Financial Overview. Discussion Overview 2015 INVESTOR AND ANALYST CONFERENCE. Carol Tomé. Fiscal 2015 Financial Guidance

Transcription

1 2015 INVESTOR AND ANALYST CONFERENCE Financial Overview Carol Tomé CFO & Executive Vice President Corporate Services Discussion Overview Fiscal 2015 Financial Guidance Our View of the U.S. Economy and our Addressable Market 2018 Financial Targets Capital Allocation 2

2 Fiscal 2015 Financial Guidance Projecting Record Sales, Operating Margin and Earnings Per Share FY 2015 Guidance As of December 2015 Comp Sales Growth Total Sales Growth Operating Margin Diluted EPS Growth ~4.9% ~5.7% to ~$88 billion ~13.2% ~14% to ~$5.36 Guidance based on spot F/X Rates 3 Discussion Overview Fiscal 2015 Financial Guidance Our View of the U.S. Economy and our Addressable Market 2018 Financial Targets Capital Allocation 4

3 Our View of the U.S. Economy and Our Addressable Market Real U.S. GDP is expected to grow, supported by improved job market and higher consumer spending Drivers of home improvement related spending expected to trend positively Changing demographics and customer preferences served well by our business model 5 1 Real U.S. GDP is Expected to Grow Year Over Year Percent Change in Real U.S. GDP Average: 2.6% 2.5% 2.2% 2.4% 2.5% 2.7% 2.6% 2.6% 1.6% 1.5% (0.3%) (2.8%) 2015E 2016E 2017E 2018E Source: BEA, Moody s Economy.com (Hist.) Composite average from various sources (Est.) 6

4 2006 Q Q Q E 2016E 1 Consumer Spending Driving U.S. GDP Growth 5% 3% 1% Contributions to GDP Personal Consumption Expenditures Other Personal Consumption Expenditures 5.8% 4.8% 2.7% Year Over Year Percent Change 3.6% 4.8% 3.4% 3.1% 4.2% 3.2% 2.9% (1%) (3%) (5%) (1.7%) Source: BEA, Moody s Economy.com (Hist.) Blue Chip Economic Indicators (Est.) 7 2 PFRI Still Below Recent Peak and Historical Mean Private Fixed Residential Investment (PFRI) as a Percentage of GDP Source: BEA, Moody s Economy.com 8

5 2006 Q Q Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q Q Sep E 2016E 2017E 2018E 2 Home Prices Are Beginning to Stabilize, But Will Continue to Grow At a Healthy Rate Home Price Index Year Over Year Percent Change S&P Case-Shiller National Home Price Index 14% 14% % below peak 174 9% 10% 10% 7% 11% 7% 5% 5% 4% % recovery since trough 2% 3% 2% 120 (5%) (4%) (4%) (4%) 101 (12%) 80 Source: S&P Dow Jones, Moody s Economy.com (Hist.) Composite average from various sources (Est.) 9 2 Recent Home Appreciation Has Resulted in Wealth Effect for Consumers Home Value vs. Mortgage Debt Negative Equity $25 Value of Housing Stock Single-Family Mortgage Debt $21.5 Trillion 12 22% # of Negative Equity Properties (m) % of Households in Negative Equity 25% $ % $ % $10 $9.4 Trillion 6 9% 10% $5 4 5% Source: CoreLogic, FED 10

6 2006 Q Q Q Housing Stock Age Has Steadily Increased During the Past 20 Years Age Of Housing Stock Remodeling Index yrs yrs yrs yrs 0-9 yrs 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % >20 yrs 78.2% 72.2% 70.1% 70.0% 65.9% Current Market Conditions Future Expectations Source: John Burns Real Estate Consulting, NAHB, Moody s Economy.com 11 2 Our U.S. Classes Haven t Fully Recovered 1) 2006 Sales 100% Pressure Treated Wood Plywood Exterior Doors Dimensional Lumber Gypsum Molding Special Order Kitchen Wire Windows 97% 94% 89% 85% 84% 82% 79% 78% 77% Source: Internal company data; 1) Select classes, not intended to be a full representation 12

7 YTD YTD E 2017E 2018E Q Q Q Household Formation and Turnover Returning to Historical Levels Household Formation Household Formation (m) 50-Year Average 8% Single-Family Housing Turnover As a Percentage of Total Housing Stock Single-Family Turnover 25-Year Average Year Average: ~1.2m 1.6 6% 6.0% % 25-Year Average: ~4.2% 3.1% 4.0% 0.0 2% YTD 2015 = Average as of Q Estimates Derived From Moody s Economy.com Estimates Based on Average Increase to Total Housing Stock from Source: Census, Moody s Economy.com (Hist.) Composite average from various sources (Est.) 13 5,000 3 Majority of Household Formation Coming From Renters, Delaying Homeownership Household Formation Owner Occupied (000s) Renter Occupied (000s) 500 Multifamily Housing Starts (000s) 4,000 3, , , (1,000) Figures Are Estimates Derived From Total Household Formation and Homeownership Rate Source: Census, Moody s Economy.com (Hist.) Zelman & Associates (Est.) 14

