|
| | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
amounts in millions | October 29, 2017 | | October 30, 2016 | | October 29, 2017 | | October 30, 2016 |
Basic Weighted Average Common Shares | 1,168 |
| | 1,224 |
| | 1,184 |
| | 1,236 |
|
Effect of potentially dilutive securities | 6 |
| | 5 |
| | 6 |
| | 6 |
|
Diluted Weighted Average Common Shares | 1,174 |
| | 1,229 |
| | 1,190 |
| | 1,242 |
|
| | | | | | | |
Effect of anti-dilutive securities excluded from Diluted Weighted Average Common Shares | — |
| | 1 |
| | 1 |
| | 1 |
|
| | | | | | | | |
7.Fiscal Q3 2023 Form 10-Q | COMMITMENTS AND CONTINGENCIES11 | |
Data Breach
As previously reported,
8.CONTINGENCIES
We are involved in litigation arising in the third quarternormal course of fiscal 2014, the Company confirmed that its payment data systems were breached, which potentially impacted customers who used payment cards at self-checkout systems in the Company’s U.S. and Canadian stores (the "Data Breach"). Since the end of fiscal 2016, there have been no material changes with respectbusiness. In management’s opinion, any such litigation is not expected to the Data Breach, except as discussed below.
As reported in the 2016 Form 10-K, in the first quarter of fiscal 2017, the Company agreed to settlement terms that, upon approval of the court, will resolve and dismiss the claims asserted in the financial institutions class actions. In addition, in the first quarter of fiscal 2017, the parties to the purported shareholder derivative actions agreed to settlement terms that, upon approval of the court, will resolve and dismiss the claims asserted in those actions. In the third quarter of fiscal 2017, both of these settlement agreements were approved by the court.
As of the end of the first quarter of fiscal 2017, the Company has resolved the most significant claims relating to the Data Breach, and there were no material changes during the first nine months of fiscal 2017 to the Company’s loss contingency assessment relating to any remaining matters. The Company does not believe that the ultimate amounts paid with respect to any remaining matters will have a material adverse effect on the Company’sour consolidated financial condition, results of operations, or cash flows in future periods.
flows.
| | | | | | | | |
Fiscal Q3 2023 Form 10-Q | 12 | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheTo the Stockholders and Board of Directors and Stockholders
The Home Depot, Inc.:
Results of Review of Interim Financial Information
We have reviewed the Consolidated Balance Sheetconsolidated balance sheet of The Home Depot, Inc. and Subsidiariesits subsidiaries (the “Company”) as of October 29, 2017,2023, the related Consolidated Statementsconsolidated statements of Earningsearnings, comprehensive income and Comprehensive Incomestockholders’ equity for the three-month and nine-month periods ended October 29, 20172023 and October 30, 2016, and2022, the related Consolidated Statementsconsolidated statements of Cash Flowscash flows for the nine-month periods ended October 29, 20172023 and October 30, 2016. These Consolidated Financial Statements2022, 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 responsibility of the Company's management.consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles.
We conducted our reviewshave 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 29, 2023, 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 15, 2023, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of January 29, 2023 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 Public Company Accounting Oversight Board (United States),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.
Based on our reviews, we are not aware of any material modifications that should be made to the Consolidated Financial Statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.
We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the Consolidated Balance Sheet of The Home Depot, Inc. and Subsidiaries as of January 29, 2017, and the related Consolidated Statements of Earnings, Comprehensive Income, Stockholders' Equity, and Cash Flows for the year then ended (not presented herein); and in our report dated March 23, 2017, we expressed an unqualified opinion on those Consolidated Financial Statements. In our opinion, the information set forth in the accompanying Consolidated Balance Sheet as of January 29, 2017, is fairly stated, in all material respects, in relation to the Consolidated Balance Sheet from which it has been derived.
/s/ KPMG LLP
Atlanta, Georgia
November 20, 20172023
| | | | | | | | |
Fiscal Q3 2023 Form 10-Q | 13 | |
| |
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
FORWARD-LOOKING STATEMENTS
Certain statements contained herein 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 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, including those related to the Data Breach we discovered in the third quarter of fiscal 2014; 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; financial outlook; and the integration of acquired companies into our organization and the ability to recognize the anticipated synergies and 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 or are 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. You should read such information in conjunction with our Consolidated Financial Statements and related notes and "Management's2. Management's Discussion and Analysis of Financial Condition and Results of Operations"Operations.
The following discussion provides an analysis of the Company’s financial condition and results of operations from management's perspective and should be read in this report. There also may be other factors that we cannot anticipate or that are not describedconjunction with the consolidated financial statements and related notes included in this report generally because we do not currently perceive them to be material. Such factors could cause results to differ materially fromand in the 2022 Form 10-K and with our expectations.MD&A included in the 2022 Form 10-K.
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 Securities and Exchange Commission ("SEC").TABLE OF CONTENTS
EXECUTIVE SUMMARY AND SELECTED FINANCIAL AND OPERATING DATA
Net Sales increased 8.1% to $25.0The 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 | | Nine Months Ended |
October 29, 2023 | | October 30, 2022 | | October 29, 2023 | | October 30, 2022 |
Net sales | $ | 37,710 | | | $ | 38,872 | | | $ | 117,883 | | | $ | 121,572 | |
Net earnings | $ | 3,810 | | | $ | 4,339 | | | $ | 12,342 | | | $ | 13,743 | |
| | | | | | | |
Diluted earnings per share | $ | 3.81 | | | $ | 4.24 | | | $ | 12.28 | | | $ | 13.37 | |
| | | | | | | |
Net cash provided by operating activities | | | | | $ | 16,439 | | | $ | 10,021 | |
Proceeds from long-term debt, net of discounts | | | | | $ | — | | | $ | 6,942 | |
Repayments of long-term debt | | | | | $ | 1,200 | | | $ | 2,423 | |
| | | | | | | |
We reported net sales of $37.7 billion forin the third quarter of fiscal 2017 from $23.22023. Net earnings were $3.8 billion, for the third quarter of fiscal 2016.or $3.81 per diluted share. For the first nine months of fiscal 2017, Net Sales increased 6.4% to $77.02023, net sales were $117.9 billion from $72.4and net earnings were $12.3 billion, for the first nine months of fiscal 2016. Our total comparable store sales increased 7.9% foror $12.28 per diluted share.
During the third quarter of fiscal 2017, driven by a 5.1% increase in our comparable store average ticket and a 2.7% increase in our comparable store customer transactions. Comparable store sales for our U.S.2023, we opened five new stores increased 7.7% for the third quarter of fiscal 2017. For the first nine months of fiscal 2017, our total comparable store sales increased 6.6% and comparable store sales for our U.S. stores increased 6.8%.
