diane dayhoff - the home depot/media/files/h/homedepot... · second quarter fiscal 2016 results 4...
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Australia/Asia
October 2016
Diane DayhoffVice President, Investor Relations
Tim WalshSenior Manager, Investor Relations
Forward Looking Statements and Non-GAAP Financial Measurements
2
Certain statements contained in today’s presentations constitute "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. Forward-looking statements may relate to, among other things, the demand for our products and
services; net sales growth; comparable store sales; effects of competition; state of the economy; state of the residential construction,
housing and home improvement markets; state of the credit markets, including mortgages, home equity loans and consumer credit;
demand for credit offerings; inventory and in-stock positions; implementation of store, interconnected retail and supply chain
initiatives; management of relationships with our suppliers and vendors; the impact and expected outcome of investigations, inquiries,
claims and litigation, including those related to the 2014 data breach; issues related to the payment methods we accept; continuation
of share repurchase programs; net earnings performance; earnings per share; dividend targets; capital allocation and expenditures;
liquidity; return on invested capital; expense leverage; stock-based compensation expense; commodity price inflation and deflation;
the ability to issue debt on terms and at rates acceptable to us; the effect of accounting charges; the effect of adopting certain
accounting standards; store openings and closures; guidance for fiscal 2016 and beyond; financial outlook; and the integration of
Interline Brands, Inc. into our organization and the ability to recognize the anticipated synergies and benefits of the
acquisition. These forward-looking statements are based on currently available information and current assumptions, expectations
and projections about future events, and actual results could differ materially from our expectations and projections. You should not
rely on our forward-looking statements as they speak only as of the date hereof, and we undertake no obligation to update these
statements to reflect subsequent events or circumstances except as may be required by law. Additional information regarding risks
and uncertainties is described in Item 1A, "Risk Factors," and elsewhere in our Annual Report on Form 10-K for our fiscal year ended
January 31, 2016 and our subsequent Quarterly Reports on Form 10-Q.
Today’s presentations are also supplemented with certain non-GAAP financial measures. We believe these non-GAAP financial
measures better enable management and investors to understand and analyze our performance by providing them with meaningful
information relevant to events of unusual nature or frequency that impact the comparability of underlying business results from period
to period. However, this supplemental information should not be considered in isolation or as a substitute for the related GAAP
measures. Reconciliations of the supplemental information to the comparable GAAP measures can be found on our Investor
Relations website at ir.homedepot.com.
Discussion Overview
Financial Results & Targets
Our View of the U.S. Home Improvement Market
Strategic Framework
3
Second Quarter Fiscal 2016 Results
4
13.9% Earnings Per Share Growth in Q2 2016
($ Millions USD, except per share data)
Q2 2016 Q2 2015 V%Sales $26,472 $24,829 6.6%
Comp Sales 4.7% 4.2%
Gross Profit $8,927 $8,365 6.7%
Gross Profit Margin 33.72% 33.69% 3 bps
Total Operating Expenses $4,824 $4,718 2.2%
Operating Profit $4,103 $3,647 12.5%
Operating Profit Margin 15.50% 14.69% 81 bps
Net Earnings $2,441 $2,234 9.3%
Diluted Earnings Per Share $1.97 $1.73 13.9%
Fiscal 2016 Guidance
5
1)
1) All guidance based on GAAP
2) After expected share repurchases of $7 billion for fiscal 2016
New Store Openings ~5 (Mexico)
Sales growth ~6.3% (Includes Interline Brands)
Comp store sales growth ~4.9%
Diluted EPS growth2)~$6.31, or an increase of ~15.6%
(As of September 7, 2016)
Long Term Targets: Fiscal 2018
Comps ~4%
New Stores ~5 – 7 per Year
Total CAGR Sales Growth ~4.7%
- Includes Interline Brands
2012 2015 2018T
$75B
$88.5B
~$101B
All targets based on 52 week years
~$13B
~$13B
Sales
6
Long Term Targets: Fiscal 2018
Operating Margin
~14.5%
2015 2018T 2015 2018T
13.3%
28% ~35%
Return on invested capital is defined as net operating profit after tax, a non-GAAP financial measure, for the most recent twelve-month
period, divided by the average of beginning and ending long-term debt and equity for the most recent twelve-month period.
Assumes excess cash used to repurchase shares.
Return on Invested Capital
7
Committed to Dividend Payout
Annual Dividend Paid
$0.90 $0.95 $1.04
$1.16
$1.56
$1.88
$2.36
$2.76
2009 2010 2011 2012 2013 2014 2015 2016F
8
Increased Quarterly Dividend 17% in February 2016Increased Quarterly Dividend 17% in February 2016
Shareholder Return Principles
9
Return on Invested Capital Principle
Maintain high return on invested capital, benchmarking all uses of excess
liquidity against value created for shareholders through repurchases
Adjusted debt/EBITDAR ratio not to exceed 2x
Dividend Principle
Targeting payout at approximately 50% of earnings. Intend to increase
dividend every year
Share Repurchase Principle
After meeting the needs of the business, use excess liquidity to
repurchase shares, as long as value creating
Discussion Overview
Financial Results & Targets
Our View of the U.S. Home Improvement Market
Strategic Framework
10
PFRI Still Below Historical Mean
11
Private Fixed Residential Investment (PFRI) as a Percentage of GDP
Source: BEA, Moody’s Economy.com
3.8%
4.5%
2%
3%
4%
5%
6%
7%
8%
195
0
195
2
195
4
195
6
195
8
196
0
196
2
196
4
196
6
196
8
197
0
197
2
197
4
197
6
197
8
198
0
198
2
198
4
198
6
198
8
199
0
199
2
199
4
199
6
199
8
200
0
200
2
200
4
200
6
200
8
201
0
201
2
201
4
Q2 2
01
5
Q4 2
01
5
Q2 2
01
6
PFRI as % of GDP (Nominal $) 60-year Avg. (Nominal)
Home Price Recovery
12
Source: S&P Case-Shiller (Seasonally Adjusted), Moody’s Economy.com (Hist.)
