HOME DEPOT, INC.
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)
For the quarterly period ended
August 1, 2021
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)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||||||||
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| (Address of principal executive offices) | (Zip Code) | |||||||||||||||||||
(
770
)
433-8211
(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 | |||||||||||||||
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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
☒
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).
Yes
☒
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.
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
☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
TABLE OF CONTENTS
| Item 1. | ||||||||
| Item 2. | ||||||||
| Item 3. | ||||||||
| Item 4. | ||||||||
| Item 1A. | ||||||||
| Item 2. | ||||||||
| Item 6. | ||||||||
i
COMMONLY USED OR DEFINED TERMS
| Term | Definition | |||||||
| ASU | Accounting Standards Update | |||||||
| Comparable sales | ||||||||
| Exchange Act | Securities Exchange Act of 1934, as amended | |||||||
| FASB | Financial Accounting Standards Board | |||||||
| fiscal 2020 | Fiscal year ended January 31, 2021 | |||||||
| fiscal 2021 | Fiscal year ending January 30, 2022 | |||||||
| GAAP | U.S. generally accepted accounting principles | |||||||
| HD Supply | HD Supply Holdings, Inc. | |||||||
| MD&A | Management's Discussion and Analysis of Financial Condition and Results of Operations | |||||||
| MRO | Maintenance, repair and operations | |||||||
| NOPAT | Net operating profit after tax | |||||||
| Restoration Plan | Home Depot FutureBuilder Restoration Plan | |||||||
| ROIC | Return on invested capital | |||||||
| SEC | Securities and Exchange Commission | |||||||
| Securities Act | Securities Act of 1933, as amended | |||||||
| SG&A | Selling, general and administrative | |||||||
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2020 Form 10-K
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Annual Report on Form 10-K for fiscal 2020 as filed with the SEC on March 24, 2021
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ii
FORWARD-LOOKING STATEMENTS
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 future performance 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; effects of competition; our brand and reputation; implementation of store, interconnected retail, supply chain and technology initiatives; inventory and in-stock positions; state of the economy; state of the housing and home improvement markets; 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, suppliers and service providers; international trade disputes, natural disasters, public health issues (including pandemics and quarantines, related shut-downs and other governmental orders, and similar restrictions, as well as subsequent re-openings), and other business interruptions that could disrupt supply or delivery of, or demand for, the Company’s products or services; 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; 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, 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, including HD Supply, 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 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 as also 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 in this report, 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 periodic filings with the SEC and in our other public statements.
iii
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
THE HOME DEPOT, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
| in millions, except per share data |
August 1,
2021 |
January 31,
2021 |
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| Assets | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ |
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$ |
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| Receivables, net |
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| Merchandise inventories |
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| Other current assets |
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| Total current assets |
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Net property and equipment
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| Operating lease right-of-use assets |
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| Goodwill |
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| Other assets |
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| Total assets | $ |
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$ |
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| Liabilities and Stockholders' Equity | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ |
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$ |
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| Accrued salaries and related expenses |
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| Sales taxes payable |
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| Deferred revenue |
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| Current installments of long-term debt |
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| Current operating lease liabilities |
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| Other accrued expenses |
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| Total current liabilities |
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| Long-term debt, excluding current installments |
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| Long-term operating lease liabilities |
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| Other long-term liabilities |
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| Total liabilities |
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Common stock, par value $
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| Paid-in capital |
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| Retained earnings |
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| Accumulated other comprehensive loss |
(
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(
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Treasury stock, at cost,
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(
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(
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| Total stockholders’ equity |
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Total liabilities and stockholders’ equity
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
1
THE HOME DEPOT, INC.
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| in millions, except per share data |
August 1,
2021 |
August 2,
2020 |
August 1,
2021 |
August 2,
2020 |
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| Net sales | $ |
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$ |
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$ |
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$ |
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| Cost of sales |
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| Gross profit |
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| Operating expenses: | |||||||||||||||||||||||
| Selling, general and administrative |
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| Depreciation and amortization |
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| Total operating expenses |
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| Operating income |
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| Interest and other (income) expense: | |||||||||||||||||||||||
| Interest and investment income |
(
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(
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(
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(
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| Interest expense |
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| Interest and other, net |
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| Earnings before provision for income taxes |
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| Provision for income taxes |
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| Net earnings | $ |
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$ |
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$ |
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$ |
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| Basic weighted average common shares |
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| Basic earnings per share | $ |
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$ |
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$ |
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$ |
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| Diluted weighted average common shares |
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| Diluted earnings per share | $ |
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$ |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
2
THE HOME DEPOT, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| in millions |
August 1,
2021 |
August 2,
2020 |
August 1,
2021 |
August 2,
2020 |
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| Net earnings | $ |
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$ |
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$ |
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$ |
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| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Foreign currency translation adjustments |
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(
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| Cash flow hedges |
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| Other |
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(
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| Total other comprehensive income (loss) |
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(
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| Comprehensive income | $ |
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$ |
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$ |
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$ |
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See accompanying notes to consolidated financial statements.