For the third quarter of fiscal 2017, we reported Net Earnings of $2.2 billion and Diluted Earnings per Share of $1.84 compared to Net Earnings of $2.0 billion and Diluted Earnings per Share of $1.60 for the third quarter of fiscal 2016. For the first nine months of fiscal 2017, we reported Net Earnings of $6.9 billion and Diluted Earnings per Share of $5.76 compared to Net Earnings of $6.2 billion and Diluted Earnings per Share of $5.00 for the first nine months of fiscal 2016.
In the third quarter of fiscal 2017, three hurricanes impacted our operations in the continental U.S., Puerto Rico and the U.S. Virgin Islands. Hurricane-related sales positively impacted total sales growth by approximately $282 million in the third quarter of fiscal 2017. The gross margin on these hurricane-related sales was considerably less than the Company average. We also incurred approximately $104 million of hurricane-related expense in the third quarter of fiscal 2017. As a result of the hurricanes, operating profit was negatively impacted by approximately $51 million in the third quarter of fiscal 2017.
We opened onetwo new storestores in Mexico, during the third quarter of fiscal 2017, forand we had no store closures, resulting in a total store count of 2,283 2,333 at the end of the quarter. As of October 29, 2023, a total of 319 stores, or 13.7% of our total store count, were located in Canada and Mexico. For the third quarter of fiscal 2023, sales per retail square foot were $595.71, and for the first nine months of fiscal 2023, sales per retail square foot were $623.17. Our inventory turnover ratio was 4.3 times at the end of the third quarter for both fiscal 2023 and fiscal 2022.
We generated $16.4 billion of fiscal 2017, a total of 303 of our stores, or 13.3%, were located in Canada and Mexico. Total sales per square foot for the third quarter of fiscal 2017 were $412.49, up 7.9%cash flow from last year. Foroperations during the first nine months of 2017, total salesfiscal 2023. This cash flow, together with cash on hand, was used to fund cash payments of $6.5 billion for share repurchases and $6.3 billion for dividends. In addition, we funded $2.4 billion in capital expenditures and repaid $1.2 billion of long-term debt during the first nine months of fiscal 2023. In February 2023, we announced a 10% increase in our quarterly cash dividend to $2.09 per square foot were $423.60, up 6.1% from last year. share.
Our inventory turnover ratioROIC for the trailing twelve-month period was 5.2 times38.7% at the end of the third quarter of fiscal 20172023 compared to 5.0 times43.3% at the end of the third quarter of fiscal 2016.
In the third quarter and first nine months of fiscal 2017, we continued to focus on the following:
Customer Experience – Customer experience is anchored on the principles of putting customers first and taking care of our associates, and our commitment to customer service remains strong. In the first nine months of fiscal 2017, we continued to invest2022. The decrease in our digital platforms, including content, website improvements, and the mobile experience, to provide a frictionless interconnected experience online, while also remaining focused on improving the interconnected experience in the store. Sales from our online channels increased 18.6% for the third quarter of fiscal 2017 compared to the same period last year, and represented 6.2% of our total Net Sales. For the first nine months of fiscal 2017, sales from our online channels increased 21.6% compared to the same period last year, and represented 6.4% of our total Net Sales. We also continued to focus on being a valued partner to our professional customersROIC was primarily driven by offering solutions in the store and at the jobsite that help them effectively manage their businesses.
Product Authority – Product authority is facilitated by our merchandising transformation and portfolio strategy, which is focused on delivering product innovation, assortment and value. We strive to be the leader in product authority, connecting products and services to the needs of our customers. In the first nine months of fiscal 2017, our merchants continued to collaborate with our suppliers to introduce a wide range of innovative new products to our do-it-yourself, do-it-for-me and professional customers, while remaining focused on offering everyday values in our stores and online.
Productivity and Efficiency Driven by Capital Allocation – We drive productivity and efficiency through continuous operational improvement in our stores and supply chain. Further, our disciplined capital allocation builds shareholder value through higher returns on invested capital and total value returned to shareholders in the form of dividends and share repurchases. We plan to continue to innovate our business model and value chain to support our productivity cycle and enhance overall value for customers throughout the year.
In February 2017, our Board of Directors increased our targeted dividend payout ratio to 55% of Diluted Earnings per Share. Also in February 2017, our Board of Directors authorized a new $15.0 billion share repurchase program that replaced the previous authorization. Under the program, we repurchased a total of 12.3 million shares of our common stock for $2.1 billion through an ASR agreement and the open market during the third quarter of fiscal 2017. During the first nine months of fiscal 2017, we repurchased 38.0 million shares of our common stock for $5.9 billion through ASR agreements and the open market.
We generated $9.7 billion of cash flow from operations in the first nine months of fiscal 2017. This cash flow,lower operating income along with
$3.0 billion ofan increase in average long-term debt
issued inover the
first nine monthsrespective periods. See the Non-GAAP Financial Measures section below for our definition and calculation of fiscal 2017, was used to fund cash payments of $6.1 billion for share repurchases, pay $3.2 billion of dividends, fund $1.4 billion in capital expenditures, repay $585 million of short-term debt, and repay $500 million of floating rate senior notes that matured on September 15, 2017.Our return on invested capital ("ROIC") was 32.5% for the third quarter of fiscal 2017 compared to 29.1% for the third quarter of fiscal 2016. We define ROIC, as net operating profit after tax ("NOPAT"),well as a reconciliation of NOPAT, a non-GAAP financial measure, for the most recent twelve-month period, divided by the average of beginning and ending long-term debt, including current installments, and equity for the most recent twelve-month period. For a reconciliation of NOPAT to Net Earnings, thenet earnings (the most comparable GAAP financial measure, and our calculationmeasure).
| | | | | | | | |
Fiscal Q3 2023 Form 10-Q | 14 | |
RESULTS OF OPERATIONS
We believeThe following table presents the percentage relationship between Net Salesnet sales and the major categories in the Consolidated Statementsour consolidated statements of Earnings and the percentage change in the dollar amounts of each of these items as well as the selected sales data presented below are important in evaluating the performance of our business operations.earnings.
