HOME DEPOT, INC. 10-Q

Item 1. Financial Statements. THE HOME DEPOT, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) in millions, except per share data April 30, 2023 January 29, 2023 Assets Current assets: Cash and cash equivalents $ 1,260 $ 2,757 Receivables, net 4,213 3,317 Merchandise inventories 25,371 24,886 Other current assets 1,579 1,511 Total current assets 32,423 32,471 Net property and equipment 25,674 25,631 Operating lease right-of-use assets 6,931 6,941 Goodwill 7,447 7,444 Other assets 3,911 3,958 Total assets $ 76,386 $ 76,445 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 12,630 $ 11,443 Accrued salaries and related expenses 1,931 1,991 Sales taxes payable 683 528 Deferred revenue 3,119 3,064 Income taxes payable 1,054 50 Current installments of long-term debt 1,338 1,231 Current operating lease liabilities 966 945 Other accrued expenses 3,725 3,858 Total current liabilities 25,446 23,110 Long-term debt, excluding current installments 40,915 41,962 Long-term operating lease liabilities 6,209 6,226 Deferred income taxes 954 1,019 Other long-term liabilities 2,500 2,566 Total liabilities 76,024 74,883 Contingencies (Note 8) Common stock, par value $ 0.05 ; authorized: 10,000 shares; issued: 1,795 shares at April 30, 2023 and 1,794 shares at January 29, 2023; outstanding: 1,007 shares at April 30, 2023 and 1,016 shares at January 29, 2023 90 90 Paid-in capital 12,584 12,592 Retained earnings 78,651 76,896 Accumulated other comprehensive loss ( 637 ) ( 718 ) Treasury stock, at cost, 788 shares at April 30, 2023 and 778 shares at January 29, 2023 ( 90,326 ) ( 87,298 ) Total stockholders’ equity 362 1,562 Total liabilities and stockholders’ equity $ 76,386 $ 76,445 ————— See accompanying notes to consolidated financial statements. Fiscal Q1 2023 Form 10-Q 1 Table of Contents THE HOME DEPOT, INC. CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) Three Months Ended in millions, except per share data April 30, 2023 May 1, 2022 Net sales $ 37,257 $ 38,908 Cost of sales 24,700 25,763 Gross profit 12,557 13,145 Operating expenses: Selling, general and administrative 6,355 6,610 Depreciation and amortization 651 606 Total operating expenses 7,006 7,216 Operating income 5,551 5,929 Interest and other (income) expense: Interest income and other, net ( 33 ) ( 3 ) Interest expense 474 372 Interest and other, net 441 369 Earnings before provision for income taxes 5,110 5,560 Provision for income taxes 1,237 1,329 Net earnings $ 3,873 $ 4,231 Basic weighted average common shares 1,010 1,030 Basic earnings per share $ 3.83 $ 4.11 Diluted weighted average common shares 1,013 1,034 Diluted earnings per share $ 3.82 $ 4.09 ————— See accompanying notes to consolidated financial statements. Fiscal Q1 2023 Form 10-Q 2 Table of Contents THE HOME DEPOT, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended in millions April 30, 2023 May 1, 2022 Net earnings $ 3,873 $ 4,231 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments 79 20 Cash flow hedges 2 1 Total other comprehensive income (loss), net of tax 81 21 Comprehensive income $ 3,954 $ 4,252 ————— See accompanying notes to consolidated financial statements. Fiscal Q1 2023 Form 10-Q 3 Table of Contents THE HOME DEPOT, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) Three Months Ended in millions April 30, 2023 May 1, 2022 Common Stock: Balance at beginning of period $ 90 $ 90 Shares issued under employee stock plans, net — — Balance at end of period 90 90 Paid-in Capital: Balance at beginning of period 12,592 12,132 Shares issued under employee stock plans, net ( 119 ) ( 154 ) Stock-based compensation expense 111 101 Balance at end of period 12,584 12,079 Retained Earnings: Balance at beginning of period 76,896 67,580 Net earnings 3,873 4,231 Cash dividends ( 2,118 ) ( 1,962 ) Balance at end of period 78,651 69,849 Accumulated Other Comprehensive Income (Loss): Balance at beginning of period ( 718 ) ( 704 ) Foreign currency translation adjustments, net of tax 79 20 Cash flow hedges, net of tax 2 1 Balance at end of period ( 637 ) ( 683 ) Treasury Stock: Balance at beginning of period ( 87,298 ) ( 80,794 ) Repurchases of common stock ( 3,028 ) ( 2,250 ) Balance at end of period ( 90,326 ) ( 83,044 ) Total stockholders' equity (deficit) $ 362 $ ( 1,709 ) ————— See accompanying notes to consolidated financial statements. Fiscal Q1 2023 Form 10-Q 4 Table of Contents THE HOME DEPOT, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended in millions April 30, 2023 May 1, 2022 Cash Flows from Operating Activities: Net earnings $ 3,873 $ 4,231 Reconciliation of net earnings to net cash provided by operating activities: Depreciation and amortization 793 727 Stock-based compensation expense 124 115 Changes in receivables, net ( 893 ) ( 489 ) Changes in merchandise inventories ( 457 ) ( 3,226 ) Changes in other current assets ( 60 ) ( 589 ) Changes in accounts payable and accrued expenses 1,158 1,744 Changes in deferred revenue 57 79 Changes in income taxes payable 1,004 1,121 Changes in deferred income taxes ( 59 ) ( 44 ) Other operating activities 74 120 Net cash provided by operating activities 5,614 3,789 Cash Flows from Investing Activities: Capital expenditures ( 905 ) ( 704 ) Other investing activities 2 3 Net cash used in investing activities ( 903 ) ( 701 ) Cash Flows from Financing Activities: Repayments of short-term debt, net — ( 1,035 ) Proceeds from long-term debt, net of discounts — 3,957 Repayments of long-term debt ( 1,063 ) ( 1,054 ) Repurchases of common stock ( 2,887 ) ( 2,308 ) Proceeds from sales of common stock 15 5 Cash dividends ( 2,118 ) ( 1,962 ) Other financing activities ( 135 ) ( 182 ) Net cash used in financing activities ( 6,188 ) ( 2,579 ) Change in cash and cash equivalents ( 1,477 ) 509 Effect of exchange rate changes on cash and cash equivalents ( 20 ) ( 8 ) Cash and cash equivalents at beginning of period 2,757 2,343 Cash and cash equivalents at end of period $ 1,260 $ 2,844 Supplemental Disclosures: Cash paid for interest, net of interest capitalized $ 596 $ 415 Cash paid for income taxes 185 213 ————— See accompanying notes to consolidated financial statements. Fiscal Q1 2023 Form 10-Q 5 Table of Contents THE HOME DEPOT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business The Home Depot, Inc., together with its subsidiaries (the “Company,” “Home Depot,” “we,” “our” or “us”), is a home improvement retailer that sells a wide assortment of building materials, home improvement products, lawn and garden products, décor items, and facilities maintenance, repair and operations products, in stores and online. We also provide a number of services, including home improvement installation services and tool equipment rental. We operate in the U.S. (including the Commonwealth of Puerto Rico and the territories of the U.S. Virgin Islands and Guam), Canada, and Mexico, each representing one of our three operating segments, which we aggregate into one reportable segment due to the similar nature of their operations and economic characteristics. Basis of Presentation The accompanying consolidated financial statements of the Company have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Results of operations for interim periods are not necessarily indicative of results for the entire year. As a result, these consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2022 Form 10-K. There were no significant changes to our significant accounting policies as disclosed in the 2022 Form 10-K. Recently Adopted Accounting Pronouncements ASU No. 2022-04. In September 2022, the FASB issued ASU No. 2022-04, “Liabilities—Supplier Finance Programs (Topic 405-50) - Disclosure of Supplier Finance Program Obligations,” to enhance the transparency of supplier finance programs used by an entity in connection with the purchase of goods and services. The standard requires entities that use supplier finance programs to disclose the key terms, including a description of payment terms, the confirmed amount outstanding under the program at the end of each reporting period, a description of where those obligations are presented on the balance sheet, and an annual rollforward, including the amount of obligations confirmed and the amount paid during the period. The guidance does not affect the recognition, measurement, or financial statement presentation of obligations covered by supplier finance programs. ASU No. 2022-04 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the required rollforward information, which is effective for fiscal years beginning after December 15, 2023. On January 30, 2023, we adopted ASU No. 2022-04 with no impact to our consolidated financial condition, results of operations, or cash flows. We have a supplier finance program whereby we have entered into payment processing agreements with several financial institutions. Under these agreements, the financial institutions act as our paying agents with respect to accounts payable due to certain suppliers. Participating suppliers may, at their sole discretion, elect to receive payment for one or more of our payment obligations, prior to their scheduled due dates, at a discounted price from participating financial institutions. We are not a party to the agreements between the participating financial institutions and the suppliers in connection