3
THE HOME DEPOT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| in millions |
August 1,
2021 |
August 2,
2020 |
August 1,
2021 |
August 2,
2020 |
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| Common Stock: | |||||||||||||||||||||||
| Balance at beginning of period | $ |
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$ |
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$ |
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$ |
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| Shares issued under employee stock plans | — | — |
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— | |||||||||||||||||||
| Balance at end of period |
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| Paid-in Capital: | |||||||||||||||||||||||
| Balance at beginning of period |
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| Shares issued under employee stock plans |
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| Stock-based compensation expense |
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| Balance at end of period |
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| Retained Earnings: | |||||||||||||||||||||||
| Balance at beginning of period |
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| Net earnings |
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Cash dividends
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(
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(
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(
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(
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| Other | — | — | — |
(
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| Balance at end of period |
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| Accumulated Other Comprehensive Income (Loss): | |||||||||||||||||||||||
| Balance at beginning of period |
(
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(
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(
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(
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| Foreign currency translation adjustments, net of tax |
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(
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| Cash flow hedges, net of tax |
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| Other, net of tax | — |
(
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— | |||||||||||||||||||
| Balance at end of period |
(
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(
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(
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(
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| Treasury Stock: | |||||||||||||||||||||||
| Balance at beginning of period |
(
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(
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(
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(
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| Repurchases of common stock |
(
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— |
(
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(
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| Balance at end of period |
(
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(
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(
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(
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| Total stockholders' equity (deficit) | $ |
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$ |
(
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$ |
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$ |
(
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See accompanying notes to consolidated financial statements.
4
THE HOME DEPOT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| Six Months Ended | |||||||||||
| in millions |
August 1,
2021 |
August 2,
2020 |
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| Cash Flows from Operating Activities: | |||||||||||
| Net earnings | $ |
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$ |
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| Reconciliation of net earnings to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization |
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| Stock-based compensation expense |
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| Changes in receivables, net |
(
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(
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| Changes in merchandise inventories |
(
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| Changes in other current assets |
(
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(
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| Changes in accounts payable and accrued expenses |
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| Changes in deferred revenue |
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| Changes in income taxes payable |
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| Changes in deferred income taxes |
(
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| Other operating activities |
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| Net cash provided by operating activities |
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| Cash Flows from Investing Activities: | |||||||||||
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Capital expenditures
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(
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(
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| Payments for businesses acquired, net |
(
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| Other investing activities |
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| Net cash used in investing activities |
(
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(
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| Cash Flows from Financing Activities: | |||||||||||
| Repayments of short-term debt, net |
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(
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| Proceeds from long-term debt, net of discounts and premiums |
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| Repayments of long-term debt |
(
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(
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| Repurchases of common stock |
(
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(
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| Proceeds from sales of common stock |
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Cash dividends
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(
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(
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| Other financing activities |
(
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(
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| Net cash used in financing activities |
(
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(
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| Change in cash and cash equivalents |
(
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| Effect of exchange rate changes on cash and cash equivalents |
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(
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| Cash and cash equivalents at beginning of period |
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| Cash and cash equivalents at end of period | $ |
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$ |
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| Supplemental Disclosures: | |||||||||||
| Cash paid for interest, net of interest capitalized | $ |
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$ |
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| Cash paid for income taxes |
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See accompanying notes to consolidated financial statements.
5
THE HOME DEPOT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements of The Home Depot, Inc. and its subsidiaries (the "Company," "Home Depot," "we," "our" or "us") 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 2020 Form 10-K.
There were no significant changes to our significant accounting policies as disclosed in the 2020 Form 10-K.
Recently Adopted Accounting Pronouncements
ASU No. 2019-12.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes,” as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Amendments include removal of certain exceptions to the general principles of Topic 740, “Income Taxes,” and simplification in several other areas. On February 1, 2021, we adopted ASU No. 2019-12 with no material impact to our consolidated financial condition, results of operations or cash flows.
Recently Issued Accounting Pronouncements
Recent accounting pronouncements pending adoption not discussed above or in the 2020 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.
2.
NET SALES
Net Sales
No sales to an individual customer accounted for more than 10% of our net sales during the three and six months ended August 1, 2021 or August 2, 2020.
The following table presents net sales, classified by geography:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| in millions |
August 1,
2021 |
August 2,
2020 |
August 1,
2021 |
August 2,
2020 |
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Net sales – in the U.S.
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$ |
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$ |
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$ |
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$ |
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Net sales – outside the U.S.
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Net sales
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$ |
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$ |
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$ |
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$ |
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The following table presents net sales by products and services:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| in millions |
August 1,
2021 |
August 2,
2020 |
August 1,
2021 |
August 2,
2020 |
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| Net sales – products | $ |
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$ |
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$ |
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$ |
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| Net sales – services |
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Net sales
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$ |
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$ |
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$ |
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$ |
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The following table presents major product lines and the related merchandising departments (and related services):
| Major Product Line | Merchandising Departments | |||||||
| Building Materials | Building Materials, Electrical/Lighting, Lumber, Millwork, and Plumbing | |||||||
| Décor | Appliances, Décor/Storage, Flooring, Kitchen and Bath, and Paint | |||||||
| Hardlines | Hardware, Indoor Garden, Outdoor Garden, and Tools | |||||||
6
The following table presents net sales by major product lines (and related services):
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| in millions |
August 1,
2021 |
August 2,
2020 |
August 1,
2021 |
August 2,
2020 |
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| Building Materials | $ |
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$ |
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$ |
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$ |
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| Décor |
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| Hardlines |
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| Net sales | $ |
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$ |
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$ |
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$ |
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Deferred Revenue
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 three months or less. As of August 1, 2021 and January 31, 2021, deferred revenue for products and services was $
2.6
billion and $
1.9
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 in net sales, which generally occurs within
six months
of gift card issuance. As of August 1, 2021 and January 31, 2021, our performance obligations for unredeemed gift cards were $
801
million and $
839
million, respectively. 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 six months ended August 1, 2021 and August 2, 2020.
3.
PROPERTY AND LEASES
Net Property and Equipment
Net property and equipment includes accumulated depreciation and amortization of $
25.3
billion as of
August 1, 2021 and $
24.1
billion as of January 31, 2021.