FISCAL 2023 AND FISCAL 2022 THREE MONTH COMPARISONS |
| | | | | | | | | | | | | | | | | | | | | |
| % of Net Sales | | % Increase (Decrease) in Dollar Amounts |
| Three Months Ended | | Nine Months Ended | |
| October 29, 2017 | | October 30, 2016 | | October 29, 2017 | | October 30, 2016 | | Three Months | | Nine Months |
NET SALES | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 8.1 | % | | 6.4 | % |
GROSS PROFIT | 34.6 |
| | 34.7 |
| | 34.1 |
| | 34.2 |
| | 7.5 |
| | 6.1 |
|
Operating Expenses: | | | | |
|
| |
|
| | | | |
Selling, General and Administrative | 18.0 |
| | 18.5 |
| | 17.4 |
| | 17.9 |
| | 5.5 |
| | 3.7 |
|
Depreciation and Amortization | 1.8 |
| | 1.9 |
| | 1.7 |
| | 1.8 |
| | 2.7 |
| | 2.7 |
|
Total Operating Expenses | 19.9 |
| | 20.4 |
| | 19.2 |
| | 19.7 |
| | 5.2 |
| | 3.6 |
|
| | | | | | | | | | | |
OPERATING INCOME | 14.7 |
| | 14.3 |
| | 14.9 |
| | 14.5 |
| | 10.8 |
| | 9.4 |
|
Interest and Other (Income) Expense: | | | | | | | | | | | |
Interest and Investment Income | (0.1 | ) | | — |
| | (0.1 | ) | | — |
| | N/M |
| | N/M |
|
Interest Expense | 1.1 |
| | 1.1 |
| | 1.0 |
| | 1.0 |
| | 9.3 |
| | 8.5 |
|
Interest and Other, net | 1.0 |
| | 1.0 |
| | 1.0 |
| | 1.0 |
| | 4.7 |
| | 5.1 |
|
| | | | | | | | | | | |
EARNINGS BEFORE PROVISION FOR INCOME TAXES | 13.7 |
| | 13.3 |
| | 14.0 |
| | 13.5 |
| | 11.3 |
| | 9.8 |
|
Provision for Income Taxes | 5.1 |
| | 4.8 |
| | 5.1 |
| | 5.0 |
| | 13.7 |
| | 8.9 |
|
NET EARNINGS | 8.7 | % | | 8.5 | % | | 8.9 | % | | 8.6 | % | | 10.0 | % | | 10.3 | % |
| | | | | | | | | | | |
SELECTED SALES DATA (1) | | | | | | | | | | | |
Number of Customer Transactions (millions) | 389.5 |
| | 380.0 |
| | 1,212.0 |
| | 1,184.8 |
| | 2.5 | % | | 2.3 | % |
Average Ticket (actual) | $ | 62.84 |
| | $ | 59.78 |
| | $ | 62.78 |
| | $ | 60.26 |
| | 5.1 | % | | 4.2 | % |
Sales per Square Foot (actual) | $ | 412.49 |
| | $ | 382.18 |
| | $ | 423.60 |
| | $ | 399.12 |
| | 7.9 | % | | 6.1 | % |
Comparable Store Sales Increase (%) (2) | 7.9 | % | | 5.5 | % | | 6.6 | % | | 5.5 | % | | N/A |
| | N/A |
|
Online Sales (% of Net Sales) (3) | 6.2 | % | | 5.6 | % | | 6.4 | % | | 5.6 | % | | 18.6 | % | | 21.6 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended |
| October 29, 2023 | | October 30, 2022 |
dollars in millions | $ | | % of Net Sales | | $ | | % of Net Sales |
Net sales | $ | 37,710 | | | | | $ | 38,872 | | | |
Gross profit | 12,738 | | | 33.8 | % | | 13,224 | | | 34.0 | % |
Operating expenses: | | | | | | | |
Selling, general and administrative | 6,649 | | | 17.6 | | | 6,468 | | | 16.6 | |
Depreciation and amortization | 683 | | | 1.8 | | | 608 | | | 1.6 | |
Total operating expenses | 7,332 | | | 19.4 | | | 7,076 | | | 18.2 | |
Operating income | 5,406 | | | 14.3 | | | 6,148 | | | 15.8 | |
Interest and other (income) expense: | | | | | | | |
Interest income and other, net | (49) | | | (0.1) | | | (7) | | | — | |
Interest expense | 487 | | | 1.3 | | | 413 | | | 1.1 | |
Interest and other, net | 438 | | | 1.2 | | | 406 | | | 1.0 | |
Earnings before provision for income taxes | 4,968 | | | 13.2 | | | 5,742 | | | 14.8 | |
Provision for income taxes | 1,158 | | | 3.1 | | | 1,403 | | | 3.6 | |
Net earnings | $ | 3,810 | | | 10.1 | % | | $ | 4,339 | | | 11.2 | % |
—————
Note: Certain percentages may not sum to totals due to rounding.
| | | | | | | | | | | | | | | | | |
| Three Months Ended | | |
Selected financial and sales data: | October 29, 2023 | | October 30, 2022 | | % Change |
Comparable sales (% change) | (3.1) | % | | 4.3 | % | | N/A |
Comparable customer transactions (% change) (1) | (2.7) | % | | (4.4) | % | | N/A |
Comparable average ticket (% change) (1) | (0.3) | % | | 8.8 | % | | N/A |
Customer transactions (in millions) (1) | 399.8 | | | 409.8 | | | (2.4) | % |
Average ticket (1) (2) | $ | 89.36 | | | $ | 89.67 | | | (0.3) | % |
Sales per retail square foot (1) (3) | $ | 595.71 | | | $ | 618.50 | | | (3.7) | % |
Diluted earnings per share | $ | 3.81 | | | $ | 4.24 | | | (10.1) | % |
—————
| |
(1) | Selected Sales Data does not include results for Interline Brands, Inc., which was acquired in the third quarter of fiscal 2015. |
| |
(2) | Includes sales at locations open greater than 12 months, including relocated and remodeled stores and online sales, and excluding closed stores. Retail stores become comparable on the Monday following their 365th day of operation. Comparable store sales is intended only as supplemental information and is not a substitute for Net Sales or Net Earnings presented in accordance with GAAP.
|
| |
(3) | Consists of sales generated online through our websites for products picked up in stores or delivered to customer locations. |
N/M – Not Meaningful
N/A – Not Applicable(1)Does not include results for HD Supply.
(2)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.
(3)Sales per retail square foot represents annualized sales divided by 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 stores and is used by management to monitor the performance of the Company’s retail operations as an indicator of the productivity of owned and leased square footage for these retail operations.
Sales
RESULTS OF OPERATIONSWe assess our sales performance by evaluating both net sales and comparable sales.