with the program, and our rights and obligations to our suppliers are not impacted. We do not reimburse suppliers for any costs they incur for participation in the program. We have not pledged any assets as security or provided any guarantees as part of the program. We have no economic interest in our suppliers’ decision to participate in the program. Our responsibility is limited to making payment to the respective financial institution according to the terms originally negotiated with the supplier, regardless of whether the supplier elects to receive early payment from the financial institution. The payment terms we negotiate with our suppliers are consistent, irrespective of whether a supplier participates in the program. Our current payment terms with a majority of our suppliers generally range from 30 to 60 days, which we deem to be commercially reasonable. Our outstanding payment obligations under our supplier finance program were $ 334 million at April 30, 2023, and $ 480 million at January 29, 2023 and are recorded within accounts payable on the consolidated balance sheets. The associated payments are included in operating activities within the consolidated statements of cash flows. Fiscal Q1 2023 Form 10-Q 6 Table of Contents Recently Issued Accounting Pronouncements There were no significant changes in recently issued accounting pronouncements pending adoption from those disclosed in the 2022 Form 10-K. Recent accounting pronouncements pending adoption not discussed in the 2022 Form 10-K are either not applicable or are not expected to have a material impact on our consolidated financial condition, results of operations or cash flows. 2. NET SALES The following table presents net sales, classified by geography: Three Months Ended in millions April 30, 2023 May 1, 2022 Net sales – in the U.S. $ 34,507 $ 36,006 Net sales – outside the U.S. 2,750 2,902 Net sales $ 37,257 $ 38,908 The following table presents net sales by products and services: Three Months Ended in millions April 30, 2023 May 1, 2022 Net sales – products $ 35,888 $ 37,465 Net sales – services 1,369 1,443 Net sales $ 37,257 $ 38,908 The following table presents major product lines and the related merchandising departments (and related services): Major Product Line Merchandising Departments Building Materials Building Materials, Electrical/Lighting, Lumber, Millwork, and Plumbing Décor Appliances, Décor/Storage, Flooring, Kitchen and Bath, and Paint Hardlines Hardware, Indoor Garden, Outdoor Garden, and Tools The following table presents net sales by major product line (and related services): Three Months Ended in millions April 30, 2023 May 1, 2022 Building Materials $ 14,079 $ 14,869 Décor 12,251 12,874 Hardlines 10,927 11,165 Net sales $ 37,257 $ 38,908 Deferred Revenue For products and services sold in stores or online, payment is typically due at the point of sale. When we receive payment from customers before the customer has taken possession of the merchandise or the service has been performed, the amount received is recorded as deferred revenue until the sale or service is complete. Such performance obligations are part of contracts with expected original durations of typically three months or less. As of April 30, 2023 and January 29, 2023, deferred revenue for products and services was $ 2.1 billion and $ 2.0 billion, respectively. We further record deferred revenue for the sale of gift cards and recognize the associated revenue upon the redemption of those gift cards, which generally occurs within six months of gift card issuance. As of April 30, 2023 and January 29, 2023, our performance obligations for unredeemed gift cards were $ 1.0 billion and $ 1.1 billion, respectively. Gift card breakage income, which is our estimate of the portion of our outstanding gift card balance not expected to be redeemed, was immaterial during the three months ended April 30, 2023 and May 1, 2022. Fiscal Q1 2023 Form 10-Q 7 Table of Contents 3. PROPERTY AND LEASES Net Property and Equipment Net property and equipment includes accumulated depreciation and finance lease amortization of $ 27.0 billion as of April 30, 2023 and $ 26.6 billion as of January 29, 2023. Leases The following table presents the consolidated balance sheet classification related to operating and finance leases: in millions Consolidated Balance Sheet Classification April 30, 2023 January 29, 2023 Assets: Operating lease assets Operating lease right-of-use assets $ 6,931 $ 6,941 Finance lease assets (1) Net property and equipment 2,879 2,899 Total lease assets $ 9,810 $ 9,840 Liabilities: Current: Operating lease liabilities Current operating lease liabilities $ 966 $ 945 Finance lease liabilities Current installments of long-term debt 239 231 Long-term: Operating lease liabilities Long-term operating lease liabilities 6,209 6,226 Finance lease liabilities Long-term debt, excluding current installments 3,060 3,054 Total lease liabilities $ 10,474 $ 10,456 ————— (1) Finance lease assets are recorded net of accumulated amortization of $ 1.1 billion as of April 30, 2023 and $ 1.2 billion as of January 29, 2023. The following table presents supplemental non-cash information related to leases: Three Months Ended in millions April 30, 2023 May 1, 2022 Lease assets obtained in exchange for new operating lease liabilities $ 254 $ 256 Lease assets obtained in exchange for new finance lease liabilities 114 148 4. DEBT AND DERIVATIVE INSTRUMENTS Short-Term 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 2023. All of our short-term borrowings in the first three months of fiscal 2023 were under our commercial paper program, and the maximum amount outstanding at any time was $ 1.5 billion. At April 30, 2023 and January 29, 2023, there were no outstanding borrowings under our commercial paper program. Long-Term Debt We did not have any new issuances of senior notes during the first three months of fiscal 2023. In April 2023, we repaid our $ 1.0 billion 2.70 % senior notes at maturity. Fiscal Q1 2023 Form 10-Q 8 Table of Contents Derivative Instruments and Hedging Activities We had outstanding interest rate swap agreements with combined notional amounts of $ 5.4 billion at both April 30, 2023 and January 29, 2023. These agreements are accounted for as fair value hedges that swap fixed for variable rate interest to hedge changes in the fair values of certain senior notes. At April 30, 2023 and January 29, 2023, the fair values of these agreements totaled $ 740 million and $ 778 million, respectively, all of which is recognized within other long-term liabilities on the consolidated balance sheets. All of our interest rate swap agreements designated as fair value hedges meet the shortcut method requirements under GAAP. Accordingly, the changes in the fair values of these agreements offset the changes in the fair value of the hedged long-term debt. There were no material changes to the other hedging arrangements disclosed in our 2022 Form 10-K, and all related activity was immaterial for the periods presented within this document. Collateral . We generally enter into master netting arrangements, which are designed to reduce credit risk by permitting net settlement of transactions with the same counterparty. To further limit our credit risk, we enter into collateral security arrangements that provide for collateral to be received or posted when the net fair value of certain derivative instruments exceeds or falls below contractually established thresholds. The cash collateral posted by the Company related to derivative instruments under our collateral security arrangements was $ 637 million and $ 634 million as of April 30, 2023 and January 29, 2023, respectively, which was recorded in other current assets on the consolidated balance sheets. We did not hold any cash collateral as of April 30, 2023 or January 29, 2023. 5. STOCKHOLDERS' EQUITY Stock Rollforward The following table presents a reconciliation of the number of shares of our common stock outstanding and cash dividends per share: shares in millions Three Months Ended April 30, 2023 May 1, 2022 Common stock: Shares at beginning of period 1,794 1,792 Shares issued under employee stock plans, net 1 1 Shares at end of period 1,795 1,793 Treasury stock: Shares at beginning of period ( 778 ) ( 757 ) Repurchases of common stock ( 10 ) ( 7 ) Shares at end of period ( 788 ) ( 764 ) Shares outstanding at end of period 1,007 1,029 Cash dividends per share $ 2.09 $ 1.90 Share Repurchases In August 2022, our Board of Directors approved a $ 15.0 billion share repurchase authorization that replaced the previous authorization of $ 20.0 billion, which was approved in May 2021. The August 2022 authorization does not have a prescribed expiration date. As of April 30, 2023, $ 9.5 billion of the $ 15.0 billion share repurchase authorization remained available. Fiscal Q1 2023 Form 10-Q 9 Table of Contents The following table presents information about our repurchases of common stock, all of which were completed through open market purchases: in millions Three Months Ended April 30, 2023 May 1, 2022 Total number of shares repurchased 10 7 Total cost of shares repurchased (1) $ 3,028 $ 2,250 ————— (1) Effective January 1, 2023, the Company’s share repurchases are subject to a 1% excise tax as a result of the Inflation Reduction Act of 2022. Excise taxes incurred on share repurchases represent direct costs of the repurchase and are recorded as a part of the cost basis of the shares within treasury stock. The cost of shares repurchased may differ from the repurchases of common stock amounts in the consolidated statements of cash flows due to unsettled share repurchases at the end of a period and excise taxes incurred on share repurchases. 