7
Leases
The following table presents the consolidated balance sheet location of assets and liabilities related to operating and finance leases:
| in millions | Consolidated Balance Sheet Caption |
August 1,
2021 |
January 31,
2021 |
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| Assets: | ||||||||||||||
| Operating lease assets | Operating lease right-of-use assets | $ |
|
$ |
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Finance lease assets
(1)
|
Net property and equipment
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| Total lease assets | $ |
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$ |
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| Liabilities: | ||||||||||||||
| Current: | ||||||||||||||
| Operating lease liabilities | Current operating lease liabilities | $ |
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$ |
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| Finance lease liabilities | Current installments of long-term debt |
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| Long-term: | ||||||||||||||
| Operating lease liabilities | Long-term operating lease liabilities |
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| Finance lease liabilities | Long-term debt, excluding current installments |
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| Total lease liabilities | $ |
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$ |
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—————
The following table presents supplemental non-cash information related to leases:
| Six Months Ended | |||||||||||
| in millions |
August 1,
2021 |
August 2,
2020 |
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| Lease assets obtained in exchange for new operating lease liabilities | $ |
|
$ |
|
|||||||
| Lease assets obtained in exchange for new finance lease liabilities |
|
|
|||||||||
4.
STOCKHOLDERS' EQUITY
Stock Rollforward
The following table presents a reconciliation of the number of shares of our common stock and cash dividends per share:
| shares in millions | Three Months Ended | Six Months Ended | |||||||||||||||||||||
|
August 1,
2021 |
August 2,
2020 |
August 1,
2021 |
August 2,
2020 |
||||||||||||||||||||
| Common stock: | |||||||||||||||||||||||
| Balance at beginning of period |
|
|
|
|
|||||||||||||||||||
| Shares issued under employee stock plans |
|
|
|
|
|||||||||||||||||||
| Balance at end of period |
|
|
|
|
|||||||||||||||||||
| Treasury stock: | |||||||||||||||||||||||
| Balance at beginning of period |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Repurchases of common stock |
(
|
|
(
|
(
|
|||||||||||||||||||
| Balance at end of period |
(
|
(
|
(
|
(
|
|||||||||||||||||||
| Shares outstanding at end of period |
|
|
|
|
|||||||||||||||||||
| Cash dividends per share | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
8
Share Repurchases
In May 2021, our Board of Directors approved a $
20.0
billion share repurchase authorization that replaced the previous authorization. This new authorization does not have a prescribed expiration date. As of August 1, 2021, approximately $
17.6
billion of the $
20.0
billion share repurchase authorization remained available.
In March 2020, we suspended our share repurchases to enhance our liquidity position during the COVID-19 pandemic. We resumed share repurchases in the first quarter of fiscal 2021.
The following table presents information about our repurchases of common stock, all of which were completed through open market purchases:
|
in millions
|
Three Months Ended | Six Months Ended | |||||||||||||||||||||
|
August 1,
2021 |
August 2,
2020 |
August 1,
2021 |
August 2,
2020 |
||||||||||||||||||||
| Total number of shares repurchased |
|
|
|
|
|||||||||||||||||||
| Total amount paid for shares repurchased | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
5.
FAIR 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.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents the assets and liabilities that are measured at fair value on a recurring basis:
| Fair Value at August 1, 2021 Using | Fair Value at January 31, 2021 Using | ||||||||||||||||||||||||||||||||||
| in millions |
Quoted Prices in Active Markets for Identical Assets
(Level 1) |
Significant
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
Quoted Prices in Active Markets for Identical Assets
(Level 1) |
Significant
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
|||||||||||||||||||||||||||||
| Derivative agreements – assets | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
| Derivative agreements – liabilities |
|
(
|
|
|
(
|
|
|||||||||||||||||||||||||||||
| Total | $ |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||||||||||
The fair values of our derivative instruments are determined using an income approach and Level 2 inputs, which include the respective interest rate and foreign currency forward curves and discount rates.
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. We did not have any material assets or liabilities that were measured at fair value on a nonrecurring basis during the three and six months ended August 1, 2021 or August 2, 2020.
Other Fair Value Disclosures
The carrying amounts of cash and cash equivalents, receivables and accounts payable approximate fair value due to their short-term nature.
The following table presents the aggregate fair values and carrying values of our senior notes:
|
August 1,
2021 |
January 31,
2021 |
||||||||||||||||||||||
| in millions |
Fair Value
(Level 1) |
Carrying
Value |
Fair Value
(Level 1) |
Carrying
Value |
|||||||||||||||||||
| Senior notes | $ |
|
$ |
|
$ |
|
$ |
|
|||||||||||||||
9
6.
WEIGHTED AVERAGE COMMON SHARES
The following table presents the reconciliation of our basic to diluted weighted average common shares:
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| in millions |
August 1,
2021 |
August 2,
2020 |
August 1,
2021 |
August 2,
2020 |
|||||||||||||||||||
| Basic weighted average common shares |
|
|
|
|
|||||||||||||||||||
| Effect of potentially dilutive securities |
|
|
|
|
|||||||||||||||||||
| Diluted weighted average common shares |
|
|
|
|
|||||||||||||||||||
| Anti-dilutive securities excluded from diluted weighted average common shares |
|
|
|
|
|||||||||||||||||||
7.
COMMITMENTS AND CONTINGENCIES
8.
HD SUPPLY ACQUISITION
On December 24, 2020, we completed the acquisition of HD Supply for total purchase consideration of $
8.7
billion. HD Supply is a leading national distributor of MRO products in the multifamily and hospitality end markets. The acquisition was funded through cash on hand, a portion of which was replaced with the proceeds from our issuance of $
3.0
billion of senior notes in January 2021.