Net SalesSales. Net sales for the third quarter of fiscal 2017 increased 8.1% to $25.02023 were $37.7 billion, a decrease of 3.0% from $23.2$38.9 billion for the third quarter of fiscal 2016. For2022. The decrease in net sales for the third quarter of fiscal 2023 reflects the impact of a negative comparable sales environment, primarily driven by a decrease in comparable customer transactions as well as the impact from commodity price deflation.
| | | | | | | | |
Fiscal Q3 2023 Form 10-Q | 15 | |
Online sales, which consist of sales generated through our websites and mobile applications for products picked up at our stores or delivered to customer locations, represented 14.3% of net sales during the third quarter of fiscal 2023 and increased by 4.6% compared to the third quarter of fiscal 2022.
A weaker U.S. dollar positively impacted net sales by $131 million during the third quarter of fiscal 2023.
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 closed stores. Retail stores become comparable on the Monday following their 52nd 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 for the third quarter of fiscal 2023 decreased 3.1%, reflecting a 2.7% decrease in comparable customer transactions and a 0.3% decrease in comparable average ticket compared to the third quarter of fiscal 2022. The decrease in comparable customer transactions reflects the impact of macroeconomic factors and moderating home improvement demand. Comparable average ticket reflects U.S. commodity price deflation, which negatively impacted average ticket by approximately 60 basis points, partially offset by demand for new and innovative products.
During the third quarter of fiscal 2023, our Building Materials merchandising department posted positive comparable sales compared to the third quarter of fiscal 2022. All of our other merchandising departments posted negative comparable sales during the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022.
Gross Profit
Gross profit for the third quarter of fiscal 2023 decreased 3.7% to $12.7 billion from $13.2 billion for the third quarter of fiscal 2022. Gross profit as a percentage of net sales, or gross profit margin, was 33.8% for the third quarter of fiscal 2023 compared to 34.0% for the third quarter of fiscal 2022. The decrease in gross profit margin during the third quarter of fiscal 2023 was primarily driven by price stabilization, partially offset by lower supply chain costs.
Operating Expenses
Our operating expenses are composed of SG&A and depreciation and amortization.
Selling, General & Administrative. SG&A for the third quarter of fiscal 2023 increased $181 million, or 2.8%, to $6.6 billion from $6.5 billion for the third quarter of fiscal 2022. As a percentage of net sales, SG&A was 17.6% for the third quarter of fiscal 2023 compared to 16.6% for the third quarter of fiscal 2022, primarily reflecting deleverage from a negative comparable sales environment and previously executed wage investments for hourly associates.
Depreciation and Amortization. Depreciation and amortization for the third quarter of fiscal 2023 increased $75 million, or 12.3%, to $683 million from $608 million for the third quarter of fiscal 2022. As a percentage of net sales, depreciation and amortization was 1.8% for the third quarter of fiscal 2023 compared to 1.6% for the third quarter of fiscal 2022, primarily reflecting increased depreciation expense from ongoing investments in the business and deleverage from a negative comparable sales environment.
Interest and Other, net
Interest and other, net, for the third quarter of fiscal 2023 increased $32 million, or 7.9%, to $438 million from $406 million for the third quarter of fiscal 2022. As a percentage of net sales, interest and other, net was 1.2% for the third quarter of fiscal 2023 compared to 1.0% for the third quarter of fiscal 2022, primarily due to increased variable rate interest on floating rate debt resulting from interest rate swaps, higher average debt balances, and deleverage from a negative comparable sales environment, partially offset by higher interest income.
Provision for Income Taxes
Our combined effective income tax rate was 23.3% for the third quarter of fiscal 2023 compared to 24.4% for the third quarter of fiscal 2022. The decrease in our effective rate was driven by certain discrete tax benefits recognized during the third quarter of fiscal 2023.
Diluted Earnings per Share
Diluted earnings per share were $3.81 for the third quarter of fiscal 2023 compared to $4.24 for the third quarter of fiscal 2022. The decrease in diluted earnings per share was primarily driven by lower net earnings during the third quarter of fiscal 2023, partially offset by lower diluted shares due to share repurchases.
| | | | | | | | |
Fiscal Q3 2023 Form 10-Q | 16 | |
FISCAL 2023 AND FISCAL 2022 NINE MONTH COMPARISONS
| | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended |
| October 29, 2023 | | October 30, 2022 |
dollars in millions | $ | | % of Net Sales | | $ | | % of Net Sales |
Net sales | $ | 117,883 | | | | | $ | 121,572 | | | |
Gross profit | 39,452 | | | 33.5 | % | | 40,852 | | | 33.6 | % |
Operating expenses: | | | | | | | |
Selling, general and administrative | 19,919 | | | 16.9 | | | 19,735 | | | 16.2 | |
Depreciation and amortization | 1,987 | | | 1.7 | | | 1,830 | | | 1.5 | |
Total operating expenses | 21,906 | | | 18.6 | | | 21,565 | | | 17.7 | |
Operating income | 17,546 | | | 14.9 | | | 19,287 | | | 15.9 | |
Interest and other (income) expense: | | | | | | | |
Interest income and other, net | (123) | | | (0.1) | | | (12) | | | — | |
Interest expense | 1,430 | | | 1.2 | | | 1,166 | | | 1.0 | |
Interest and other, net | 1,307 | | | 1.1 | | | 1,154 | | | 0.9 | |
Earnings before provision for income taxes | 16,239 | | | 13.8 | | | 18,133 | | | 14.9 | |
Provision for income taxes | 3,897 | | | 3.3 | | | 4,390 | | | 3.6 | |
Net earnings | $ | 12,342 | | | 10.5 | % | | $ | 13,743 | | | 11.3 | % |
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Note: Certain percentages may not sum to totals due to rounding.
| | | | | | | | | | | | | | | | | |
| Nine Months Ended | | |
Selected financial and sales data: | October 29, 2023 | | October 30, 2022 | | % Change |
Comparable sales (% change) | (3.2) | % | | 4.2 | % | | N/A |
Comparable customer transactions (% change) (1) | (3.2) | % | | (5.3) | % | | N/A |
Comparable average ticket (% change) (1) | — | % | | 9.7 | % | | N/A |
Customer transactions (in millions) (1) | 1,249.8 | | | 1,287.9 | | | (3.0) | % |
Average ticket (1) (2) | $ | 90.42 | | | $ | 90.45 | | | — | |
Sales per retail square foot (1) (3) | $ | 623.17 | | | $ | 646.81 | | | (3.7) | % |
Diluted earnings per share | $ | 12.28 | | | $ | 13.37 | | | (8.2) | % |
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(1)Does not include results for HD Supply.
(2)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.