8 2006 H Q Oct-11 Apr-12 Oct-12 Apr-13 Oct-13 Apr-14 Oct-14 Apr-15 Oct-15 3 Ultimate Goal of Most Millennials is Still Homeownership Renters Who View Ownership As Important Goal Expect to Purchase or Remain Renter Within 3 Years 57% % 38% 53% 47% Boomers Gen X Millennials Continue Renting Purchase Home Note: Age ranges for generational buckets Millennials: 18 35; Gen X: 36 49; Boomers: Source: Home Depot Rental Economy Sizing Study, Freddie Mac 15 3 Affordability Remains High; Underwriting Standards Show Some Easing Affordability Index Average FICO Score of Closed Loans 200 Affordability Index Equilibrium Level Interest Rate Increase Impact on Affordability 0.5% = ~ % = ~ % = ~ Source: NAR, Moody s Economy.com, Ellie Mae 16

9 Discussion Overview Fiscal 2015 Financial Guidance Our View of the U.S. Economy and our Addressable Market 2018 Financial Targets Capital Allocation 17 Solid Record of Establishing and Meeting/Exceeding Financial Targets Targets Year Established Operating Margin ROIC Target Year Year Met / Exceeded 1) ~10% ~15% 20xx ~12% ~24% 2015 ~13% ~27% ) Launched from fiscal operating margin of 7.3% and ROIC of 10.7% 18

10 Our Next Targets: 14.5%/35% Operating Margin ROIC ~13.2% ~0 bps ~130 bps ~14.5% ~27% ~800 bps ~35% GM Expansion Expense Leverage Disciplined Capital Allocation1) All Targets based on 52 week years 1) Assumes excess cash used to repurchase shares Sales Target Sales ~$13B Comps ~4% $13B ~$101B New Stores ~5 7 / Year ~$88B Total CAGR Sales Growth ~4.7% - Includes Interline $75B A All Targets based on 52 week years 20

11 New Private Label Credit Value Proposition Consumer Commercial THD PLCC Offer Today Post Jan 2016 Everyday 6mo Financing Special offers, up to 24mo 365 Everyday 6mo Financing Special offers, up to 24mo 1-year hassle-free returns Large Credit Lines Business Card Large Credit Lines 60 Days to Pay Fuel Rewards year returns Gross Margin Target Productivity ~34.2% ~34.2% Reinvestment Driving productivity through cost-out efforts Reinvesting cost-out in lower margin categories Remaining the customer s advocate for value All Targets based on 52 week years 22

12 Expense Leverage Target Expenses/Sales Expense Growth Factor 1) ~20.9% 130 bps of Leverage ~19.6% Project increase in annual expense growth factor to ~50% - More variable expense structure due to Interline acquisition - Rising people costs mitigated in part by virtuous productivity cycle - Will continue to invest in stores/interconnected retail All Targets based on 52 week years 1) Defined as YoY expense growth rate divided by YoY sales growth rate 23 Discussion Overview Fiscal 2015 Financial Guidance Our View of the U.S. Economy and our Addressable Market 2018 Financial Targets Capital Allocation 24

13 Driving Towards 5.7x Inventory Turns ~4.8x 0.2x 0.7x ~5.7x Sales Growth Supply Chain Sync Working Capital Expected to be a Source of Cash Core Capital Spending Outlook $1.8B Capital Expenditures $1.6-$1.8B / Year Key Areas of Investment $1.5B Store Reinvestment $2.0B Technology/.com $1.8B $1.0B New Stores $0.5B International $0.3B $0.5B Supply Chain $0.3B Integration $0.1B $0.0B 2016T 2017T $5.0B 26

14 Cash Flow Target 1) ~$32.6B Working Capital Other Working Capital Other ~$9.6B Depreciation Net Earnings Depreciation Net Earnings Cumulative Cash Flow ) Cash Flow from the business before capital spending, dividends and share repurchases 27 Shareholder Return Principles Return on Invested Capital Principle Maintain high return on invested capital, benchmarking all uses of excess liquidity against value created for shareholders through repurchases Adjusted debt/ebitdar ratio not to exceed 2x Dividend Principle Targeting payout at approximately 50% of earnings. Intend to increase dividend every year Share Repurchase Principle After meeting the needs of the business, use excess liquidity to repurchase shares, as long as value creating 28

15 Optimizing Invested Capital Invested Capital $ Billions Bond Maturities $ Billions Weighted Avg. Maturity 13.7 Years ROIC 9.5% Equity Equity $17.8 ROIC 27% Equity Equity $6.4 $3.0 $3.0 Weighted Avg. Coupon Ratings 4.2% A/A2 Debt $11.4 Debt $20.9 $0.5 $1.2 $1.0 $0.5 $1.3 $1.0 $1.0 $1.1 $1.0 $0.5 $1.3 $1.0 $1.0 $1.0 $ Debt Capacity at 2.0x Adjusted Debt / EBITDAR Target 1.95x ~$6.5 Billion Capacity Projected Leverage 1.6x 30

16 Committed to Dividend Payout Annual Dividend Paid $2.36 $0.90 $0.95 $1.04 $1.16 $1.56 $ Share Repurchase Potential We are generating significant excess cash, which enables solid repurchases YTD Repurchased 1.2 billion shares for $58.1 billion Targeting ~$2.0 billion for Q4 2015; ~$7.0 billion for fiscal Repurchased From Cash Flow Repurchased Through Potential Debt Issuance Total Potential Repurchases ~$16.5B ~6.5B ~$23.0B 2016 Will complete remaining $11 billion authorization by 2017; will look for additional authorization 32

17 The Power of The Home Depot Sales Operating Margin ~$101B ~14.5% $88B 13.2% ROIC Inventory Turns 27% ~35% 4.8x ~5.7x 33