The acquisition was accounted for in accordance with Topic 805 "Business Combinations" and, accordingly, HD Supply’s results of operations have been consolidated in the Company’s financial statements since December 24, 2020, the date of acquisition. We recorded a preliminary allocation of the purchase price to assets acquired and liabilities assumed based on their estimated fair values as of December 24, 2020. There were no material adjustments to our preliminary purchase price allocation recognized during the first six months of fiscal 2021. The final determination of the fair values and related income tax impacts will be completed as soon as practicable, and within the measurement period of up to one year from the acquisition date as permitted under GAAP.
10
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 its subsidiaries (the “Company”) as of August 1, 2021, the related consolidated statements of earnings, comprehensive income, and stockholders’ equity for the three-month and six-month periods ended August 1, 2021 and August 2, 2020, the related consolidated statements of cash flows for the six-month periods ended August 1, 2021 and August 2, 2020, 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 31, 2021, 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 24, 2021, we expressed an unqualified opinion on those consolidated financial statements. Our report referred to a change in the Company’s method of accounting for leases. In our opinion, the information set forth in the accompanying consolidated balance sheet as of January 31, 2021, 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.
/s/ KPMG LLP
Atlanta, Georgia
August 23, 2021
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Our MD&A includes the following sections:
Executive Summary
The following table presents quarter to date and year to date highlights of our financial performance:
| dollars in millions, except per share data | Three Months Ended | Six Months Ended | |||||||||||||||||||||
|
August 1,
2021 |
August 2,
2020 |
August 1,
2021 |
August 2,
2020 |
||||||||||||||||||||
| Net sales | $ | 41,118 | $ | 38,053 | $ | 78,618 | $ | 66,313 | |||||||||||||||
| Net earnings | 4,807 | 4,332 | 8,952 | 6,577 | |||||||||||||||||||
| Diluted earnings per share | $ | 4.53 | $ | 4.02 | $ | 8.38 | $ | 6.11 | |||||||||||||||
| Net cash provided by operating activities | $ | 9,947 | $ | 14,829 | |||||||||||||||||||
| Proceeds from long-term debt, net of discounts and premiums | — | 4,960 | |||||||||||||||||||||
| Repayments of long-term debt | 1,434 | 1,806 | |||||||||||||||||||||
| Repurchases of common stock | 6,905 | 791 | |||||||||||||||||||||
We reported net sales of $41.1 billion in the second quarter of fiscal 2021. Net earnings were $4.8 billion, or $4.53 per diluted share. For the first six months of fiscal 2021, net sales were $78.6 billion and net earnings were $9.0 billion, or $8.38 per diluted share.
We had 2,298 Home Depot retail stores at the end of the second quarter of fiscal 2021. As of August 1, 2021, a total of 310 stores, or 13.5%, were located in Canada and Mexico. For the second quarter of fiscal 2021, sales per retail square foot were $663.05. Our inventory turnover ratio was 5.7 times, compared to 6.1 times for the second quarter of fiscal 2020.
We generated $9.9 billion of cash flow from operations during the first six months of fiscal 2021. This cash flow, together with cash on hand, was used to fund cash payments of $6.9 billion for share repurchases, pay $3.5 billion of dividends, repay an aggregate of $1.4 billion of long-term debt and fund $1.0 billion in capital expenditures. In February 2021, we announced a 10% increase in our quarterly cash dividend to $1.65 per share.
Our ROIC for the trailing twelve-month period was 44.7% at the end of the second quarter of fiscal 2021 and 41.1% at the end of the second quarter of fiscal 2020. 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).
12
Results of Operations and Non-GAAP Financial Measures
The tables and discussion below should be read in conjunction with our consolidated financial statements and related notes included in this report and in the 2020 Form 10-K and with our MD&A included in the 2020 Form 10-K. The following table presents the percentage relationship between net sales and major categories in our consolidated statements of earnings.
Fiscal 2021 and Fiscal 2020 Three Month Comparisons
| Three Months Ended | |||||||||||||||||||||||
|
August 1,
2021 |
August 2,
2020 |
||||||||||||||||||||||
| dollars in millions | $ |
% of
Net Sales |
$ |
% of
Net Sales |
|||||||||||||||||||
| Net sales | $ | 41,118 | $ | 38,053 | |||||||||||||||||||
| Gross profit | 13,665 | 33.2 | % | 12,941 | 34.0 | % | |||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling, general and administrative | 6,433 | 15.6 | 6,355 | 16.7 | |||||||||||||||||||
| Depreciation and amortization | 593 | 1.4 | 519 | 1.4 | |||||||||||||||||||
| Total operating expenses | 7,026 | 17.1 | 6,874 | 18.1 | |||||||||||||||||||
| Operating income | 6,639 | 16.1 | 6,067 | 15.9 | |||||||||||||||||||
| Interest and other (income) expense: | |||||||||||||||||||||||
| Interest and investment income | (5) | — | (9) | — | |||||||||||||||||||
| Interest expense | 326 | 0.8 | 346 | 0.9 | |||||||||||||||||||
| Interest and other, net | 321 | 0.8 | 337 | 0.9 | |||||||||||||||||||
| Earnings before provision for income taxes | 6,318 | 15.4 | 5,730 | 15.1 | |||||||||||||||||||
| Provision for income taxes | 1,511 | 3.7 | 1,398 | 3.7 | |||||||||||||||||||
| Net earnings | $ | 4,807 | 11.7 | % | $ | 4,332 | 11.4 | % | |||||||||||||||
—————
Note: Certain percentages may not sum to totals due to rounding.
| Three Months Ended | |||||||||||||||||||||||
| Selected financial and sales data: |
August 1,
2021 |
August 2,
2020 |
% Change | ||||||||||||||||||||
|
Comparable sales (% change)
(1)
|
4.5 | % | 23.4 | % | N/A | ||||||||||||||||||
|
Comparable customer transactions (% change)
(1) (2)
|
(6.0) | % | 12.3 | % | N/A | ||||||||||||||||||
|
Comparable average ticket (% change)
(1) (2)
|
11.3 | % | 10.1 | % | N/A | ||||||||||||||||||
|
Customer transactions (in millions)
(1) (2)
|
481.7 | 511.5 | (5.8) | % | |||||||||||||||||||
|
Average ticket
(1) (2) (3)
|
$ | 82.48 | $ | 74.12 | 11.3 | % | |||||||||||||||||
|
Sales per retail square foot
(1) (2) (4)
|
$ | 663.05 | $ | 629.38 | 5.3 | % | |||||||||||||||||
|
Diluted earnings per share
|
$ | 4.53 | $ | 4.02 | 12.7 | % | |||||||||||||||||
—————
(1)
Does not include results for HD Supply, which was acquired in December 2020.