(3)Sales per retail square foot represents annualized sales divided by 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 stores and is used by management to monitor the performance of the Company’s 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 first nine months of fiscal 2017, Net Sales increased 6.4% to $77.02023 were $117.9 billion, a decrease of 3.0% from $72.4$121.6 billion for the first nine months of fiscal 2016.2022. The increasedecrease in Net Salesnet sales for the third quarter and first nine months of fiscal 2017 primarily2023 reflects the impact of positivea negative comparable store sales environment, primarily driven by increaseda decrease in comparable customer transactions and average ticket growth. Hurricane-relatedas well as the impact from lumber price deflation.
Online sales positively impacted totalrepresented 14.4% of net sales growth by approximately $282 million induring the third quarter of fiscal 2017. We expect continued hurricane recovery-related sales in the fourth quarter of fiscal 2017.
Total comparable store sales increased 7.9% and 6.6% for the third quarter and first nine months of fiscal 2017, respectively, which reflects a number2023 and increased by 0.9% compared to the first nine months of factors, includingfiscal 2022.
A weaker U.S. dollar positively impacted net sales by $145 million for the executionfirst nine months of our strategy and broad-based growth across our stores. Allfiscal 2023.
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Fiscal Q3 2023 Form 10-Q | 17 | |
Comparable Sales. Total comparable store sales for the third quarterfirst nine months of fiscal 2017. 2023 decreased 3.2%, reflecting a 3.2% decrease in comparable customer transactions and flat comparable average ticket compared to the first nine months of fiscal 2022. The decrease in comparable customer transactions reflects the impact of macroeconomic factors and moderating home improvement demand. Comparable average ticket was primarily impacted by inflation across several product categories along with demand for new and innovative products, offset by U.S. commodity price deflation, which negatively impacted average ticket by approximately 180 basis points, driven primarily by lumber.
During the first nine months of fiscal 2017, all2023, four of our departments 14 merchandising departments—Building Materials, Hardware, Outdoor Garden, and Plumbing—posted positive comparable store sales except for one, which was flat. Comparable store sales for our Lumber, Appliances, Electrical, Indoor Garden, Tools, Building Materials and Flooring product categories were above the Company average for the third quarter of fiscal 2017. Further, our comparable store average ticket increased 5.1% and 4.2% for the third quarter and first nine months of fiscal 2017, respectively, due in partcompared to strong sales in big ticket purchases such as appliances and flooring. Our comparable store customer transactions increased 2.7% and 2.3% for the third quarter and first nine months of fiscal 2017, respectively.
Gross Profit increased 7.5% to $8.6 billion for the third quarter of fiscal 2017 from $8.0 billion for the third quarter of fiscal 2016. For the first nine months of fiscal 2017, 2022. All of our other merchandising departments posted negative comparable sales during the first nine months of fiscal 2023 compared to the first nine months of fiscal 2022, with our Lumber department posting a double-digit comparable sales decline primarily resulting from lumber price deflation, partially offset by higher unit sales.
Gross Profit increased 6.1%
Gross profit for the first nine months of fiscal 2023 decreased 3.4% to $26.3$39.5 billion from $24.8$40.9 billion for the first nine months of fiscal 2016.2022. Gross Profitprofit as a percentpercentage of Net Sales,net sales, or gross profit margin, was 34.6% for the third quarter of fiscal 2017 compared to 34.7% for the third quarter of fiscal 2016. For the first nine months of fiscal 2017, gross profit margin was 34.1% compared to 34.2%33.5% for the first nine months of fiscal 2016. Gross profit margin for the third quarter of fiscal 2017 reflects pressure from product mix changes and higher supply chain expense driven by hurricane-related sales. Gross profit margin2023 compared to 33.6% for the first nine months of fiscal 2017 reflects the impact of product mix changes and higher shrink, partially offset by benefits from our supply chain.
Selling, General and Administrative ("SG&A") increased 5.5% to $4.5 billion for the third quarter of fiscal 2017 from $4.3 billion for the third quarter of fiscal 2016. For2022. The decrease in gross profit margin during the first nine months of fiscal 2017,2023 was primarily driven by price stabilization along with pressure from shrink, partially offset by lower supply chain costs and favorable product mix.
Operating Expenses
Our operating expenses are composed of SG&A and depreciation and amortization.
Selling, General & Administrative. SG&A for the first nine months of fiscal 2023 increased 3.7%$184 million, or 0.9%, to $13.4$19.9 billion from $12.9$19.7 billion for the first nine months of fiscal 2016. SG&A includes approximately $104 million of hurricane-related expenses in the third quarter and first nine months of fiscal 2017.2022. As a percentpercentage of Net Sales,net sales, SG&A was 18.0% for the third quarter of fiscal 2017 compared to 18.5% for the third quarter of fiscal 2016. For the first nine months of fiscal 2017, SG&A as a percent of Net Sales was 17.4% compared to 17.9%16.9% for the first nine months of fiscal 2016. The decrease in SG&A as a percent of Net Sales for the third quarter and first nine months of fiscal 2017 reflects expense leverage resulting from the positive comparable store sales environment and continued expense control.
Depreciation and Amortization increased 2.7% to $454 million for the third quarter of fiscal 2017 from $442 million for the third quarter of fiscal 2016. Depreciation and Amortization was $1.3 billion for the first nine months of both fiscal 2017 and 2016. Depreciation and Amortization as a percent of Net Sales was 1.8% for the third quarter of fiscal 20172023 compared to 1.9% for the third quarter of fiscal 2016. For the first nine months of fiscal 2017, Depreciation and Amortization as a percent of Net Sales was 1.7% compared to 1.8%16.2% for the first nine months of fiscal 2016. 2022, primarily reflecting deleverage from a negative comparable sales environment along with previously executed wage investments for hourly associates, partially offset by the one-time benefit from the favorable settlement of litigation with a vendor as well as lower incentive compensation.
Depreciation and Amortization as a percent of Net SalesAmortization. Depreciation and amortization for the third quarter and first nine months of fiscal 2017 reflects expense leverage resulting from the positive comparable store sales environment.
Operating Income increased 10.8% to $3.7 billion for the third quarter of fiscal 2017 from $3.3 billion for the third quarter of fiscal 2016. For the first nine months of fiscal 2017, Operating Income2023 increased 9.4%$157 million, or 8.6%, to $11.5$2.0 billion from $10.5$1.8 billion for the first nine months of fiscal 2016.2022. As a resultpercentage of the hurricanes, Operating Incomenet sales, depreciation and amortization was negatively impacted by approximately $51 million in the third quarter and first nine months of fiscal 2017. Operating Income as a percent of Net Sales was 14.7% for the third quarter of fiscal 2017 compared to 14.3% for the third quarter of fiscal 2016. For the first nine months of fiscal 2017, Operating Income as a percent of Net Sales was 14.9% compared to 14.5%1.7% for the first nine months of fiscal 2016.
