Lyndsey Burton & Tim Walsh - Investor Relations - Nordea Markets
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Lyndsey Burton & Tim Walsh
Investor Relations
1
Forward Looking Statements and Non-
GAAP Financial Measurements
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, supply chain and technology initiatives; management of relationships with our suppliers and vendors; the
impact and expected outcome of investigations, inquiries, claims and litigation; 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; the impact of the Tax Cuts and Jobs Act of 2017; store openings
and closures; guidance for fiscal 2018 and beyond; financial outlook; and the integration of acquired companies into our
organization and the ability to recognize the anticipated synergies and benefits of those acquisitions. 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 29, 2017 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. 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.
2 2
Discussion Overview
Fiscal 2017 Results
Our View of the Economy and State of the U.S.
Housing Market and Fiscal 2018 Guidance
Company Initiatives and Long-term Targets
3
Fiscal 2017 Results
($ Millions USD, except per share data)
FY 2017 FY 2016 V%
Sales $100,904 $94,595 6.7%
Comp Sales 6.8% 5.6%
Gross Profit $34,356 $32,313 6.3%
Gross Profit Margin 34.05% 34.16% (11) bps
Total Operating Expenses $19,675 $18,886 4.2%
Operating Profit $14,681 $13,427 9.3%
Operating Profit Margin 14.55% 14.19% 36 bps
Net Earnings $8,630 $7,957 8.5%
Diluted Earnings Per Share $7.29 $6.45 13.0%
13.0% Earnings Per Share Growth in 2017
4
Discussion Overview
Fiscal 2017 Results
Our View of the Economy and State of the U.S.
Housing Market and Fiscal 2018 Guidance
Company Initiatives and Long-term Targets
5
Our View of the Economy
Real U.S. GDP is expected to grow, supported by
improved job market and higher consumer
spending
Drivers of home improvement related spending
expected to trend positively and support economic
growth
6
Real U.S. GDP is Expected to Grow, Making This the
Longest Economic Recovery in History
Real U.S. GDP (Year Over Year Percentage Change)
Average: 2.3%
2.9%
2.6% 2.7%
2.5%
2.2% 2.3% 2.2% 2.1%
1.6% 1.7%
1.5%
2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E
Source: Bureau of Economic Analysis (Hist.), Composite average from various sources (Est.)
7
Drivers of Home Improvement Spend
Household Home Price Age of Housing
Housing Turnover
Formation Appreciation Stock
Impact on HI Supports Incremental Drives Spending Both Demands Ongoing Repairs
Increases Demand
Spend Investments Pre And Post Sale And Major Repairs
Recent
Impact
Forward Per Unit Spend
Acceleration Continued Stays At
View Increases
Appreciation Current Rate
Expected
Future Impact
8
Household Formation Growing
Household Formation Percentage of Young Adults Living at Home
Change Ann. Avg. Households (M) Long-term Avg. Young Adults Living at Home Long-term Avg.
2.0 1.9 34%
1.8 32%
1.6
1.5 32%
1.6
1.4 30%
1.4 1.3 30%
1.2 1.0 1.1
28%
1.0
0.8 26%
0.6 24%
0.4
22%
0.2
0.0 20%
2017E
2018E
2019E
2020E
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2018E
2019E
2020E
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: US Census Bureau, Moody’s Analytics (Est.), Pew Research Center, United Nations Department of Economic and Social Affairs, Internal analysis
9
Home Price Appreciation and Value of the
Housing Stock
Home Price Appreciation Value of Housing Stock and Home Equity
14.2% $30 Value of Housing Stock ($tn) Single-Family Mortgage Debt ($tn)
9.6% $25
5.8%5.4%
$20 Home
140% Equity
$15 increase in $15.2tn
Home
Equity Equity
$6.3tn
$10
$5
(9.5%)
$0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018E
2010 2011 2012 2013 2014 2015 2016 2017 Q1'18 Q2'18
Source: Case-Shiller U.S. National Home Price Index, Federal Reserve Board
10Inventory Constraints and High Affordability
Should Drive Home Price Appreciation
Months of Supply Affordability
Mos. Supply (Existing Homes) Healthy Balance Affordability Index Equilibrium Long-term Avg.
12 225
11.4
11.0
11 200 199
10
175
9 158
147
150
8
7 125
6 100
5 4.1 75
4
50
3 2006 2008 2010 2012 2014 2016 2018E
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
The affordability index is the ratio of median income to the mortgage on a
median home where an equilibrium value of 100 represents a ratio of 4x (i.e.
mortgage payment = 25% of income)
Source: National Association of Realtors, Moody’s Economy.com
11Aging Housing Stock Creates Additional
Demand for Projects
Age of Housing Stock Home Age Spend per House
40+ yrs 30-39 yrs 20-29 yrs 10-19 yrs 0-9 yrs
2017
2016
2015 1995 2005 2017 2020E
2014
2013
2012
2011 0-9 17% 15% 8% 6% $
2010
2009
2008 10-19 18% 15% 14% 13% $
2007
2006
2005
2004 20-29 17% 16% 13% 13% $$
2003
2002
2001
2000
30-39 14% 15% 14% 14% $$
1999
1998
1997 >40 33% 40% 51% 54% $$$
1996
1995
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Source: John Burns Real Estate Consulting
12Fiscal 2018 Guidance 1)
(As of August 14, 2018)
Sales growth ~7.0% (53rd week adding ~$1.6 billion in sales)
Comp store sales growth ~5.3% (based on 52-week comparison)
New store openings 3 new stores
Operating margin ~14.5%
$9.42, or an increase of ~29.2% (53rd week
Diluted EPS growth
contributing ~19 cents)
Share repurchases Targeting $6 billion
1) All guidance based on GAAP; includes 53rd week
13Discussion Overview
Fiscal 2017 Results
Our View of the Economy and State of the U.S.
Housing Market and Fiscal 2018 Guidance
Company Initiatives and Long-term Targets
14Retail Customers Expect More
Improved Seamless Personalized
Delivery Checkout Experiences
HD Must Continue to Keep Pace with Changing Environment
15Investing in One Home Depot
Store Online Store / Online
Product Product Product Innovation
Pro Pro
Associates
Services Services
Supply Chain Supply Chain
Supply Chain Services
Delivery Delivery
Associates Delivery Pro
Associates
Growth Through an Interconnected Customer Experience
16Strategic Investments for the Future
2018 – 2020 Investments(1) ($ in billions)
$11.1B Investment
Other
1.8
New Stores 0.6
Supply 5.0 Stores
0.8
Chain
$5.7B
BAU
Other 2.9
IT /
0.8 Online
New Stores
0.6 2.4 Stores
Supply Chain 0.2
1.7
BAU Target IT
(1) Investments: Capital and Expense, excludes incremental depreciation
17Investing in Stores & Associates
18Investing in Product & Innovation
19Investing in Pro & Services
20Investing in Supply Chain & Delivery
Upstream Downstream
Di re c t Ful fi l l me nt Ce nte r s
Vendors
Customers
DC Ne tw ork
(Bul k / S toc k i ng / Fl ow ) Stores
Leverage our Competitive Advantage Build a Competitive Advantage
21Continued Focus on Productivity
Cost of Operating
Goods Sold Expenses
Productivity is Our Virtuous Cycle
22Enhancing the Customer Experience, Investing
for the Future, Creating Value
Sales Operating Margin ROIC
~$120.4B ~15.0% ~40%+
14.55%
~$115.5B ~34.2%
~14.4%
$101B
2017 2020T 2017 2020T 2017 2020T
$ in Billions
One Home Depot
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