(2)
Does not include results for the legacy Interline Brands business.
(3)
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.
(4)
Sales per retail square foot represents annualized sales divided by Home Depot 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 Home Depot stores and is used by management to monitor the performance of the Company’s core 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 second quarter of fiscal 2021 increased 8.1% to $41.1 billion from $38.1 billion for the second quarter of fiscal 2020. The increase in net sales for the second quarter of fiscal 2021 primarily reflected the impact of positive comparable sales driven by an increase in comparable average ticket, offset by a decrease in
13
comparable customer transactions. Online sales, which consist of sales generated online through our websites for products picked up at our stores or delivered to customer locations, represented 13.3% of net sales and were approximately flat during the second quarter of fiscal 2021 compared to the second quarter of fiscal 2020. Online sales grew approximately 100% during the second quarter of fiscal 2020 compared to the second quarter of fiscal 2019, as customers leveraged our digital platforms for their shopping needs during the COVID-19 pandemic. A weaker U.S. dollar positively impacted sales growth by $385 million in the second quarter of fiscal 2021.
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 permanently closed stores. Retail stores become comparable on the Monday following their 52
nd
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 increased 4.5% for the second quarter of fiscal 2021, reflecting an 11.3% increase in comparable average ticket and a 6.0% decrease in comparable customer transactions compared to the second quarter of fiscal 2020. The increase in comparable sales reflected a number of factors, including increased consumer demand and the execution of our strategic efforts to drive an enhanced interconnected shopping experience in both the physical and digital worlds. The second quarter of fiscal 2020 included a significant acceleration in sales growth and strong performance across our departments, driven in part by the increase in demand from the COVID-19 pandemic, resulting in comparable sales performance of 23.4% for the second quarter of fiscal 2020. The decrease in comparable customer transactions was primarily due to lapping comparable transactions of 12.3% that we experienced in the second quarter of fiscal 2020. The increase in comparable average ticket was partially driven by commodity price inflation largely from lumber and an increase in big-ticket transactions.
During the second quarter of fiscal 2021, 10 of our 14 merchandising departments posted positive comparable sales, led by Kitchen and Bath and Lumber. Our Paint, Hardware, Indoor Garden and Outdoor Garden departments had single-digit negative comparable sales in the second quarter of fiscal 2021.
Gross Profit.
Gross profit for the second quarter of fiscal 2021 increased 5.6% to $13.7 billion from $12.9 billion for the second quarter of fiscal 2020. Gross profit as a percentage of net sales, or gross profit margin, was 33.2% for the second quarter of fiscal 2021 compared to 34.0% for the second quarter of fiscal 2020. The decrease in gross profit margin was primarily driven by pressure from product mix, largely driven by both rate and mix pressure from lumber, as well as rising transportation costs, One Supply Chain investments, and lapping a benefit from cancelled events in the second quarter of fiscal 2020. This pressure was partially offset by the benefit from lower markdowns as a result of the strong demand environment during the second quarter of fiscal 2021.
Operating Expenses.
Our operating expenses are composed of SG&A and depreciation and amortization.
Selling, General & Administrative
. SG&A for the second quarter of fiscal 2021 increased $78 million or 1.2% to $6.4 billion from the second quarter of fiscal 2020. As a percentage of net sales, SG&A was 15.6% for the second quarter of fiscal 2021 compared to 16.7% for the second quarter of fiscal 2020. The decrease in SG&A as a percentage of net sales was primarily driven by leverage resulting from a positive comparable sales environment and cycling several COVID-19-related expenses that we incurred during the second quarter of fiscal 2020, including $479 million of additional expenses related to expanded benefits to support our associates and an additional $108 million of operational expenses. Total COVID-19-related expenses were $24 million for the second quarter of fiscal 2021. This operating expense leverage was partially offset by an increase in hourly payroll-related costs resulting from the increased demand environment throughout the second quarter of fiscal 2021, as well as additional expenses from the wage investments we made in the latter part of fiscal 2020.
Depreciation and Amortization
.
Depreciation and amortization increased 14.3% to $593 million for the second quarter of fiscal 2021 from $519 million for the second quarter of fiscal 2020. As a percentage of net sales, depreciation and amortization was 1.4% for the second quarter of both fiscal 2021 and fiscal 2020, primarily reflecting increased depreciation expense from our strategic investments in the business as well as higher intangible asset amortization expense, offset by leverage resulting from a positive comparable sales environment.
Interest and Other, net.
Interest and other, net, was $321 million for the second quarter of fiscal 2021 compared to $337 million for the second quarter of fiscal 2020. Interest and other, net, as a percentage of net sales was 0.8% for the second quarter of fiscal 2021 compared to 0.9% for the second quarter of fiscal 2020. The decrease in interest
14
and other, net, as a percentage of net sales primarily reflected leverage resulting from a positive comparable sales environment as well as lower interest expense resulting from lower interest rates on outstanding debt balances.
Provision for Income Taxes.