Interest2023 and Other, net, was $247 million for the third quarter of fiscal 2017 compared to $236 million for the third quarter of fiscal 2016. For the first nine months of fiscal 2017, Interest and Other, net, was $737 million compared to $701 million1.5% for the first nine months of fiscal 2016. 2022, primarily reflecting increased depreciation expense from ongoing investments in the business and deleverage from a negative comparable sales environment.
Interest and Other, net as a percent of Net Sales was 1.0%
Interest and other, net for the third quarter and first nine months of both fiscal 20172023 increased $153 million, or 13.3%, to $1.3 billion from $1.2 billion for the first nine months of fiscal 2022. As a percentage of net sales, interest and 2016.other, net was 1.1% for the first nine months of fiscal 2023 compared to 0.9% for the first nine months of fiscal 2022, primarily due to increased variable rate interest on floating rate debt resulting from interest rate swaps, higher average debt balances, and deleverage from a negative comparable sales environment, partially offset by higher interest income.
Provision for Income Taxes
Our combined effective income tax rate was 36.3%24.0% for the first nine months of fiscal 20172023 compared to 36.6%24.2% for the first nine months of fiscal 2016. The effective income tax rate2022.
Diluted Earnings per Share
Diluted earnings per share were $12.28 for the first nine months of fiscal 2017 reflects a $92 million benefit to our Provision for Income Taxes for share-based payment awards as a result of the adoption of ASU No. 2016-09.
Diluted Earnings per Share were $1.84 for the third quarter of fiscal 20172023, compared to $1.60 for the third quarter of fiscal 2016. For the first nine months of fiscal 2017, Diluted Earnings per Share were $5.76 compared to $5.00$13.37 for the first nine months of fiscal 2016. Diluted Earnings2022. The decrease in diluted earnings per Share forshare was primarily driven by lower net earnings during the third quarter and first nine months of fiscal 2017 included benefits2023, partially offset by lower diluted shares due to share repurchases.
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Fiscal Q3 2023 Form 10-Q | 18 | |
Non-GAAP Financial MeasuresNON-GAAP FINANCIAL MEASURES
To provide clarity internally and externally, abouton 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 provides ourpresents the calculation of ROIC, calculation and reconcilestogether with a reconciliation of NOPAT to Net Earnings:net earnings (the most comparable GAAP measure):
| | | | | | | | | | | |
| Twelve Months Ended |
dollars in millions | October 29, 2023 | | October 30, 2022 |
Net earnings | $ | 15,704 | | | $ | 17,095 | |
Interest and other, net | 1,715 | | | 1,477 | |
Provision for income taxes | 4,879 | | | 5,540 | |
Operating income | 22,298 | | | 24,112 | |
Income tax adjustment (1) | (5,347) | | | (5,844) | |
NOPAT | $ | 16,951 | | | $ | 18,268 | |
| | | |
Average debt and equity | $ | 43,810 | | | $ | 42,222 | |
| | | |
ROIC | 38.7 | % | | 43.3 | % |
|
| | | | | | | | |
| | For the Twelve Months Ended |
dollar amounts in millions | | October 29, 2017 | | October 30, 2016 |
Net Earnings | | $ | 8,595 |
| | $ | 7,684 |
|
Add: | | | | |
Interest and Other, net | | 972 |
| | 937 |
|
Provision for Income Taxes | | 4,852 |
| | 4,428 |
|
Operating Income | | 14,419 |
| | 13,049 |
|
Subtract: | | | | |
Income Tax Adjustment (1) | | 5,234 |
| | 4,771 |
|
Net Operating Profit After Tax | | $ | 9,185 |
| | $ | 8,278 |
|
| | | | |
Average Debt and Equity (2) | | $ | 28,255 |
| | $ | 28,441 |
|
| | | | |
Return on Invested Capital (3) | | 32.5 | % | | 29.1 | % |
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(1) | Income Tax Adjustment is defined as Operating Income multiplied by the Company's effective tax rate. |
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(2) | Average Debt and Equity is defined as the average of beginning and ending long-term debt, including current installments, and equity for the most recent twelve-month period. |
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(3) | ROIC is calculated as NOPAT divided by Average Debt and Equity. |
(1)Income tax adjustment is defined as operating income multiplied by our effective tax rate for the trailing twelve months. LIQUIDITY AND CAPITAL RESOURCES
At October 29, 2023, we had $2.1 billion in cash and cash equivalents, of which $1.0 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 program, and access to the long-term debt capital markets should be sufficient not only for our operating requirements, any required debt payments, and satisfaction of other contractual obligations, but also to enable us to invest in the business, fund dividend payments, and fund any share repurchases through the next several fiscal years. In addition, we believe that we have the ability to obtain alternative sources of financing, if necessary.
Our material cash requirements include contractual and other obligations arising in the normal course of business. These obligations primarily include long-term debt and related interest payments, operating and finance lease obligations, and purchase obligations.
In addition to our cash requirements, we follow a disciplined approach to capital allocation. This approach first prioritizes investing in the business, followed by paying dividends, with the intent of then returning excess cash to shareholders in the form of share repurchases. For fiscal 2023, we plan to invest approximately $3 billion back into the business in the form of capital expenditures, in line with our expectation 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, to enhance long-term strategic positioning, or in response to the economic environment, as necessary or appropriate. Capital expenditures were $2.4 billion for the first nine months of fiscal 2023.
In February 2023, we announced a 10% increase in our quarterly cash dividend from $1.90 to $2.09 per share. During the first nine months of fiscal 2023, we paid cash dividends of $6.3 billion to shareholders. We intend to pay a dividend in the future; however, any future dividend is subject to declaration by our Board of Directors based on our earnings, capital requirements, financial condition, and other factors considered relevant by our Board of Directors.
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Fiscal Q3 2023 Form 10-Q | 19 | |
In August 2023, our Board of Directors approved a $15.0 billion share repurchase authorization that replaced the previous authorization of $15.0 billion, which was approved in August 2022. This new authorization does not have a prescribed expiration date. As of October 29, 2023, approximately $13.8 billion of the $15.0 billion share repurchase authorization remained available. During the first nine months of fiscal 2023, we had cash payments of $6.5 billion for repurchases of our common stock through open market purchases.
