The Home Depot, Inc is an American home improvement chain based in Atlanta. It operates 2,284 DIY stores (as of April 2018) in North America (USA, Canada, Mexico, Puerto Rico) and claims to be the largest DIY store chain in the world. The company has over 400,000 employees.
The Home Depot also owns home improvement stores and user stores, such as the EXPO Design Center, Landscape Supply Garden Center, and a number of specialized stores.
The company was founded in Atlanta in 1978 by Bernie Marcus and Arthur Blank. It grew rapidly, with annual sales of $1 billion in 1986. In fiscal 2017, sales were $ 100.9 billion.
UNITED STATESSECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended October 29, 2000
-OR -
For the transition period from to
Commission file number 1-8207
THE HOME DEPOT, INC.
(Exact name of registrant as specified in its charter)
(770) 433-8211
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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. Yes /x/ No / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
$.05 par value 2,321,275,452 Shares, as of November 17, 2000
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THE HOME DEPOT, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
October 29, 2000
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In Millions, Except Per Share Data)
See accompanying notes to consolidated condensed financial statements.
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CONSOLIDATED CONDENSED BALANCE SHEETS
(In Millions, Except Share Data)
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
Basis of Presentation—The accompanying consolidated condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles 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. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended January 30, 2000, as filed with the Securities and Exchange Commission (File No. 1-8207).
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The data below reflects selected sales data, the percentage relationship between sales and major categories in the Consolidated Statements of Earnings and the percentage change in the dollar amounts of each of the items.
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FORWARD-LOOKING STATEMENTS
Certain written and oral statements made by The Home Depot, Inc. and subsidiaries (the "Company") or with the approval of an authorized executive officer of the Company may constitute "forward-looking statements" as defined under the Private Securities Litigation Reform Act of 1995. Words or phrases such as "should result," "are expected to," "we anticipate," "we estimate," "we project" or similar expressions are intended to identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company's historical experience and its present expectations or projections. These risks and uncertainties include, but are not limited to, unanticipated weather conditions, stability of costs and availability of sourcing channels, our ability to attract, train and retain highly-qualified associates, conditions affecting the availability, acquisition, development and ownership of real estate, general economic conditions, the impact of competition, and regulatory and litigation matters. Caution should be taken not to place undue reliance on any such forward-looking statements, since such statements speak only as of the date of the making of such statements. Additional information concerning these risks and uncertainties is contained in the Company's filings with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K for the year ended January 30, 2000.
RESULTS OF OPERATIONS
Sales for the third quarter of fiscal 2000 increased 16.9% to $11.545 billion from $9.877 billion for the third quarter of fiscal 1999. For the first nine months of fiscal 2000, sales increased 20.6% to $35.275 billion from $29.260 billion for the comparable period in fiscal 1999. The sales increase for both periods was primarily attributable to new stores (1,064 stores open at the end of the third quarter of fiscal 2000 compared with 878 at the end of the third quarter of fiscal 1999) and a comparable store-for-store sales increase of 4% for the third fiscal quarter and 6% for the first nine months of fiscal 2000. Sales for the third quarter of fiscal 2000 were unfavorably impacted by price deflation in lumber and certain building material products as well as higher customer demand last year for certain product categories resulting from Y2K and Hurricane Floyd.
Gross profit as a percent of sales was 29.9% for the third quarter of fiscal 2000 compared with 29.3% for the third quarter of fiscal 1999. For the first nine months of fiscal 2000, gross profit as a percent of sales was 29.7% compared with 29.0% for the comparable period of fiscal 1999. The gross profit rate increase for both periods was primarily attributable to the ongoing benefits of product line reviews, which have resulted in lower costs of merchandise and more effective product assortments, reduced sales penetrations of lower margin lumber sales and the continued roll-out of tool rental centers. At the end of the third quarter of fiscal 2000, the Company was operating 281 tool rental centers compared to 112 at the end of the third quarter of fiscal 1999. In addition, cost reductions have been realized through direct sourcing of import products. These favorable impacts were partially offset by increased sales penetrations of appliances, which typically carry a lower margin rate, as well as by increases in energy-related product and transportation costs.
Total operating expenses as a percent of sales were 20.8% for the third quarter of fiscal 2000 compared with 19.8% for the third quarter of fiscal 1999. For the first nine months of fiscal 2000, operating expenses totaled 20.0% compared with 19.2% for the first nine months of fiscal 1999.
Selling and store operating expenses as a percent of sales were 18.7% for the third quarter of fiscal 2000 compared to 17.8% for the same period in 1999. The increase was primarily attributable to higher store selling payroll expenses resulting primarily from continued market wage pressures, partially offset by an increase in productivity as measured by sales per labor hour. The addition of tool rental centers also increased payroll costs, but improved gross margin and return on sales. In addition,
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medical insurance costs were higher during the third quarter of fiscal 2000 compared to the same period of fiscal 1999 due to higher enrollment in the Company's medical plans and the continued inflation of healthcare costs. Also contributing to the increase were higher delivery expenses related to the professional business customer initiative, which is now in 148 stores this year versus 25 at the end of the third quarter of fiscal 1999. Finally, increases in property taxes, property rent and utilities were due to new store growth and energy rate increases. Selling and store operating expenses as a percent of sales were 17.9% for the first nine months of fiscal 2000 compared to 17.3% for the first nine months of fiscal 1999. This increase was primarily due to the reasons stated above.