Our combined effective income tax rate was 23.9% for the second quarter of fiscal 2021 compared to 24.4% for the second quarter of fiscal 2020.
Diluted Earnings per Share.
Diluted earnings per share were $4.53 for the second quarter of fiscal 2021 compared to $4.02 for the second quarter of fiscal 2020. The increase in diluted earnings per share was primarily driven by the factors discussed above.
Fiscal 2021 and Fiscal 2020 Six Month Comparisons
| Six Months Ended | |||||||||||||||||||||||
|
August 1,
2021 |
August 2,
2020 |
||||||||||||||||||||||
| dollars in millions | $ |
% of
Net Sales |
$ |
% of
Net Sales |
|||||||||||||||||||
| Net sales | $ | 78,618 | $ | 66,313 | |||||||||||||||||||
| Gross profit | 26,407 | 33.6 | % | 22,566 | 34.0 | % | |||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling, general and administrative | 12,807 | 16.3 | 12,184 | 18.4 | |||||||||||||||||||
| Depreciation and amortization | 1,180 | 1.5 | 1,039 | 1.6 | |||||||||||||||||||
| Total operating expenses | 13,987 | 17.8 | 13,223 | 19.9 | |||||||||||||||||||
| Operating income | 12,420 | 15.8 | 9,343 | 14.1 | |||||||||||||||||||
| Interest and other (income) expense: | |||||||||||||||||||||||
| Interest and investment income | (11) | — | (26) | — | |||||||||||||||||||
| Interest expense | 665 | 0.8 | 670 | 1.0 | |||||||||||||||||||
| Interest and other, net | 654 | 0.8 | 644 | 1.0 | |||||||||||||||||||
| Earnings before provision for income taxes | 11,766 | 15.0 | 8,699 | 13.1 | |||||||||||||||||||
| Provision for income taxes | 2,814 | 3.6 | 2,122 | 3.2 | |||||||||||||||||||
| Net earnings | $ | 8,952 | 11.4 | % | $ | 6,577 | 9.9 | % | |||||||||||||||
—————
Note: Certain percentages may not sum to totals due to rounding.
| Six Months Ended | |||||||||||||||||||||||
| Selected financial and sales data: |
August 1,
2021 |
August 2,
2020 |
% Change | ||||||||||||||||||||
|
Comparable sales (% change)
(1)
|
15.8 | % | 15.6 | % | N/A | ||||||||||||||||||
|
Comparable customer transactions (% change)
(1) (2)
|
4.6 | % | 4.7 | % | N/A | ||||||||||||||||||
|
Comparable average ticket (% change)
(1) (2)
|
10.9 | % | 10.5 | % | N/A | ||||||||||||||||||
|
Customer transactions (in millions)
(1) (2)
|
928.9 | 886.3 | 4.8 | % | |||||||||||||||||||
|
Average ticket
(1) (2) (3)
|
$ | 82.43 | $ | 74.37 | 10.8 | % | |||||||||||||||||
|
Sales per retail square foot
(1) (2) (4)
|
$ | 634.30 | $ | 547.94 | 15.8 | % | |||||||||||||||||
|
Diluted earnings per share
|
$ | 8.38 | $ | 6.11 | 37.2 | % | |||||||||||||||||
—————
(1)
Does not include results for HD Supply, which was acquired in December 2020.
(2)
Does not include results for the legacy Interline Brands business.
(3)
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.
(4)
Sales per retail square foot represents annualized sales divided by Home Depot 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 Home Depot stores and is used by management to monitor the performance of the Company’s core retail operations as an indicator of the productivity of owned and leased square footage for these retail operations.
15
Sales.
We assess our sales performance by evaluating both net sales and comparable sales.
Net Sales
. For the first six months of fiscal 2021, net sales increased 18.6% to $78.6 billion from $66.3 billion for the first six months of fiscal 2020. The increase in net sales for the first six months of fiscal 2021 primarily reflected the impact of positive comparable sales driven by an increase in comparable average ticket and comparable customer transactions. The impact of the COVID-19 pandemic and the actions we took in response to it had varying effects on our sales throughout the first six months of fiscal 2020. In the first quarter of fiscal 2020, we reduced store hours, limited customer traffic in stores, canceled certain spring events, and restricted sales and installation of in-home services deemed non-essential, all of which negatively impacted our sales during the first quarter of fiscal 2020. In the second quarter of fiscal 2020, we adopted a more localized approach on limits to the number of customers in stores and expanded store hours while still focusing on promoting a safe shopping environment. During the last three weeks of the first quarter of fiscal 2020, we saw significant acceleration in sales with strong performance across most of our departments, which continued through the second quarter of fiscal 2020, as customers maintained their focus on home improvement projects and repairs. Online sales, which consist of sales generated online through our websites for products picked up in our stores or delivered to customer locations, represented 13.7% of net sales and grew by approximately 12% during the first six months of fiscal 2021 compared to the first six months of fiscal 2020. The increase in online sales for the first six months of fiscal 2021 was driven by customers continuing to leverage our digital platforms for their shopping needs. Online sales grew by approximately 90% in the first six months of fiscal 2020 compared to the first six months of fiscal 2019 as we limited customer traffic in our stores and as customers leveraged our digital platforms for their shopping needs during the COVID-19 pandemic. A weaker U.S. dollar positively impacted sales growth by $542 million for the first six months of fiscal 2021.
Comparable Sales
. For the first six months of fiscal 2021, total comparable sales increased 15.8%, reflecting a 10.9% increase in comparable average ticket and a 4.6% increase in comparable customer transactions compared to the first six months of fiscal 2020. The increase in comparable sales reflected a number of factors, including increased consumer demand and the execution of our strategic efforts to drive an enhanced interconnected experience in both the physical and digital worlds. The increase in comparable average ticket was primarily driven by commodity price inflation largely from lumber and an increase in big-ticket transactions, as well as elevated project demand and stronger demand for new and innovative products. The increase in comparable customer transactions for the first six months of fiscal 2021 was primarily driven by strong customer traffic both physically and digitally.