DEBT
We have a commercial paper program that allows for borrowings up to $5.0 billion. In connection with our program, we have back-up credit facilities with a consortium of banks for borrowings up to $5.0 billion, which consist of a five-year $3.5 billion credit facility scheduled to expire in July 2027 and a 364-day $1.5 billion credit facility scheduled to expire in July 2024. In July 2023, we completed the renewal of our 364-day $1.5 billion credit facility, extending the maturity from July 2023 to July 2024. All of our short-term borrowings in the first nine months of fiscal 2023 were under our commercial paper program, and the maximum amount outstanding at any time was $1.5 billion. At October 29, 2023, we had no outstanding borrowings under our commercial paper program, and we were in compliance with all of the covenants contained in our credit facilities, none of which are expected to impact our liquidity or capital resources.
We also issue senior notes from time to time as part of our capital management strategy. We did not have any issuances of senior notes during the first nine months of fiscal 2023. In April 2023, we repaid $1.0 billion of senior notes at maturity.
The indentures governing our senior notes do not generally limit our ability to incur additional indebtedness or require us to maintain financial ratios or specified levels of net worth or liquidity. The indentures governing our notes contain various customary covenants; however, none are expected to impact our liquidity or capital resources. See Note 4 to our consolidated financial statements for further discussion of our debt arrangements. CASH FLOWS SUMMARY
Operating Activities
Cash flow generated from operations provides us with a significant source of liquidity. For the first nine months of fiscal 2017, Net Cash Provided by Operating Activities was $9.7 billion compared to $7.9 billion for the same period of fiscal 2016. This increase primarily reflects a $677 million increase inOur operating cash flows result primarily from the effectivecash received from our customers, offset by cash payments we make for products and services, associate compensation, operations, occupancy costs, and income taxes. 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 procurementcategory expansion, the timing of Merchandise Inventoriescash receipts and a $638 million increasepayments, vendor payment terms, and fluctuations in Net Earnings resulting from higher sales and expense leverage.
Net Cash Used in Investing Activities for the first nine months of fiscal 2017 was $1.6 billion compared to $1.1 billion for the same period of fiscal 2016. This change was primarily due to $260 million in Payments for Business Acquired, net, related to the acquisition of Compact Power Equipment, Inc. and a $209 million increase in Capital Expenditures.foreign exchange rates.
Net Cash Used in Financing Activities for the first nine months of fiscal 2017 was $7.3cash provided by operating activities increased by $6.4 billion compared to $5.4 billion for the same period of fiscal 2016. This change was primarily due to $1.5 billion more in Repurchases of Common Stock, $607 million more in Cash Dividends Paid to Stockholders and $235 million more in Repayments of Short-Term Debt, partially offset by $532 million more in net incremental long-term debt issued in the first nine months of fiscal 20172023 compared to the same periodfirst nine months of fiscal 2016.2022, primarily driven by changes in working capital, slightly offset by a decrease in net earnings. Changes in working capital were primarily driven by lower inventory purchases in the first nine months of fiscal 2023 relative to the first nine months of fiscal 2022, as well as timing of vendor payments.
In September 2017, we issuedInvesting Activities
Net cash used in investing activities increased by $903 million in the 2027 notes at a discountfirst nine months of $3 million. Thefiscal 2023 compared to the first nine months of fiscal 2022, primarily resulting from cash paid for acquired businesses as well as increased capital expenditures during fiscal 2023.
Financing Activities
Net cash used in financing activities in the first nine months of fiscal 2023 primarily reflected $6.5 billion of share repurchases, $6.3 billion of cash dividends paid, and $1.2 billion of repayments of long-term debt. Net cash used in financing activities in the first nine months of fiscal 2022 primarily reflected $5.9 billion of cash dividends paid, $5.1 billion of share repurchases, $2.4 billion of repayments of long-term debt, and $1.0 billion of net repayments of short-term debt, partially offset by $6.9 billion of net proceeds from long-term debt.
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Fiscal Q3 2023 Form 10-Q | 20 | |
CRITICAL ACCOUNTING ESTIMATES
Also in September 2017, we entered into an interest rate swap agreement with a notional amount of $250 million, accounted for as a fair value hedge, to hedge against changes in the fair value of the 2027 notes attributable to changes in the designated benchmark interest rate.
In June 2017, we issued the 2020 floating rate notes; the 2020 notes at a discount of $1 million; and the 2047 notes at a discount of $5 million. The net proceeds of the June 2017 issuance were used for general corporate purposes, including repurchases of shares of our common stock. See Note 3 to the Consolidated Financial Statements included in this report.
In the second quarter of fiscal 2017, we entered into an ASR agreement under which we paid $1.65 billion to a third party financial institution and received a total of 10.8 million shares. In the third quarter of fiscal 2017, we entered into an ASR agreement under which we paid $1.2 billion to a third party financial institution and received an initial delivery of 6.7 million shares. The ASR agreement terminated on November 17, 2017, at which time the Company became contractually entitled to receive an additional 0.7 million shares upon settlement. See Note 4 to the Consolidated Financial Statements included in this report.
We have commercial paper programs that allow for borrowings up to $2.0 billion. In connection with these programs, we have a back-up credit facility with a consortium of banks for borrowings up to $2.0 billion. The credit facility expires in December 2019 and contains various customary covenants. At October 29, 2017, we were in compliance with all of the covenants, and none are expected to impact our liquidity or capital resources. During the first nine months of fiscal 2017, all of our short-term borrowings were under these commercial paper programs, and the maximum amount outstanding at any time during the first nine months of fiscal 2017 was $1.0 billion. As of October 29, 2017,2023, there were $125 million of borrowings outstanding underno changes to our critical accounting estimates or our significant accounting policies as disclosed in the commercial paper programs.2022 Form 10-K. Our significant accounting policies are disclosed in Note 1 to our consolidated financial statements.As of October 29, 2017, we had $3.5 billion in Cash and Cash Equivalents. We believe that our current cash position, access to the long-term debt capital markets and cash flow generated from operations should be sufficient not only for our operating requirements but also to enable us to complete our capital expenditure programs and fund dividend payments, share repurchases and any required long-term debt payments through the next several fiscal years. In addition, we have funds available from our commercial paper programs and the ability to obtain alternative sources of financing.ADDITIONAL INFORMATION
RECENT ACCOUNTING PRONOUNCEMENTS
For a summary of recently issuedinformation on accounting pronouncements which may be applicablethat have impacted or are expected to us,materially impact our consolidated financial condition, results of operations, or cash flows, see Note 1 to the Consolidated Financial Statements included in this report.our consolidated financial statements. For a summary of recently adopted accounting pronouncements, see Note 2 to the Consolidated Financial Statements included in this report.
