Home Depot(HD) - 2025 Q3 - Quarterly Report

Commonly Used or Defined Terms The report defines key financial and operational terms to ensure consistent understanding - The report defines key terms such as 'Comparable sales', 'Exchange Act', 'fiscal 2023', 'fiscal 2024', 'GAAP', 'MD&A', 'NOPAT', 'Restoration Plans', 'ROIC', 'SEC', 'Securities Act', 'SG&A', 'SRS', and '2023 Form 10-K' to ensure clarity and consistent understanding of the financial and operational discussions[5] Forward-Looking Statements The report contains forward-looking statements subject to risks and uncertainties - The document contains forward-looking statements regarding future performance, demand for products/services, net sales growth, comparable sales, economic conditions, housing market, credit markets, tariffs, supply chain, cybersecurity, ESG matters, share repurchases, net earnings, EPS, dividends, capital allocation, liquidity, ROIC, interest rates, foreign currency, inflation/deflation, debt issuance, litigation, international operations, accounting changes, store operations, financial outlook, and the impact of acquisitions (including SRS)[6] PART I – FINANCIAL INFORMATION Item 1. Financial Statements. This section presents unaudited consolidated financial statements and notes reflecting the SRS acquisition's impact Consolidated Balance Sheets The balance sheet reflects a significant increase in assets and liabilities driven by the SRS acquisition | Metric | Oct 27, 2024 (in millions) | Jan 28, 2024 (in millions) | |:---|:---|:---| | Cash and cash equivalents | $1,531 | $3,760 | | Receivables, net | $5,782 | $3,328 | | Merchandise inventories | $23,897 | $20,976 | | Goodwill | $19,428 | $8,455 | | Intangible assets, net | $9,112 | $3,606 | | Total assets | $97,264 | $76,530 | | Short-term debt | $1,344 | $— | | Accounts payable | $13,506 | $10,037 | | Current installments of long-term debt | $3,176 | $1,368 | | Long-term debt, excluding current installments | $50,058 | $42,743 | | Total liabilities | $91,478 | $75,486 | | Total stockholders' equity | $5,786 | $1,044 | Consolidated Statements of Earnings Net sales increased, but higher operating and interest expenses led to a decrease in net earnings and EPS | Metric (in millions, except per share) | Three Months Ended Oct 27, 2024 | Three Months Ended Oct 29, 2023 | Nine Months Ended Oct 27, 2024 | Nine Months Ended Oct 29, 2023 | |:---|:---|:---|:---|:---| | Net sales | $40,217 | $37,710 | $119,810 | $117,883 | | Gross profit | $13,425 | $12,738 | $40,274 | $39,452 | | Operating income | $5,418 | $5,406 | $17,031 | $17,546 | | Interest and other, net | $595 | $438 | $1,512 | $1,307 | | Net earnings | $3,648 | $3,810 | $11,809 | $12,342 | | Diluted earnings per share | $3.67 | $3.81 | $11.90 | $12.28 | Consolidated Statements of Comprehensive Income Comprehensive income decreased due to negative foreign currency and cash flow hedge adjustments | Metric (in millions) | Three Months Ended Oct 27, 2024 | Three Months Ended Oct 29, 2023 | Nine Months Ended Oct 27, 2024 | Nine Months Ended Oct 29, 2023 | |:---|:---|:---|:---|:---| | Net earnings | $3,648 | $3,810 | $11,809 | $12,342 | | Foreign currency translation adjustments | $(155) | $(196) | $(414) | $51 | | Cash flow hedges | $3 | $1 | $(48) | $5 | | Total other comprehensive income (loss) | $(152) | $(195) | $(462) | $56 | | Comprehensive income | $3,496 | $3,615 | $11,347 | $12,398 | Consolidated Statements of Stockholders' Equity Stockholders' equity grew significantly, driven by net earnings and paid-in capital | Metric (in millions) | Oct 27, 2024 | Oct 29, 2023 | |:---|:---|:---| | Common Stock, balance at end of period | $90 | $90 | | Paid-in Capital, balance at end of period| $13,835 | $12,927 | | Retained Earnings, balance at end of period | $88,771 | $82,934 | | Accumulated Other Comprehensive Loss, balance at end of period | $(939) | $(662) | | Treasury stock, balance at end of period | $(95,971) | $(93,859) | | Total