During the first six months of fiscal 2021, 10 of our 14 merchandising departments posted double-digit positive comparable sales, led by Lumber and Kitchen and Bath. Our Hardware, Indoor Garden and Outdoor Garden departments had single-digit positive comparable sales and our Paint department was approximately flat when compared to the first six months of fiscal 2020.
Gross Profit.
For the first six months of fiscal 2021, gross profit increased 17.0% to $26.4 billion from $22.6 billion for the first six months of fiscal 2020. Gross profit as a percentage of net sales, or gross profit margin, was 33.6% for the first six months of fiscal 2021 compared to 34.0% for the first six months of fiscal 2020, reflecting pressure from product mix, including rate and mix pressure from lumber, higher transportation costs, and investments in One Supply Chain, partially offset by the benefit from lower markdowns as a result of the strong demand environment during the first six months of fiscal 2021.
Operating Expenses.
Our operating expenses are composed of SG&A and depreciation and amortization.
Selling, General & Administrative
. SG&A increased 5.1% to $12.8 billion for the first six months of fiscal 2021 from $12.2 billion for the first six months of fiscal 2020. As a percentage of net sales, SG&A was 16.3% for the first six months of fiscal 2021 compared to 18.4% for the first six months of fiscal 2020. The decrease in SG&A as a percentage of net sales for the first six months of fiscal 2021 was primarily driven by leverage resulting from a positive comparable sales environment and cycling several COVID-19-related expenses that we incurred during the first six months of fiscal 2020, including $1.3 billion of additional expenses related to expanded benefits to support our associates and an additional $124 million of operational expenses. Total COVID-19-related expenses incurred in the first six months of fiscal 2021 were $102 million. This operating expense leverage was partially offset by an increase in hourly payroll-related costs resulting from the increased demand environment throughout the first six months of fiscal 2021, as well as additional expenses from the wage investments we made in the latter part of fiscal 2020.
Depreciation and Amortization
. Depreciation and amortization increased 13.6% to $1.2 billion for the first six months of fiscal 2021 from $1.0 billion for the first six months of fiscal 2020. As a percentage of net sales, depreciation and amortization was 1.5% for the first six months of fiscal 2021 compared to 1.6% for the first six months of fiscal 2020.
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The decrease in depreciation and amortization as a percentage of net sales primarily reflected leverage resulting from a positive comparable sales environment, partially offset by increased depreciation expense from our strategic investments in the business as well as higher intangible asset amortization expense.
Interest and Other, net.
Interest and other, net was $654 million for the first six months of fiscal 2021, compared to $644 million for the first six months of fiscal 2020. As a percentage of net sales, interest and other, net was 0.8% for the first six months of fiscal 2021 and 1.0% for the first six months of fiscal 2020, primarily reflecting leverage resulting from a positive comparable sales environment as well as lower interest expense resulting from lower interest rates on outstanding debt balances, partially offset by lower interest income during the first six months of fiscal 2021.
Provision for Income Taxes.
Our combined effective income tax rate was 23.9% for the first six months of fiscal 2021 compared to 24.4% for the first six months of fiscal 2020.
Diluted Earnings per Share.
Diluted earnings per share were $8.38 for the first six months of fiscal 2021, compared to $6.11 for the first six months of fiscal 2020. The increase in diluted earnings per share was primarily driven by the factors discussed above.
Non-GAAP Financial Measures
To provide clarity about 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):
| Twelve Months Ended | ||||||||||||||
| dollars in millions |
August 1,
2021 |
August 2,
2020 |
||||||||||||
| Net earnings | $ | 15,241 | $ | 11,827 | ||||||||||
| Interest and other, net | 1,310 | 1,216 | ||||||||||||
| Provision for income taxes | 4,804 | 3,650 | ||||||||||||
| Operating income | 21,355 | 16,693 | ||||||||||||
|
Income tax adjustment
(1)
|
(5,130) | (4,013) | ||||||||||||
| NOPAT | $ | 16,225 | $ | 12,680 | ||||||||||
| Average debt and equity | $ | 36,338 | $ | 30,826 | ||||||||||
| ROIC | 44.7 | % | 41.1 | % | ||||||||||
—————
(1)
Income tax adjustment is defined as operating income multiplied by our effective tax rate for the trailing twelve months.
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.
Liquidity and Capital Resources
Cash and Cash Equivalents
At August 1, 2021, we had $4.6 billion in cash and cash equivalents, of which $1.1 billion was held by our foreign subsidiaries. We believe that our current cash position, cash flow generated from operations, funds available from our commercial paper programs, and access to the long-term debt capital markets should be sufficient not only for
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our operating requirements but also to enable us to complete our capital expenditure programs, fund dividend payments, fund any share repurchases, and make any required long-term debt payments through the next several fiscal years. In addition, we believe that we have the ability to obtain alternative sources of financing, if necessary. We may maintain an elevated cash position during fiscal 2021 as circumstances warrant.
For fiscal 2021, we will continue to follow our disciplined approach to capital allocation, and we currently estimate capital expenditures 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 or in response to the economic environment, as necessary or appropriate.
