financial overview - the home depot2015 investor and analyst conference financial overview carol...

2015 INVESTOR AND ANALYST CONFERENCE

Financial Overview Carol Tomé CFO & Executive Vice President Corporate Services


Discussion Overview

2

Fiscal 2015 Financial Guidance

Our View of the U.S. Economy and our Addressable Market

2018 Financial Targets

Capital Allocation


Projecting Record Sales, Operating Margin and Earnings Per Share


3

Comp Sales Growth

Total Sales Growth

Operating Margin

Diluted EPS Growth

FY 2015 Guidance

As of December 2015

~4.9%

~5.7% to ~$88 billion

~13.2%

~14% to ~$5.36

Guidance based on spot F/X Rates

2015 INVESTOR AND ANALYST CONFERENCE 4




Capital Allocation

Discussion Overview


Our View of the U.S. Economy and Our Addressable Market

5

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

Changing demographics and customer preferences served well by our business model

1

2

3


(0.3%)

(2.8%)

2.5%

1.6%

2.2%

1.5%

2.4% 2.5% 2.7% 2.6% 2.6%

2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E

Real U.S. GDP is Expected to Grow

Year Over Year Percent Change in Real U.S. GDP

6 Source: BEA, Moody’s Economy.com (Hist.) Composite average from various sources (Est.)

Average: 2.6%

1


5.8%

4.8%

2.7%

(1.7%)

3.6%

4.8%

3.4% 3.1%

4.2%

3.2% 2.9%

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5E

201

6E

Contributions to GDP Personal Consumption Expenditures

Consumer Spending Driving U.S. GDP Growth

7 Source: BEA, Moody’s Economy.com (Hist.) Blue Chip Economic Indicators (Est.)

Year Over Year Percent

Change

1

(5%)

(3%)

(1%)

1%

3%

5%

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

Q1 2

01

5

Q2 2

01

5

Q3 2

01

5

Personal Consumption Expenditures Other


PFRI Still Below Recent Peak and Historical Mean

Private Fixed Residential Investment (PFRI) as a Percentage of GDP

8 Source: BEA, Moody’s Economy.com

2


9%

7%

10% 10%

14% 14%

2%

(5%)

(12%)

(4%)(4%) (4%)

7%

11%

5% 5%

4% 3%

2%

200

0

200

1

200

2

200

3

200

4

200

5

200

6

2007

200

8

200

9

201

0

2011

201

2

201

3

201

4

2015

E

201

6E

201

7E

201

8E

101

185

137

174

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

Sep

-15

Home Price Index Year Over Year Percent Change

Home Prices Are Beginning to Stabilize, But Will Continue to Grow At a Healthy Rate

9 Source: S&P Dow Jones, Moody’s Economy.com (Hist.) Composite average from various sources (Est.)

S&P Case-Shiller National Home Price Index

2

6% below peak

27%

recovery

since trough


$5

$10

$15

$20

$25

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

Q1 2

01

5

Q2 2

01

5

Value of Housing Stock Single-Family Mortgage Debt

Home Value vs. Mortgage Debt Negative Equity

Recent Home Appreciation Has Resulted in “Wealth Effect” for Consumers

10

$9.4 Trillion

Source: CoreLogic, FED

$21.5 Trillion

2

22%

9%

5%

10%

15%

20%

25%

4

6

8

10

12

Q2 2

01

2

Q3 2

01

2

Q4 2

012

Q1 2

01

3

Q2 2

01

3

Q3 2

01

3

Q4 2

013

Q1 2

01

4

Q2 2

01

4

Q3 2

01

4

Q4 2

01

4

Q1 2

01

5

Q2 2

01

5# of Negative Equity Properties (m)

% of Households in Negative Equity


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

56

58

25

35

45

55

65

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

Q1 2

01

5

Q2 2

01

5

Q3 2

01

5

Current Market Conditions Future Expectations

Age Of Housing Stock Remodeling Index

Housing Stock Age Has Steadily Increased During the Past 20 Years

11 Source: John Burns Real Estate Consulting, NAHB, Moody’s Economy.com

% >20 yrs

78.2%

72.2%

70.1%

70.0%

65.9%

2


Molding

77%

78%

79%

82%

84%

85%

89%

94%

97% Pressure Treated Wood

Plywood

Exterior Doors

Dimensional Lumber

Gypsum

Special Order Kitchen

Wire

Windows

Our U.S. Classes Haven’t Fully Recovered1)