stockholders' equity | $5,786 | $1,430 | Consolidated Statements of Cash Flows Operating cash flow decreased while investing cash use surged due to the SRS acquisition and related debt financing | Metric (in millions) | Nine Months Ended Oct 27, 2024 | Nine Months Ended Oct 29, 2023 | |:---|:---|:---| | Net cash provided by operating activities | $15,139 | $16,439 | | Net cash used in investing activities | $(19,912) | $(3,148) | | Net cash provided by (used in) financing activities | $2,637 | $(13,923) | | Change in cash and cash equivalents | $(2,136) | $(632) | | Cash and cash equivalents at end of period | $1,531 | $2,058 | - Payments for businesses acquired, net, significantly increased to $17,613 million for the nine months ended October 27, 2024, compared to $795 million in the prior year, primarily due to the SRS acquisition[24] - Proceeds from long-term debt, net of discounts, were $9,983 million for the nine months ended October 27, 2024, compared to $0 in the prior year, reflecting financing for the SRS acquisition[27] Notes to Consolidated Financial Statements These notes detail accounting policies and significant events, including the SRS acquisition's financial impact Note 1. Summary of Significant Accounting Policies This note outlines the basis of presentation, reclassifications, and receivables breakdown - The company completed the acquisition of SRS during the second quarter of fiscal 2024, impacting consolidated financial statements[29] - Effective July 28, 2024, intangible assets, net, are separately presented on the consolidated balance sheets, and intangible asset amortization is separately presented on the statements of cash flows, with prior periods reclassified[30] | Receivables, net (in millions) | Oct 27, 2024 | Jan 28, 2024 | |:---|:---|:---| | Card receivables | $1,229 | $988 | | Rebate receivables | $1,688 | $841 | | Customer receivables | $2,321 | $924 | | Other receivables | $544 | $575 | | Total Receivables, net | $5,782 | $3,328 | - Customer receivables increased compared to the beginning of the year primarily due to the SRS acquisition[31] - Outstanding payment obligations under the supplier finance program were $533 million at October 27, 2024, and $514 million at January 28, 2024, recorded within accounts payable[32] - ASU No 2024-03, requiring disaggregated expense disclosures, is effective for fiscal years beginning after December 15, 2026, and the company is evaluating its impact[35] Note 2. Segment Reporting and Net Sales The company operates a Primary segment, with the new SRS operations aggregated under 'Other' - The company's primary segment includes retail stores in the U.S., Canada, and Mexico, selling building materials, home improvement, lawn and garden, décor, and facilities maintenance products, along with installation and rental services[36] - The SRS acquisition in June 2024 introduced three new operating segments (roofing and complementary building products, landscape, and pool), which are aggregated as 'Other' and do not meet reportable segment thresholds[36] | Net Sales (in millions) | Three Months Ended Oct 27, 2024 | Nine Months Ended Oct 27, 2024 | |:---|:---|:---| | Primary Segment | $37,289 | $115,608 | | Other (SRS operations) | $2,928 | $4,202 | | Consolidated Net Sales | $40,217 | $119,810 | - SRS operations ('Other') contributed $2.9 billion and $4.2 billion to net sales for the three and nine months ended October 27, 2024, respectively, with roofing and related products accounting for approximately 68% and 67% of these sales[37] | Net Sales by Geography (in millions) | Three Months Ended Oct 27, 2024 | Three Months Ended Oct 29, 2023 | Nine Months Ended Oct 27, 2024 | Nine Months Ended Oct 29, 2023 | |:---|:---|:---|:---|:---| | Net sales – in the U.S. | $37,135 | $34,544 | $110,217 | $108,242 | | Net sales – outside the U.S. | $3,082 | $3,166 | $9,593 | $9,641 | | Total Net Sales | $40,217 | $37,710 | $119,810 | $117,883 | | Net Sales by Products