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Item 3. | Quantitative and Qualitative Disclosures about Market Risk. |
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Our exposure to market risksrisk results primarily from fluctuations in interest rates.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 and sale of certain commodity products. There have been no material changes to our exposure to market risks, including the types of instruments we use to manage our exposure to such risks, from those disclosed in our 2016the 2022 Form 10-K.
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Item 4. | Controls and Procedures. |
Item 4. Controls and Procedures.
Under the direction and with the participation of the Company'sour Chief Executive Officer and Chief Financial Officer, the Companywe evaluated itsour disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended)Act) and concluded that itsour disclosure controls and procedures were effective as of October 29, 2017. There has been no change2023.
We are in the Company'sprocess of an ongoing business transformation initiative, which includes upgrading and migrating certain accounting and finance systems. 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 transformation continues.
Except as described above, there were no other changes in our internal control over financial reporting during the fiscal quarter ended October 29, 2017,2023 that hashave materially affected, or isare reasonably likely to materially affect, the Company'sour internal control over financial reporting.
PART II.II – OTHER INFORMATION
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Item 1. | Legal Proceedings. |
Item 1. Legal Proceedings.
Except as set forth below, there were no material changes during the third quarterfirst nine months of fiscal 20172023 to our disclosure in Item 3 of our 2016 Form 10-K.
For a description of the matters related to the Data Breach, see Note 7 to the Consolidated Financial Statements included in Part I, Item 1, "Financial Statements"3, “Legal Proceedings” of our 2022 Form 10-K.
SEC regulations require us to disclose certain information about proceedings arising under federal, state or local environmental provisions if we reasonably believe that such proceedings may result in monetary sanctions above a stated threshold. Pursuant to SEC regulations, the Company uses a threshold of $1 million for purposes of determining whether disclosure of any such proceedings is required.
As previously reported, in April 2021 we entered into a civil consent decree with the U.S. Department of Justice, the U.S. Environmental Protection Agency (“EPA”), which description is incorporated hereinand the states of Utah, Massachusetts, and Rhode Island. The decree required certain changes to lead-safe work practices in our installation services business and provided for stipulated penalties for failure to perform by reference.our third-party installers. In the first quarter of fiscal 2023, the EPA informed us that it believes we owe certain penalties for violations by our third-party installers of documentation requirements under the decree. We are engaged in discussions with the EPA regarding the basis for the stipulated penalties we allegedly owe under the decree. While we cannot predict the amount of stipulated penalties we may ultimately owe to the EPA under the decree, we do not expect it to have a material adverse effect on our consolidated financial condition, results of operations, or cash flows. Further, we expect to recoup any amount we ultimately owe from corresponding fines we levy against our third-party installers.
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Fiscal Q3 2023 Form 10-Q | 21 | |
Item 1A. Risk Factors.
In addition to the other information set forth in this Form 10-Q,report, you should carefully consider the factors discussed under Part I, Item 1A, "Risk Factors"“Risk Factors” and elsewhere in our 2016the 2022 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 immaterialmaterial to our business. There have been no material changes in the risk factors discussed in our 2016the 2022 Form 10-K.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. |
(a) Item 2. Unregistered Sales of Equity Securities,
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1. | During the third quarter of fiscal 2017, the Company issued 535 deferred stock units under The Home Depot, Inc. Non-Employee Directors' Deferred Stock Compensation Plan pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (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 third quarter of fiscal 2017. 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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2. | During the third quarter of fiscal 2017, the Company credited 1,188 deferred stock units to participant accounts under The Home Depot FutureBuilder 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 the termination of service as described in this plan.
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(b) Use of Proceeds, and Issuer Purchases of Equity SecuritiesSecurities.
InISSUER PURCHASES OF EQUITY SECURITIES
The following table presents the first quarter of fiscal 2017, the Board of Directors authorized a $15.0 billion share repurchase program. Through the end of the third quarter of fiscal 2017, the Company has repurchased shares of its common stock having a value of approximately $5.9 billion under this program. The number and average price of shares purchased in each fiscal month of the third quarter of fiscal 2017 are set forth in the table below:2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased(1) | | Average Price Paid Per Share(1)(3) | | 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)(3) |
July 31, 2023 – August 27, 2023 | | 1,549,939 | | | $ | 328.70 | | | 1,546,953 | | | $ | 14,748,903,852 | |
August 28, 2023 – September 24, 2023 | | 1,642,254 | | | 324.92 | | | 1,640,096 | | | 14,216,012,142 | |
September 25, 2023 – October 29, 2023 | | 1,579,519 | | | 292.96 | | | 1,570,423 | | | 13,756,031,773 | |
| | 4,771,712 | | | 315.57 | | | 4,757,472 | | | |
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| | | | | | | | | | | | | | |
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) |
July 31, 2017 – August 27, 2017 | | 4,007,643 |
| | $ | 151.26 |
| | 3,975,984 |
| | $ | 10,507,805,292 |
|
August 28, 2017 – September 24, 2017(3) | | 8,368,921 |
| | $ | 156.65 |
| | 8,349,174 |
| | $ | 9,052,805,480 |
|
September 25, 2017 – October 29, 2017 | | 3,214 |
| | $ | 163.99 |
| | — |
| | $ | 9,052,805,480 |
|
| | 12,379,778 |
| | $ | 154.91 |
| | 12,325,158 |
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(1)These amounts include repurchases pursuant to the Company's 1997 andour Omnibus Stock Incentive Plan, as Amended and Restated 2005May 19, 2022, and our 1997 Omnibus Stock Incentive Plans (the "Plans"Plan (collectively, the “Plans”). Under the Plans, participants may surrender shares as payment of applicable tax withholding on the vesting of restricted stock and deferred share awards.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 the first quarter of fiscal 2017, theOn August 14, 2023, our Board of Directors authorizedapproved a $15.0 billion share repurchase programauthorization that replaced the previous authorization. The programauthorization of $15.0 billion, which was approved on August 18, 2022. This new authorization does not have a prescribed expiration date.
(3) InExcludes excise taxes incurred on share repurchases.
SALES OF UNREGISTERED SECURITIES
During the third quarter of fiscal 2017,2023, we issued 553 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 during the third quarter of fiscal 2023 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. 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 third quarter of fiscal 2023, we credited 935 deferred stock units to participant accounts under the Restoration Plans 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 these plans.
Item 5. Other Information.
During the fiscal quarter ended October 29, 2023, no director or officer of the Company paid $1.2 billion under an ASR agreement and received an initial deliveryadopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of 6.7 million shares. The ASR agreement terminated on November 17, 2017, at which time the Company becameSEC’s Regulation S-K.
contractually entitled to receive an additional 0.7 million shares upon settlement. See Note 4 to the Consolidated Financial Statements included in this report.
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.