12 Source: Internal company data; 1) Select classes, not intended to be a full representation

2006 Sales

100%

2


1.9

0.4

1.6

0.0

0.5

1.0

1.5

2.0

2.5

200

1

200

2

2003

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

2014

YT

D 2

01

5

201

6E

201

7E

201

8E

Household Formation (m) 50-Year Average

6.0%

3.1%4.0%

2%

4%

6%

8%

199

01

99

11

99

21

99

31

99

41

99

51

99

61

99

71998

199

92

00

02

00

12

00

22

00

32

00

42

00

52

00

62

00

72

00

82009

201

02

01

12

01

22

01

32

01

4Q

1 2

015

Q2 2

01

5Q

3 2

01

5

Single-Family Turnover 25-Year Average

Household Formation Single-Family Housing Turnover

Household Formation and Turnover Returning to Historical Levels

13 Source: Census, Moody’s Economy.com (Hist.) Composite average from various sources (Est.)

As a Percentage of Total Housing Stock

YTD 2015 = Average as of Q3 2015

Estimates Derived From Moody’s Economy.com

Estimates Based on Average Increase to Total Housing Stock from 2010 – 2014

25-Year Average: ~4.2%

50-Year Average: ~1.2m

2


(1,000)

0

1,000

2,000

3,000

4,000

5,000

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

YT

D 2

01

5

Owner Occupied (000s) Renter Occupied (000s)

Household Formation Multifamily Housing Starts (000s)

Majority of Household Formation Coming From Renters, Delaying Homeownership

14 Source: Census, Moody’s Economy.com (Hist.) Zelman & Associates (Est.)

2015 Figures Are Estimates Derived From Total Household Formation and Homeownership Rate

3

112

393

375

375

360

100

200

300

400

500


Renters Who View Ownership As Important Goal Expect to Purchase or Remain Renter Within 3 Years

Ultimate Goal of Most Millennials is Still Homeownership

15 Source: Home Depot Rental Economy Sizing Study 2014, Freddie Mac

Note: Age ranges for generational buckets – Millennials: 18 – 35; Gen X: 36 – 49; Boomers: 50 - 68

3

34%38%

57%

Boomers Gen X Millennials

53%

47%

Continue Renting Purchase Home

18 - 24 25 - 34 35 - 44 45 - 54 55 - 64 65+


108117

139

169 173

188

199

180

168 170

159

50

100

150

200

200

6

200

7

2008

200

9

201

0

201

1

201

2

201

3

201

4

H1 2

01

5

Q3 2

01

5

Affordability Index Equilibrium Level

2.0% = ~125

1.5% = ~135

Affordability Index Average FICO Score of Closed Loans

Affordability Remains High; Underwriting Standards Show Some Easing

16 Source: NAR, Moody’s Economy.com, Ellie Mae

Interest Rate

Increase Impact

on Affordability

0.5% = ~145

3

750

722

700

725

750

775

Oct-

11

Ap

r-12

Oct-

12

Ap

r-13

Oct-

13

Ap

r-14

Oct-

14

Ap

r-15

Oct-

15





Capital Allocation

Discussion Overview


Solid Record of Establishing and Meeting/Exceeding Financial Targets

18

20091)

2012

2013

Year

Established

~10%

~12%

~13%

Operating Margin ROIC Target Year Year Met /

Exceeded

~15%

~24%

~27%

20xx

2015

2015

2012

2014

2015

1) Launched from fiscal 2009 operating margin of 7.3% and ROIC of 10.7%

Targets


Our Next Targets: 14.5%/35%

~13.2% ~0 bps

~14.5%

2015F GM Expansion

ExpenseLeverage

2018T

~130 bps

19

Operating Margin ROIC

~27%

~35%

2015F Disciplined CapitalAllocation

2018T

~800 bps

All Targets based on 52 week years

1)