Pre-opening expenses as a percent of sales were 0.3% for all comparable periods during the third quarter and first nine months of both fiscal 2000 and fiscal 1999. The Company opened 52 stores and reopened one store during the third quarter of fiscal 2000 compared with 30 new stores and two store reopenings during the third quarter of fiscal 1999. General and administrative expenses as a percent of sales were 1.8% for the third quarter of fiscal 2000 compared to 1.7% for the third quarter of fiscal 1999. For the first nine months of fiscal 2000, general and administrative expenses as a percent of sales were 1.8% compared to 1.6% for the same period in fiscal 1999. The increase for both periods was related to incremental expenses associated with long-term growth and strategic initiatives, including e-commerce, international expansion and the opening of four new divisional offices during the fourth quarter of fiscal 1999.
Net interest income as a percent of sales was 0.1% for the third quarter and first nine months of fiscal 2000 compared to 0.0% for the third quarter and first nine months of fiscal 1999. As a percent of sales, interest and investment income was 0.1% for all comparable periods of both fiscal 2000 and fiscal 1999. Interest expense as a percent of sales was 0.0% for the third quarter and first nine months of fiscal 2000 compared to 0.1% for the third quarter and first nine months of fiscal 1999. The decrease was primarily due to higher capitalized interest resulting from a larger percentage of owned stores under construction.
The Company's combined federal and state effective income tax rate decreased to 38.8% for the third quarter and first nine months of fiscal 2000 from 39.2% for the comparable periods of fiscal 1999. The decrease was attributable to higher tax credits for the first nine months of fiscal 2000 compared to the same period in fiscal 1999.
Net earnings as a percent of sales decreased to 5.6% for the third quarter of fiscal 2000, from 5.8% for the third quarter of fiscal 1999. For the first nine months of fiscal 2000 and fiscal 1999, net earnings as a percent of sales was 6.0%. The decrease as a percent of sales for the third quarter of fiscal 2000 was primarily attributable to higher operating expenses, which were partially offset by a higher gross profit rate, as described above.
Diluted earnings per share were $0.28 and $0.90 for the third quarter and first nine months of fiscal 2000, respectively, compared to $0.25 and $0.75 for the third quarter and first nine months of fiscal 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow generated from store operations provides the Company with a significant source of liquidity. Additionally, a significant portion of the Company's inventory is financed under vendor credit terms. During the first nine months of fiscal 2000, the Company opened 134 stores, relocated three stores and temporarily closed one store, which reopened on the same site during the third quarter of fiscal 2000. During the remainder of fiscal 2000, the Company plans to open approximately 69 new
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stores and relocate four stores, a total of 203 stores for the year. It is anticipated that approximately 83% of the fourth quarter locations will be owned, and the remainder will be leased.
The Company has two operating lease agreements totaling $882 million for the purpose of financing construction costs of certain new stores. Under the operating lease agreements, the lessor purchases the properties, pays for the construction costs and subsequently leases the facilities to the Company. The leases provide for substantial residual value guarantees and include purchase options at original cost on each property. The Company financed a portion of its new stores in fiscal 1997, 1998 and 1999, as well as office buildings in fiscal 1999 and 2000, under the operating lease agreements and anticipates utilizing these facilities to finance selected new stores in fiscal 2000. In addition, some stores opening during fiscal 2000 will be leased individually, and it is expected that many locations may be obtained through the acquisition of land parcels and construction or purchase of buildings. The cost of new stores to be constructed and owned by the Company varies widely, principally due to land costs, and is expected to average approximately $14.0 million per location. The cost to remodel and/or fixture stores to be leased is expected to average approximately $4.5 million per store. In addition, each new store is projected to require approximately $3.4 million to finance inventories, net of vendor financing.
During fiscal 1999, the Company issued $500 million of 61/2% Senior Notes ("Senior Notes"). The Senior Notes are due on September 15, 2004, and pay interest semi-annually on March 15 and September 15 of each year. The Senior Notes may be redeemed by the Company at any time, in whole or in part, at a defined redemption price plus accrued interest. The net proceeds from the offering were used to finance a portion of the Company's capital expenditure program, including store expansions and renovations, for working capital needs and for general corporate purposes.
The Company has a commercial paper program that allows borrowings up to a maximum of $800 million. As of October 29, 2000, there were no borrowings outstanding under the program. In connection with the program, the Company has a back-up credit facility with a consortium of banks for up to $800 million. The credit facility, which expires in September 2004, contains various restrictive covenants, none of which is expected to impact the Company's liquidity or capital resources.
As of October 29, 2000, the Company had $284 million in cash and cash equivalents. Management believes that its current cash position, the proceeds from short-term investments, internally generated funds, funds available from its $800 million commercial paper program and the ability to obtain alternate sources of financing should enable the Company to complete its capital expenditure programs, including store openings and renovations, through the next several fiscal years.
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IMPACT OF INFLATION AND CHANGING PRICES
Although the Company cannot accurately determine the precise effect of inflation on its operations, it does not believe inflation has had a material effect on sales or results of operations.
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SIGNATURES
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.
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INDEX TO EXHIBITS
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