S&P Case-Shiller National Home Price Index
101
185
137
181
80
120
160
200
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
2% below peak
32%
recovery
since trough
Home Price Index
Home Price Recovery
13
Source: S&P Case-Shiller, Moody’s Economy.com (Hist.)
Home Price Index by City
(65%)
(55%)
(45%)
(35%)
(25%)
(15%)
(5%)
5%
15%
25%
Q2 2
006
Q3 2
006
Q4 2
006
Q1 2
007
Q2 2
007
Q3 2
007
Q4 2
007
Q1 2
008
Q2 2
008
Q3 2
008
Q4 2
008
Q1 2
009
Q2 2
009
Q3 2
009
Q4 2
009
Q1 2
010
Q2 2
010
Q3 2
010
Q4 2
010
Q1 2
011
Q2 2
011
Q3 2
011
Q4 2
011
Q1 2
012
Q2 2
012
Q3 2
012
Q4 2
012
Q1 2
013
Q2 2
013
Q3 2
013
Q4 2
013
Q1 2
014
Q2 2
014
Q3 2
014
Q4 2
014
Q1 2
015
Q2 2
015
Q3 2
015
Q4 2
015
Q1 2
016
Q2 2
016
National Index 20-City Composite 10-City Composite Atlanta, GA
Boston, MA Charlotte, NC Chicago, IL Cleveland, OH
Dallas, TX Denver, CO Detroit, MI Las Vegas, NV
Los Angeles, CA Miami, FL Minneapolis, MN New York, NY
Phoenix, AZ Portland, OR San Diego, CA San Francisco, CA
Seattle, WA Tampa, FL Washington, DC
Market
Indexed to Q2 2006
(July 2016)
Denver, CO 33.0%
Dallas, TX 32.8%
Portland, OR 16.3%
Seattle, WA 14.0%
Charlotte, NC 12.3%
Boston, MA 5.5%
San Francisco, CA 2.5%
National Index (1.9%)
Atlanta, GA (2.8%)
20-City Composite (9.0%)
Los Angeles, CA (9.1%)
Cleveland, OH (9.5%)
San Diego, CA (10.0%)
10-City Composite (10.9%)
Minneapolis, MN (12.1%)
Detroit, MI (14.6%)
Washington, DC (14.9%)
New York, NY (16.3%)
Chicago, IL (20.2%)
Miami, FL (23.3%)
Tampa, FL (23.6%)
Phoenix, AZ (29.4%)
Las Vegas, NV (35.8%)
Household Formation and Aging U.S. Housing
Stock Supportive of Home Improvement Spend
14
Household Formation Aging Housing Stock
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%100%
199519961997199819992000200120022003200420052006200720082009201020112012201320142015
40+ yrs 30-39 yrs 20-29 yrs 10-19 yrs 0-9 yrs
Source: Census, Moody’s Economy.com (Hist.) Moody’s Economy.com (Est.);
John Burns Real Estate Consulting (Housing Stock)
0.0
0.5
1.0
1.5
2.0
2.5
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6E
201
7E
201
8E
Household Formation (m)
Long-term Avg.
Discussion Overview
Financial Results & Targets
Our View of the U.S. Home Improvement Market
Strategic Framework
15
The Power of The Home Depot
Customer Experience
Connecting service to
customer needs
Connecting stores to
website and website
to stores
Capital Allocation
Driven By Productivity
And Efficiency
Connecting activities
to cost efficiency
Product Authority
Connecting assortment
to local needs
Connecting merchandise from
supplier to shelf to customer
Interconnecting Retail
16
Target Market Opportunity
17
Sources: 2014 HIRI Reference Guide; 2015 Harvard University “Emerging Trends in the Remodeling
Market”; NAICS; and external market analysis
$550B Addressable U.S. Market
Home Improvement Retail
Pro ($120B)
Consumer ($180B)
MRO
Services (Product Pull Through)
Services (Labor)
Pro
ducts
Se
rvic
es
U.S. Sales
$80B
Share
15%
Growth Driven by The Professional Customer
18
Renovator | Remodeler Installation ServicesMaintenance, Repair,
Operations (MRO)
Growth Driven by Interconnected Retail
19
Shopping in New Ways Seamless Experience Higher Expectations
Key Productivity Initiatives
20
Supply Chain Sync
Assortment Optimization
Freight Flow and Fulfillment Team
Delivery