1) Assumes excess cash used to repurchase shares


2016-2018 Sales Target

20

Sales

Comps ~4%

New Stores ~5 – 7 / Year

Total CAGR Sales Growth ~4.7%

- Includes Interline

2012A 2015F 2018T

$75B

~$88B

~$101B $13B

~$13B



1-year hassle-free returns

60 Days to Pay

1-year returns

Fuel Rewards

New Private Label Credit Value Proposition

21

Today Post Jan 2016

Business

Card

Everyday 6mo Financing

Special offers, up to 24mo

THD PLCC Offer

Large Credit Lines

Consumer

Commercial

365

Everyday 6mo Financing

Special offers, up to 24mo

Large Credit Lines

365


2015F 2018T

2016-2018 Gross Margin Target

22

~34.2% ~34.2%

Driving productivity through cost-out efforts

Reinvesting cost-out in lower margin categories

Remaining the customer’s advocate for value

Productivity

Reinvestment


https://www.google.com/url?q=http://www.iconarchive.com/show/icons8-metro-style-icons-by-visualpharm/Objects-Tear-of-calendar-icon.html&sa=U&ei=22dFU8acCKPg2AWnl4DIAQ&ved=0CDQQ9QEwAw&usg=AFQjCNHh3bXvtik6mmRRQ0CB1F_bRj5e6w




Expenses/Sales

2016-2018 Expense Leverage Target

23

Project increase in annual expense growth factor to ~50%

- More variable expense structure due to Interline acquisition

- Rising people costs mitigated in part by virtuous productivity cycle

- Will continue to invest in stores/interconnected retail

~20.9% ~19.6%

2015F 2018T

130 bps of Leverage

Expense Growth Factor 1)

1) Defined as YoY expense growth rate divided by YoY sales growth rate






Capital Allocation

Discussion Overview


2015F Sales Growth Supply Chain Sync 2018T

Driving Towards 5.7x Inventory Turns

25

~4.8x

~5.7x

0.2x

0.7x

Working Capital Expected to be a Source of Cash 2016-2018


Core Capital Spending Outlook

$0.0B

$0.5B

$1.0B

$1.5B

2015F 2016T 2017T 2018T

$1.6-$1.8B / Year 2016-2018T

Key Areas of Investment

Capital Expenditures

$1.8B

26

Store Reinvestment

Technology/.com

New Stores

International

Supply Chain

Integration

$2.0B

$1.8B

$0.5B

$0.3B

$0.3B

$0.1B

$5.0B


2015F 2016 - 2018T

2016-2018 Cash Flow Target 1)

27

~$9.6B

~$32.6B

Cumulative

Cash Flow

1) Cash Flow from the business before capital spending, dividends and share

repurchases

Net Earnings

Depreciation

Working Capital

Other

Net Earnings

Depreciation

Working Capital Other


Shareholder Return Principles

28

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


Optimizing Invested Capital

Bond Maturities

29

$3.0

$0.5

$1.2 $1.0

$0.5

$1.0

$1.3

$1.0 $1.1 $1.0

$3.0

$0.5

$1.0 $1.0 $1.0 $1.0

$1.3

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

20

36

20

40

20

41

20

43

20

44

20

45

20

46

Weighted Avg.

Maturity

13.7

Years

Weighted Avg.

Coupon 4.2%

Ratings A/A2

Equity Equity

Invested Capital $ Billions

$11.4

$20.9

$17.8

$6.4

2008 2015F

Equity

Debt

Debt

Equity

ROIC – 9.5% ROIC – 27%

$ Billions


Debt Capacity at 2.0x Adjusted Debt / EBITDAR Target

30

2015F 2018T

Projected Leverage

1.95x

1.6x

~$6.5 Billion Capacity


Committed to Dividend Payout

31

Annual Dividend Paid

$0.90 $0.95 $1.04$1.16

$1.56

$1.88

$2.36

2009 2010 2011 2012 2013 2014 2015F


Share Repurchase Potential

32

We are generating significant excess cash, which enables solid repurchases

2002 – 2015 YTD

Repurchased 1.2 billion shares for $58.1

billion

2015F

Targeting ~$2.0 billion for Q4 2015;

~$7.0 billion for fiscal 2015

2016 – 2018T

Will complete remaining $11 billion

authorization by 2017; will look for

additional authorization

2016 – 2018

Repurchased From Cash Flow ~$16.5B

Repurchased Through Potential Debt

Issuance

~6.5B

Total Potential Repurchases ~$23.0B


2015F 2018T

$88B

~$101B

2015F 2018T

2015F 2018T

2015F 2018T

Sales

The Power of The Home Depot

33

Operating Margin

ROIC Inventory Turns

13.2%

~14.5%

4.8x

~5.7x 27%

~35%

financial overview - the home depot2015 investor and analyst conference financial overview carol...

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