6. FAIR VALUE MEASUREMENTS The fair value of an asset is considered to be the price at which the asset could be sold in an orderly transaction between unrelated knowledgeable and willing parties. A liability’s fair value is defined as the amount that would be paid to transfer the liability to a new obligor, rather than the amount that would be paid to settle the liability with the creditor. Assets and liabilities recorded at fair value are measured using a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The levels of the fair value hierarchy are: • Level 1: observable inputs such as quoted prices in active markets for identical assets or liabilities; • Level 2: inputs other than quoted prices in active markets in Level 1 that are either directly or indirectly observable; and • Level 3: unobservable inputs for which little or no market data exists, therefore requiring management judgment to develop the Company’s own models with estimates and assumptions. Assets and Liabilities Measured at Fair Value on a Recurring Basis The following table presents the assets and liabilities that are measured at fair value on a recurring basis: April 30, 2023 January 29, 2023 in millions Fair Value (Level 2) Fair Value (Level 2) Derivative agreements – assets $ — $ — Derivative agreements – liabilities ( 740 ) ( 778 ) Total $ ( 740 ) $ ( 778 ) The fair values of our derivative instruments are determined using an income approach and Level 2 inputs, which include the respective interest rate or foreign currency forward curves and discount rates. Our derivative instruments are discussed further in Note 4 . Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis Long-lived assets, goodwill, and other intangible assets are subject to nonrecurring fair value measurement for the assessment of impairment. We did not have any material assets or liabilities that were measured at fair value on a nonrecurring basis during the three months ended April 30, 2023 or May 1, 2022. Other Fair Value Disclosures The carrying amounts of cash and cash equivalents, receivables, and accounts payable approximate fair value due to their short-term nature. The following table presents the aggregate fair values and carrying values of our senior notes: April 30, 2023 January 29, 2023 in millions Fair Value (Level 1) Carrying Value Fair Value (Level 1) Carrying Value Senior notes $ 36,992 $ 38,954 $ 38,537 $ 39,908 Fiscal Q1 2023 Form 10-Q 10 Table of Contents 7. WEIGHTED AVERAGE COMMON SHARES The following table presents the reconciliation of our basic to diluted weighted average common shares: in millions Three Months Ended April 30, 2023 May 1, 2022 Basic weighted average common shares 1,010 1,030 Effect of potentially dilutive securities (1) 3 4 Diluted weighted average common shares 1,013 1,034 Anti-dilutive securities excluded from diluted weighted average common shares 1 1 ————— (1) Represents the dilutive impact of stock-based awards. 8. CONTINGENCIES We are involved in litigation arising in the normal course of business. In management’s opinion, any such litigation is not expected to have a material adverse effect on our consolidated financial condition, results of operations or cash flows. Fiscal Q1 2023 Form 10-Q 11 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors The Home Depot, Inc.: Results of Review of Interim Financial Information We have reviewed the consolidated balance sheet of The Home Depot, Inc. and its subsidiaries (the “Company”) as of April 30, 2023, the related consolidated statements of earnings, comprehensive income, stockholders’ equity, and cash flows for the three-month periods ended April 30, 2023 and May 1, 2022, and the related notes (collectively, the “consolidated interim financial information”). Based on our reviews, we are not aware of any material modifications that should be made to the consolidated interim financial information for it to be in conformity with U.S. generally accepted accounting principles. We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheet of the Company as of January 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 PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. /s/ KPMG LLP Atlanta, Georgia May 22, 2023 Fiscal Q1 2023 Form 10-Q 12 Table of Contents