Debt and Derivative Instruments
We have commercial paper programs that allow for borrowings of up to $3.0 billion. All of our short-term borrowings in the first six months of fiscal 2021 were under these commercial paper programs, and the maximum amount outstanding at any time was $11 million. In connection with these programs, we have back-up credit facilities with a consortium of banks for borrowings up to $3.0 billion, which consist of a five-year $2.0 billion credit facility scheduled to expire in December 2023 and a 364-day $1.0 billion credit facility scheduled to expire in December 2021. At August 1, 2021, we were in compliance with all of the covenants contained in the credit facilities, none of which are expected to impact our liquidity or capital resources. At August 1, 2021 and January 31, 2021, there were no outstanding borrowings under our commercial paper programs. We may enter into additional credit facilities or other debt financing.
We also issue senior notes from time to time as part of our capital management strategy. In March 2021, we fully repaid our $1.35 billion 2.00% senior notes that had a maturity date of April 2021.
We use derivative and nonderivative instruments as part of our normal business operations in the management of our exposure to fluctuations in foreign currency exchange rates and interest rates on certain long-term debt.
Share Repurchases
In May 2021, our Board of Directors approved a $20.0 billion share repurchase authorization that replaced the previous authorization. This new authorization does not have a prescribed expiration date. As of August 1, 2021, approximately $17.6 billion of the $20.0 billion share repurchase authorization remained available.
In March 2020, we suspended our share repurchases to enhance our liquidity position during the COVID-19 pandemic. We resumed share repurchases in the first quarter of fiscal 2021, the amount and continuation of which will be influenced by the evolving economic environment as well as business conditions. In the first six months of fiscal 2021, we had cash payments of $6.9 billion for repurchases of our common stock through open market purchases.
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, and occupancy costs.
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 $4.9 billion in the first six months of fiscal 2021 compared to the first six months of fiscal 2020 and was primarily driven by changes in working capital, partially offset by an increase in net earnings. Working capital was impacted by higher merchandise inventories to continue to support increased demand, along with timing of vendor payments.
Investing Activities.
Cash used in investing activities increased by $438 million in the first six months of fiscal 2021 compared to the first six months of fiscal 2020, primarily as a result of cash paid for an acquired business during fiscal 2021.
Financing Activities.
Cash used in financing activities in the first six months of fiscal 2021 primarily reflected $6.9 billion of share repurchases, $3.5 billion of cash dividends paid, and $1.4 billion of repayments of long-term debt.
Cash used in financing activities in the first six months of fiscal 2020 primarily reflected $3.2 billion of cash dividends paid, $1.8 billion of repayments of long-term debt, $974 million of net repayments of short-term debt, and $791 million of share repurchases prior to our suspension of share repurchases in March 2020, partially offset by $5.0 billion of net proceeds from long-term debt.
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Critical Accounting Policies
During the first six months of fiscal 2021, there were no changes to our critical accounting policies as disclosed in the 2020 Form 10-K. Our significant accounting policies are disclosed in
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 instruments we use to manage our exposure to such risks, from those disclosed in the 2020 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 August 1, 2021.
We are in the process of an ongoing business transformation initiative, which began in fiscal 2020 and includes upgrading and migrating certain accounting and finance systems in the U.S. 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 integration continues.
Except as described above, there were no other changes in our internal control over financial reporting during the fiscal quarter ended August 1, 2021 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 Item 1A, "Risk Factors" and elsewhere in the 2020 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 2020 Form 10-K.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
The following table presents the number and average price of shares purchased in each fiscal month of the second quarter of fiscal 2021:
| Period |
Total Number of Shares Purchased
(1)
|
Average Price Paid Per Share
(1)
|
Total Number of Shares Purchased as Part of Publicly Announced Program
(2)
|
Dollar Value of Shares that May Yet Be Purchased Under the Program
(2)
|
||||||||||||||||||||||
| May 3, 2021 – May 30, 2021 | 2,944,443 | $ | 324.07 | 2,938,655 | $ | 19,666,667,554 | ||||||||||||||||||||
| May 31, 2021 – June 27, 2021 | 2,925,762 | 309.39 | 2,924,295 | 18,761,906,690 | ||||||||||||||||||||||
| June 28, 2021 – August 1, 2021 | 3,545,153 | 322.70 | 3,541,572 | 17,619,049,601 | ||||||||||||||||||||||
| Total | 9,415,358 | 318.99 | 9,404,522 | |||||||||||||||||||||||
—————
(1)
These amounts include repurchases pursuant to our Amended and Restated 2005 Omnibus Stock Incentive Plan 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)
In May 2021, our Board of Directors approved a $20.0 billion share repurchase authorization that replaced the previous authorization. This new authorization does not have a prescribed expiration date.
Sales of Unregistered Securities
During the second quarter of fiscal 2021, we issued 2,394 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 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 during the second quarter of fiscal 2021. 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 second quarter of fiscal 2021, we credited 920 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.
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Item 6. Exhibits.
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.
| Exhibit | Description | |||||||
| * | ||||||||
| [Form 10-Q filed on September 1, 2011, Exhibit 3.1] | ||||||||
| * | ||||||||
| [Form 8-K filed on March 4, 2019, Exhibit 3.2] | ||||||||
| 101.INS | 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 | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | |||||||
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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.
|
THE HOME DEPOT, INC.
(Registrant)
|
|||||
| By: |
/s/ C
RAIG
A. M
ENEAR
|
||||
| Craig A. Menear, Chairman and Chief Executive Officer (Principal Executive Officer) | |||||
|
/s/ R
ICHARD
V. M
C
P
HAIL
|
|||||
| Richard V. McPhail, Executive Vice President and Chief Financial Officer (Principal Financial Officer) | |||||
|
/s/ S
TEPHEN
L. G
IBBS
|
|||||
| Stephen L. Gibbs, Vice President, Chief Accounting Officer and Corporate Controller (Principal Accounting Officer) | |||||
| Date: | August 23, 2021 | ||||
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TABLE OF CONTENTS
Part I Financial InformationItem 1. Financial StatementsItem 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II Other InformationItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits