances in the macro-environment that have impacted us, we have not experienced any entity-specific indicators that would indicate that it is more likely than not that the fair value of any of our reporting units were less than their carrying amounts. Additionally, during the third quarter of fiscal 2022, we completed our annual assessment of the recoverability of our indefinite-lived intangibles based on quantitative factors and concluded no impairment losses should be recognized.
We did not have any material assets or liabilities that were measured at fair value on a nonrecurring basis during the three and nine months ended October 30, 2022 or October 31,
2021.
Other Fair Value Disclosures
The carrying amounts of cash and cash equivalents, receivables, accounts payable, and short-term debt approximate fair value due to their short-term nature. iThe following table presents the aggregate fair values and carrying values of our senior notes:
Anti-dilutive
securities excluded from diluted weighted average common shares
i1
i—
i1
i—
—————
(1) Represents
the dilutive impact of stock-based awards.
/
8.iCONTINGENCIES
We are involved in litigation arising in the normal course of business. In management’s opinion, any such
litigation is not expected to have a material adverse effect on our consolidated financial condition, results of operations or cash flows.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
The Home Depot, Inc.:
Results of Review of Interim Financial Information
We have reviewed the consolidated balance sheet of The Home Depot, Inc. and subsidiaries (the “Company”) as of October 30, 2022, the related consolidated statements of earnings, comprehensive income, and stockholders’ equity for the three-month and nine-month periods ended October 30, 2022 and October 31, 2021, the related consolidated statements of cash flows for the nine-month periods ended October 30, 2022 and October 31, 2021, and the related notes (collectively, the “consolidated interim financial information”). Based on our reviews, we are not aware of any material modifications
that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company as of January 30, 2022, and the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for the fiscal year then ended (not presented herein); and in our report dated March 23, 2022, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of January 30,
2022, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
Basis for Review Results
This consolidated interim financial information is the responsibility of the Company’s management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our reviews in accordance with the standards of the PCAOB. A review of consolidated interim financial information consists principally of
applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion provides an analysis of the Company’s financial condition and results of operations from management's perspective and should be read in conjunction with the consolidated financial statements and related notes included in this report and in the 2021 Form 10-K and with our MD&A included in the 2021 Form 10-K. Our MD&A includes the following sections:
We reported net sales of $38.9 billion in the third quarter of fiscal 2022. Net earnings were $4.3 billion, or $4.24 per diluted share. For the first nine months of fiscal 2022, net sales were $121.6 billion and net earnings were $13.7 billion, or $13.37 per diluted share.
During the third quarter of fiscal 2022, we opened one new store in the U.S. and two new stores in Mexico, and we had no store closures, resulting in a store count of 2,319 at
the end of the quarter. As of October 30, 2022, a total of 313 stores, or 13.5% of our total store count, were located in Canada and Mexico. For the third quarter of fiscal 2022, sales per retail square foot were $618.50, and for the first nine months of fiscal 2022, sales per retail square foot were $646.81. Our inventory turnover ratio was 4.3 times at the end of the third quarter of fiscal 2022, compared to 5.4 times at the end of the third quarter of fiscal 2021. The decrease in our inventory turnover ratio was driven by an increase in average inventory levels during the first nine months of fiscal 2022 resulting from strategic investments to promote higher in-stock levels and pull forward merchandise in response to ongoing global supply chain disruption, as well as continued investment in our new supply chain facilities and carry over of some spring seasonal inventory.
We
generated $10.0 billion of cash flow from operations and issued $6.9 billion of long-term debt, net of discounts, during the first nine months of fiscal 2022. This cash flow, together with cash on hand, was used to fund cash payments of $5.9 billion for dividends and $5.1 billion for share repurchases. In addition, we repaid $2.4 billion of long-term debt and $1.0 billion of net short-term debt and funded $2.2 billion in capital expenditures. In February 2022, we announced a 15% increase in our quarterly cash dividend to $1.90 per share.
Our ROIC for the trailing twelve-month period was 43.3% at the end of the third quarter of fiscal 2022 and 43.9% at the end of the third quarter of fiscal 2021. See the Non-GAAP Financial Measures section below for our definition and calculation of ROIC,
as well as a reconciliation of NOPAT, a non-GAAP financial measure, to net earnings (the most comparable GAAP financial measure).
(2)Average ticket represents the average price paid per transaction and is used by management to monitor the performance of the Company, as it represents a primary driver in measuring sales performance.
(3)Sales
per retail square foot represents annualized sales divided by retail store square footage. Sales per retail square foot is a measure of the efficiency of sales based on the total square footage of our stores and is used by management to monitor the performance of the Company’s retail operations as an indicator of the productivity of owned and leased square footage for these retail operations.
Sales
We assess our sales performance by evaluating both net sales and comparable sales.
Net Sales. Net sales for the third quarter of fiscal 2022 were $38.9 billion, an increase of 5.6% from $36.8 billion for the third quarter of fiscal 2021. The increase in net sales for the third quarter of fiscal 2022 primarily reflected the impact of
positive comparable sales driven by an increase in comparable average ticket, partially offset by a decrease in comparable customer transactions. A stronger U.S. dollar negatively impacted net sales by $132 million in the third quarter of fiscal 2022.
Online sales, which consist of sales generated through our websites and mobile applications for products picked up at our stores or delivered to customer locations,
represented 13.3% of net sales during the third quarter of fiscal 2022 and grew by 9.6% compared to the third quarter of fiscal 2021. The increase in online sales for the third quarter of fiscal 2022 was a result of customers continuing to leverage our digital platforms and reflects our ongoing investments to enhance these platforms and related fulfillment capabilities, which support our interconnected retail strategy.
Comparable Sales. Comparable sales is a measure that highlights the performance of our existing locations and websites by measuring the change in net sales for a period over the comparable prior period of equivalent length. Comparable sales includes sales at all locations, physical and online, open greater than 52 weeks (including remodels and relocations) and excludes
closed stores. Retail stores become comparable on the Monday following their 52nd week of operation. Acquisitions are typically included in comparable sales after they have been owned for more than 52 weeks. Comparable sales is intended only as supplemental information and is not a substitute for net sales presented in accordance with GAAP.
Total comparable sales for the third quarter of fiscal 2022 increased 4.3%, reflecting an 8.8% increase in comparable average ticket, partially offset by a 4.4% decrease in comparable customer transactions compared to the third quarter of fiscal 2021. The increase in comparable average ticket was primarily driven by inflation, as well as demand for new and innovative products. The decrease in comparable customer transactions reflects the impact of macroeconomic factors including the broader inflationary
environment.
During the third quarter of fiscal 2022, 11 of our 14 merchandising departments posted positive comparable sales compared to the third quarter of fiscal 2021, led by Building Materials, Plumbing, Lumber, Millwork, Paint, and Hardware, which posted comparable sales above the Company average. Our Appliances, Flooring, and Indoor Garden departments posted negative comparable sales.
Gross Profit
Gross profit for the third quarter of fiscal 2022 increased 5.3% to $13.2 billion from $12.6 billion for the third quarter of fiscal 2021. Gross profit as a percentage of net sales, or gross profit margin, was 34.0% for the third quarter of fiscal 2022 compared to 34.1% for the third quarter of fiscal 2021. The decrease in gross
profit margin during the third quarter of fiscal 2022 was primarily driven by investments in our supply chain network and higher product and transportation costs, offset by the benefit from higher retail prices.
Operating Expenses
Our operating expenses are composed of SG&A and depreciation and amortization.
Selling, General & Administrative. SG&A for the third quarter of fiscal 2022 increased $300 million, or 4.9%, to $6.5 billion from $6.2 billion for the third quarter of fiscal 2021. As a percentage of net sales, SG&A was 16.6% for the third quarter of fiscal 2022 compared to 16.8% for the third quarter of fiscal 2021, primarily reflecting leverage from a positive comparable sales environment and lower incentive compensation, partially offset by
wage investments for hourly associates and increased operational costs, including investments designed to drive efficiencies in our stores.
Depreciation and Amortization. Depreciation and amortization for the third quarter of fiscal 2022 increased $8 million, or 1.3%, to $608 million from $600 million for the third quarter of fiscal 2021. As a percentage of net sales, depreciation and amortization was 1.6% for the third quarter of both fiscal 2022 and fiscal 2021, primarily reflecting leverage from a positive comparable sales environment, offset by increased depreciation expense from strategic investments in the business.
Interest and Other, net
Interest and other, net, was $406 million for the third quarter of fiscal 2022 compared to $326 million for the third quarter of fiscal 2021. Interest
and other, net, as a percentage of net sales was 1.0% for the third quarter of fiscal 2022 compared to 0.9% for the third quarter of fiscal 2021, primarily reflecting higher interest expense due to higher debt balances and increased variable rate interest from our interest rate swaps during the third quarter of fiscal 2022, partially offset by leverage from a positive comparable sales environment.
Provision for Income Taxes
Our combined effective income tax rate was 24.4% for the third quarter of fiscal 2022 compared to 24.5% for the third quarter of fiscal 2021.
Diluted earnings per share were $4.24 for the third quarter of fiscal 2022 compared to $3.92 for the third quarter of fiscal 2021. The increase in diluted earnings per share was driven by higher net earnings during the third quarter of fiscal 2022, as well as lower diluted shares due to share repurchases.
FISCAL 2022 AND FISCAL 2021 NINE MONTH COMPARISONS
(2)Average ticket represents the average price paid per transaction and is used by management to monitor the performance of the Company, as it represents a primary driver in measuring sales performance.
(3)Sales
per retail square foot represents annualized sales divided by retail store square footage. Sales per retail square foot is a measure of the efficiency of sales based on the total square footage of our stores and is used by management to monitor the performance of the Company’s retail operations as an indicator of the productivity of owned and leased square footage for these retail operations.
Sales
We assess our sales performance by evaluating both net sales and comparable sales.
Net Sales. Net sales for the first nine months of fiscal 2022 were $121.6 billion, an increase of 5.3% from $115.4 billion for the first nine months of fiscal 2021. The increase in net sales for the first nine months of fiscal 2022 primarily reflected
the impact of positive comparable sales driven by an increase in comparable average ticket, partially offset by a decrease in comparable customer transactions. A stronger U.S. dollar negatively impacted net sales by $284 million for the first nine months of fiscal 2022.
Online sales, which consist of sales generated through our websites and mobile applications for products picked up in our stores or delivered to
customer locations, represented 13.8% of net sales during the first nine months of fiscal 2022 and grew by 8.4% compared to the first nine months of fiscal 2021. The increase in online sales for the first nine months of fiscal 2022 was a result of customers continuing to leverage our digital platforms and reflects our ongoing investments to enhance these platforms and related fulfillment capabilities, which support our interconnected retail strategy.
Comparable Sales. Total comparable sales for the first nine months of fiscal 2022 increased 4.2%, reflecting a 9.7% increase in comparable average ticket, partially offset by a 5.3% decrease in comparable customer transactions compared to the first nine months of fiscal 2021. The increase in comparable average ticket was primarily driven by inflation, as well as demand for new and innovative products. The decrease in comparable customer transactions reflects
the impact of macroeconomic factors including the broader inflationary environment, as well as cycling favorable weather and government stimulus during the first nine months of fiscal 2021.
During the first nine months of fiscal 2022, 11 of our 14 merchandising departments posted positive comparable sales when compared to the first nine months of fiscal 2021, led by Building Materials, Plumbing, Millwork, Paint, Hardware, and Kitchen and Bath, which posted comparable sales above the Company average. Our Indoor Garden, Outdoor Garden and Appliances departments posted negative comparable sales.
Gross Profit
Gross profit for the first nine months of fiscal 2022 increased 4.8% to $40.9 billion from $39.0 billion for the first nine months of fiscal 2021. Gross
profit as a percentage of net sales, or gross profit margin, was 33.6% for the first nine months of fiscal 2022 compared to 33.8% for the first nine months of fiscal 2021. The decrease in gross profit margin during the first nine months of fiscal 2022 was primarily driven by investments in our supply chain network and higher product and transportation costs, offset by the benefit from higher retail prices.
Operating Expenses
Our operating expenses are composed of SG&A and depreciation and amortization.
Selling, General & Administrative. SG&A for the first nine months of fiscal 2022 increased $760 million, or 4.0% to $19.7 billion from $19.0 billion for the first nine months of fiscal 2021. As a percentage of net sales, SG&A was 16.2% for the first nine months of fiscal 2022
compared to 16.4% for the first nine months of fiscal 2021, primarily reflecting leverage from a positive comparable sales environment and lower incentive compensation, partially offset by wage investments for hourly associates and increased operational costs, including investments designed to drive efficiencies in our stores.
Depreciation and Amortization. Depreciation and amortization for the first nine months of fiscal 2022 increased $50 million, or 2.8% to $1.8 billion. As a percentage of net sales, depreciation and amortization was 1.5% for the first nine months of both fiscal 2022 and fiscal 2021, reflecting leverage from a positive comparable sales environment, offset by increased depreciation expense from strategic investments in the business.
Interest and Other, net
Interest
and other, net for the first nine months of fiscal 2022 was $1.2 billion compared to $980 million for the first nine months of fiscal 2021. Interest and other, net, as a percentage of net sales was 0.9% for the first nine months of fiscal 2022 and 0.8% for the first nine months of fiscal 2021, primarily reflecting higher interest expense due to higher debt balances and increased variable rate interest from our interest rate swaps during the first nine months of fiscal 2022, partially offset by leverage from a positive comparable sales environment.
Provision for Income Taxes
Our combined effective income tax rate was 24.2% for the first nine months of fiscal 2022 compared to 24.1% for the first nine months of fiscal 2021.
Diluted Earnings per Share
Diluted earnings per share were $13.37 for
the first nine months of fiscal 2022, compared to $12.31 for the first nine months of fiscal 2021. The increase in diluted earnings per share was driven by higher net earnings during the first nine months of fiscal 2022, as well as lower diluted shares due to share repurchases.
To provide clarity on our operating performance, we supplement
our reporting with certain non-GAAP financial measures. However, this supplemental information should not be considered in isolation or as a substitute for the related GAAP measures. Non-GAAP financial measures presented herein may differ from similar measures used by other companies.
Return on Invested Capital
We believe ROIC is meaningful for investors and management because it measures how effectively we deploy our capital base. We define ROIC as NOPAT, a non-GAAP financial measure, for the most recent twelve-month period, divided by average debt and equity. We define average debt and equity as the average of beginning and ending long-term debt (including current installments) and equity for the most recent twelve-month period.
The following table presents the calculation of ROIC, together with a reconciliation of NOPAT to net earnings
(the most comparable GAAP measure):
(1)Income tax adjustment is defined as operating income multiplied by our effective tax rate for the trailing twelve months.
LIQUIDITY
AND CAPITAL RESOURCES
At October 30, 2022, we had $2.5 billion in cash and cash equivalents, of which $719 million was held by our foreign subsidiaries. We believe that our current cash position, cash flow generated from operations, funds available from our commercial paper program, and access to the long-term debt capital markets should be sufficient not only for our operating requirements, any required debt payments, and satisfaction of other contractual obligations, but also to enable us to invest in the business, fund dividend payments, and fund any share repurchases through the next several fiscal years. In addition, we believe that we have the ability to obtain alternative sources of financing, if necessary.
Our material cash requirements
include contractual and other obligations arising in the normal course of business. These obligations primarily include long-term debt and related interest payments, operating and finance lease obligations, and purchase obligations.
In addition to our cash requirements, we follow a disciplined approach to capital allocation. This approach first prioritizes investing in the business, followed by paying dividends, with the intent of then returning excess cash to shareholders in the form of share repurchases. For fiscal 2022, we plan to invest approximately $3 billion back into the business in the form of capital expenditures, in line with our expectation of approximately two percent of net sales on an annual basis. However, we may adjust our capital expenditures to support the operations of the business, to enhance long-term strategic positioning, or in response to the economic environment, as necessary or appropriate.
In
February 2022, we announced a 15% increase in our quarterly cash dividend from $1.65 to $1.90 per share. During the first nine months of fiscal 2022, we paid cash dividends of $5.9 billion to shareholders. We intend to pay a dividend in the future; however, any future dividend is subject to declaration by our Board of Directors based on our earnings, capital requirements, financial condition, and other factors considered relevant by our Board of Directors.
In August 2022, our Board of Directors approved a $15.0 billion share repurchase authorization
that replaced the previous authorization of $20.0 billion, which was approved in May 2021. This new authorization does not have a prescribed expiration date. As of October 30, 2022, approximately $14.0 billion of the $15.0 billion share repurchase authorization remained available. During the first nine months of fiscal 2022, we had cash payments of $5.1 billion for repurchases of our common stock through open market purchases.
DEBT
In July 2022, we expanded our commercial paper program from $3.0 billion to $5.0 billion to further enhance our financial flexibility. All of our short-term borrowings in the first nine months of fiscal 2022 were under our commercial paper program, and the maximum amount outstanding at any time was $2.7 billion. In connection with our program, we have back-up credit facilities with a consortium of banks.
In July 2022, we also expanded the borrowing capacity under these back-up facilities from $3.0 billion to $5.0 billion, by entering into a five-year $3.5 billion credit facility scheduled to expire in July 2027 and a 364-day $1.5 billion credit facility scheduled to expire in July 2023. These facilities replaced our previously existing five-year $2.0 billion credit facility, which was scheduled to expire in December 2023, and our 364-day $1.0 billion credit facility, which was scheduled to expire in December 2022. At October 30, 2022, we had no outstanding borrowings under our commercial paper program, and we were in compliance with all of the covenants contained in our credit facilities, none of which are expected to impact our liquidity or capital resources.
We also issue senior notes from time to time as part of our capital management strategy. In March 2022, we issued $4.0
billion of senior notes. The net proceeds from this issuance were used for general corporate purposes, including repayment of outstanding indebtedness and repurchases of shares of our common stock. In September 2022, we issued $3.0 billion of senior notes. The net proceeds from this issuance are being used for general corporate purposes, including repurchases of shares of our common stock. During the first nine months of fiscal 2022, we repaid an aggregate of $2.25 billion of senior notes.
The indentures governing our senior notes do not generally limit our ability to incur additional indebtedness or require us to maintain financial ratios or specified levels of net worth or liquidity. The indentures governing our notes contain various customary covenants;
however, none are expected to impact our liquidity or capital resources. See Note 4 to our consolidated financial statements for further discussion of our debt arrangements.
CASH FLOWS SUMMARY
Operating Activities
Cash flow generated from operations provides us with a significant source of liquidity. Our operating cash flows result primarily from cash received from our customers, offset by cash payments we make for products and services, associate compensation, operations, occupancy costs, and income taxes. Cash provided by or used in operating activities is also subject to changes in working capital. Working capital at any point in time is subject to many variables, including
seasonality, inventory management and category expansion, the timing of cash receipts and payments, vendor payment terms, and fluctuations in foreign exchange rates.
Net cash provided by operating activities decreased by $3.4 billion in the first nine months of fiscal 2022 compared to the first nine months of fiscal 2021, primarily driven by changes in working capital, slightly offset by an increase in net earnings. Working capital was impacted by higher merchandise inventories and reduced inventory turnover, timing of vendor payments, and decreases in deferred revenue in fiscal 2022. Our inventory position reflects the impact of inflation, along with strategic investments to promote higher in-stock levels and pull forward merchandise in response to ongoing global supply chain disruption, as well as continued investment in our new supply chain facilities and carry over of some spring seasonal inventory.
Investing
Activities
Cash used in investing activities increased by $113 million in the first nine months of fiscal 2022 compared to the first nine months of fiscal 2021, primarily resulting from increased capital expenditures, partially offset by cash paid for an acquired business during the first nine months of fiscal 2021.
Cash used in financing
activities in the first nine months of fiscal 2022 primarily reflected $5.9 billion of cash dividends paid, $5.1 billion of share repurchases, $2.4 billion of repayments of long-term debt, and $1.0 billion of net repayments of short-term debt, partially offset by $6.9 billion of net proceeds from long-term debt. Cash used in financing activities in the first nine months of fiscal 2021 primarily reflected $10.4 billion of share repurchases, $5.3 billion of cash dividends paid, and $1.5 billion of repayments of long-term debt, partially offset by $3.0 billion of net proceeds from long-term debt.
CRITICAL ACCOUNTING POLICIES
During the first nine months of fiscal 2022, there were no changes to our critical accounting policies as disclosed in the 2021 Form 10-K. Refer
to Note 1 to our consolidated financial statements for further discussion regarding our significant accounting policies.
ADDITIONAL INFORMATION
For information on accounting pronouncements that have impacted or are expected to materially impact our consolidated financial condition, results of operations or cash flows, see Note 1 to our consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Our
exposure to market risk results primarily from fluctuations in interest rates in connection with our long-term debt portfolio. We are also exposed to risks from foreign currency exchange rate fluctuations on the translation of our foreign operations into U.S. dollars and on the purchase of goods by these foreign operations that are not denominated in their local currencies. Additionally, we may experience inflation and deflation related to our purchase of certain commodity products. There have been no material changes to our exposure to market risks, including the types of instruments we use to manage our exposure to such risks, from those disclosed in the 2021 Form 10-K.
Item 4. Controls and Procedures.
Under the direction and with the participation of our Chief
Executive Officer and Chief Financial Officer, we evaluated our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) and concluded that our disclosure controls and procedures were effective as of October 30, 2022.
We are in the process of an ongoing business transformation initiative, which includes upgrading and migrating certain accounting and finance systems. We plan to continue to migrate additional business processes over the course of the next few years and have modified and will continue to modify the design and implementation of certain internal control processes as the transformation continues.
Except as described above, there were no other changes in our internal control over financial reporting during the fiscal quarter ended October 30,
2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the factors discussed under Part I, Item 1A, “Risk Factors” and elsewhere in the 2021 Form 10-K. These risks and uncertainties could materially and adversely affect our business, consolidated financial condition, results of operations, or cash flows. Our operations could also be affected by additional factors that are
not presently known to us or by factors that we currently do not consider material to our business. There have been no material changes in the risk factors discussed in the 2021 Form 10-K.
(1)These
amounts include repurchases pursuant to our Omnibus Stock Incentive Plan, as Amended and Restated May 19, 2022, and our 1997 Omnibus Stock Incentive Plan (collectively, the “Plans”). Under the Plans, participants may surrender shares as payment of applicable tax withholding on the vesting of restricted stock. Participants in the Plans may also exercise stock options by surrendering shares of common stock that the participants already own as payment of the exercise price. Shares so surrendered by participants in the Plans are repurchased pursuant to the terms of the Plans and applicable award agreement and not pursuant to publicly announced share repurchase programs.
(2)On August 18, 2022, our Board of Directors approved a $15.0 billion share repurchase authorization that replaced the previous authorization
of $20.0 billion, which was approved on May 20, 2021. This new authorization does not have a prescribed expiration date.
SALES OF UNREGISTERED SECURITIES
During the third quarter of fiscal 2022, we issued 579 deferred stock units under The Home Depot, Inc. Nonemployee Directors’ Deferred Stock Compensation Plan pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act and Rule 506 of the SEC’s Regulation D thereunder. The deferred stock units were credited during the third quarter of fiscal 2022 to the accounts of those non-employee directors who elected to receive all or a portion of board retainers in the form of deferred stock units instead of cash. The deferred stock units convert to shares of common stock on a one-for-one basis following a termination of service
as described in this plan.
During the third quarter of fiscal 2022, we credited 1,108 deferred stock units to participant accounts under the Restoration Plan pursuant to an exemption from the registration requirements of the Securities Act for involuntary, non-contributory plans. The deferred stock units convert to shares of common stock on a one-for-one basis following a termination of service as described in this plan.
Exhibits marked with an asterisk (*) are incorporated by reference to exhibits or appendices previously filed with the SEC, as indicated by the references in brackets. All other exhibits are filed or furnished herewith.
XBRL Instance Document - the instance document does not appear in the Interactive Data file because its XBRL tags are embedded within
the Inline XBRL document
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.