and Services (in millions) | Three Months Ended Oct 27, 2024 | Three Months Ended Oct 29, 2023 | Nine Months Ended Oct 27, 2024 | Nine Months Ended Oct 29, 2023 | |:---|:---|:---|:---|:---| | Net sales – products | $38,692 | $36,156 | $115,375 | $113,405 | | Net sales – services | $1,525 | $1,554 | $4,435 | $4,478 | | Total Net Sales | $40,217 | $37,710 | $119,810 | $117,883 | - Deferred revenue for products and services was $1.6 billion at October 27, 2024, and $1.7 billion at January 28, 2024[40] - Performance obligations for unredeemed gift cards were $1.0 billion and $1.1 billion, respectively[42] Note 3. Property and Leases Net property, equipment, and total lease assets and liabilities increased - Net property and equipment included accumulated depreciation and finance lease amortization of $28.6 billion as of October 27, 2024, up from $27.1 billion as of January 28, 2024[43] | Lease Metric (in millions) | Oct 27, 2024 | Jan 28, 2024 | |:---|:---|:---| | Operating lease right-of-use assets | $8,521 | $7,884 | | Finance lease assets | $2,703 | $2,840 | | Total lease assets | $11,224 | $10,724 | | Current operating lease liabilities | $1,262 | $1,050 | | Current finance lease liabilities | $359 | $268 | | Long-term operating lease liabilities | $7,538 | $7,082 | | Long-term finance lease liabilities | $2,803 | $3,000 | | Total lease liabilities | $11,962 | $11,400 | - Lease assets obtained in exchange for new operating lease liabilities were $934 million for the nine months ended October 27, 2024, compared to $791 million in the prior year[44] Note 4. Goodwill and Intangible Assets Goodwill and intangible assets increased significantly due to the SRS acquisition, with no impairment found | Goodwill (in millions) | Primary Segment | Other (SRS) | Consolidated | |:---|:---|:---|:---| | Balance at January 28, 2024 | $8,455 | $— | $8,455 | | Acquisitions | $— | $10,987 | $10,987 | | Other | $(14) | $— | $(14) | | Balance at October 27, 2024 | $8,441 | $10,987 | $19,428 | - The $10,987 million in acquisitions goodwill for fiscal 2024 primarily relates to the preliminary determination for the SRS acquisition[45] - Annual qualitative impairment assessments for goodwill in the Primary segment and the new SRS reporting units concluded no impairment indicators[45] | Intangible Assets (in millions) | Oct 27, 2024 Net Carrying Amount | Jan 28, 2024 Net Carrying Amount | |:---|:---|:---| | Customer relationships | $7,917 | $2,755 | | Trade names (definite-lived) | $546 | $202 | | Other (definite-lived) | $— | $— | | Trade names (indefinite-lived) | $649 | $649 | | Total Intangible Assets | $9,112 | $3,606 | - Intangible asset amortization expense was $138 million for Q3 fiscal 2024 (vs $48 million in Q3 fiscal 2023) and $280 million for the first nine months of fiscal 2024 (vs $136 million in prior year), reflecting the SRS acquisition[46] | Estimated Future Amortization Expense (in millions) | |:---| | Fiscal 2024 - remaining | $145 | | Fiscal 2025 | $552 | | Fiscal 2026 | $552 | | Fiscal 2027 | $544 | | Fiscal 2028 | $527 | | Thereafter | $6,143 | | Total | $8,463 | Note 5. Debt and Derivative Instruments The company issued $10.0 billion in senior notes to finance the SRS acquisition and manages interest rate risk with swaps - The commercial paper program was increased from $5.0 billion to $19.5 billion in May 2024 for the SRS acquisition, then reduced to $9.5 billion after long-term debt issuance[49] - In June 2024, the company issued nine tranches of senior notes totaling $10.0 billion with various maturities and interest rates (e.g., $600 million floating rate notes due Dec 2025, $900 million 5.100% notes due Dec 2025, $1.5 billion 5.150% notes due June 2026, etc)[50][52] - Outstanding borrowings under the commercial paper program were $1.3 billion at October 27, 2024, with a weighted average interest rate of 4.8%[49] - The company had $5.4 billion in interest rate swap agreements designated as fair value hedges, with a fair value of $754 million at October 27, 2024, recognized in other long-term liabilities[53] - Cash collateral posted by the company related to derivative instruments was $624 million at October 27, 2024[55] Note 6. Stockholders' Equity Share repurchases were paused for the SRS acquisition, with $11.7 billion remaining under authorization | Stock Metric (in millions) | Oct 27, 2024 | Oct 29, 2023 | |:---|:---|:---| | Common stock shares at end of period | 1,799 | 1,796 | | Treasury stock shares at end of period | (806) | (800) | | Shares outstanding at end of period | 993 | 996 | | Cash dividends per share (Nine Months) | $6.75 | $6.27 | - The Board of Directors approved a $15.0 billion share repurchase authorization in August 2023, replacing a previous one[57] - Approximately $11.7 billion remained available as of October 27, 2024[57] - Share repurchases were paused in March 2024 in anticipation of the SRS acquisition[57] - Total cost of shares repurchased for the nine months ended October 27, 2024, was $599 million, compared to $6,561 million in the prior year[57] Note 7. Fair Value Measurements The company uses a three-tier hierarchy for fair value, with derivatives measured using Level 2 inputs - Fair value hierarchy categorizes inputs into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[59] | Recurring Fair Value Measurements (in millions) | Oct 27, 2024 Fair Value (Level 2) | Jan 28, 2024 Fair Value (Level 2) | |:---|:---|:---| | Derivative agreements – assets | $— | $— | | Derivative agreements – liabilities | $(754) | $(859) | | Total | $(754) | $(859) | - The fair values of derivative instruments are determined using an income approach and Level 2 inputs, primarily interest rate forward curves and discount rates[60] | Senior Notes (in millions) | Oct 27, 2024 Fair Value (Level 1) | Oct 27, 2024 Carrying Value | Jan 28, 2024 Fair Value (Level 1) | Jan 28, 2024 Carrying Value | |:---|:---|:---|:---|:---| | Senior notes | $47,239 | $49,761 | $38,495 | $40,843 | Note 8. Weighted Average Common Shares This note reconciles basic to diluted weighted average common shares, showing a slight decrease | Weighted Average Common Shares (in millions) | Three Months Ended Oct 27, 2024 | Three Months Ended Oct 29, 2023 | Nine Months Ended Oct 27, 2024 | Nine Months Ended Oct 29, 2023 | |:---|:---|:---|:---|:---| | Basic weighted average common shares | 991 | 996 | 990 | 1,002 | | Effect of potentially dilutive securities | 2 | 3 | 2 | 3 | | Diluted weighted average common shares | 993 | 999 | 992 | 1,005 | | Anti-dilutive securities excluded | 1 | 1 | 1 | 1 | Note 9. Contingencies Management believes current litigation is not expected to have a material adverse effect on the company - Management believes that current litigation arising in the normal course of business is not expected to have a material adverse effect on the company's consolidated financial condition, results of operations, or cash flows[64] Note 10. Acquisitions This note details the $18.0 billion acquisition of SRS, its strategic rationale, and preliminary purchase price allocation - The Home Depot acquired SRS Distribution Inc on June 18, 2024, for a total preliminary purchase consideration of $18,028 million, consisting of $17,707 million in cash and $321 million in fair value of common stock issued[65] - The acquisition of SRS is expected to accelerate growth with residential professional customers, complement existing capabilities, and establish the company as a leading specialty trade distributor[65] | Preliminary Allocation of Consideration Transferred (in millions) | |:---| | Cash and cash equivalents | $161 | | Receivables | $1,832 | | Merchandise inventories | $1,988 | | Property and equipment | $789 | | Goodwill | $10,967 | | Intangible assets | $5,780 | | Other current and non-current assets | $744 | | Total assets acquired | $22,261 | | Accounts payable | $1,791 | | Other current liabilities | $584 | | Deferred tax liabilities | $1,076 | | Other long-term liabilities | $782 | | Total liabilities assumed | $4,233 | | Identifiable Intangible Assets (in millions) | Weighted Average Useful Life (Years) | Preliminary Fair Value | |:---|:---|:---| | Customer relationships | 20 | $5,400 | | Trade names | 5 | $380 | | Total identifiable intangible assets | | $5,780 | - Goodwill of $10,967 million is attributable to anticipated growth acceleration, expansion in high-growth verticals, additional market opportunities, enhanced delivery network, and sales force growth[67] - Approximately $1.0 billion of goodwill is expected to be tax deductible[67] - Net sales attributable to SRS since the acquisition date (June 18, 2024) totaled $2.9 billion for the three months and $4.2 billion for the nine months ended October 27, 2024[69] Report of Independent Registered Public Accounting Firm KPMG LLP issued an unqualified opinion on the interim financial information, finding no need for material modifications - KPMG LLP conducted a review of the consolidated interim financial information and is not aware of any material modifications that should be made for conformity with U.S. GAAP[72] - The firm previously issued an unqualified opinion on the company's consolidated financial statements for the fiscal year ended January 28, 2024[72] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management discusses financial results, the SRS acquisition's impact, and capital allocation strategies Executive Summary Net sales grew due to the SRS acquisition, but net earnings and EPS declined amid paused share repurchases | Metric (in billions, except EPS) | Q3 Fiscal 2024 | Nine Months Fiscal 2024 | |:---|:---|:---| | Net sales | $40.2 | $119.8 | | Net earnings | $3.6 | $11.8 | | Diluted EPS | $3.67 | $11.90 | - The company opened five new stores in Q3 fiscal 2024, reaching a total of 2,345 stores[79] - Inventory turnover ratio increased to 4.8 times at the end of Q3 fiscal 2024, up from 4.3 times in Q3 fiscal 2023, due to lower average inventory levels in the Primary segment[79] - Cash flow from operations for the first nine months of fiscal 2024 was $15.1 billion[79] - The SRS acquisition was funded by $17.7 billion in cash purchase consideration, using commercial paper borrowings, long-term debt, and cash on hand[79] - The quarterly cash dividend increased by 7.7% to $2.25 per share in February 2024[79] - Share repurchases were paused in March 2024[79] | Metric | Q3 Fiscal 2024 (Trailing Twelve Months) | Q3 Fiscal 2023 (Trailing Twelve Months) | |:---|:---|:---| | ROIC | 31.5% | 38.7% | - The decrease in ROIC was primarily due to higher average long-term debt and equity from SRS acquisition financing, coupled with lower operating income[79] - The SRS acquisition, completed on June 18, 2024, is expected to accelerate growth with residential professional customers and expand the company's role as a specialty trade distributor[80] Results of Operations The SRS acquisition drove sales growth despite negative comparable sales, while higher expenses reduced net earnings Sales Q3 net sales rose 6.6% driven by SRS, though comparable sales fell 1.3% | Sales Metric (Q3) | Oct 27, 2024 | Oct 29, 2023 | % Change | |:---|:---|:---|:---| | Net sales (in millions) | $40,217 | $37,710 | 6.6% | | Comparable sales (% change) | (1.3)% | (3.1)% | N/A | | Comparable customer transactions (% change) | (0.6)% | (2.7)% | N/A | | Comparable average ticket (% change) | (0.8)% | (0.3)% | N/A | | Customer transactions (in millions) | 399.0 | 399.8 | (0.2)% | | Average ticket | $88.65 | $89.36 | (0.8)% | | Sales per retail square foot | $582.97 | $595.71 | (2.1)% | | Diluted earnings per share | $3.67 | $3.81 | (3.7)% | - The increase in Q3 net sales was primarily driven by SRS, which contributed $2.9 billion, partially offset by negative comparable sales due to decreases in comparable average ticket and customer transactions[83] - Online sales represented 14.0% of net sales in Q3 fiscal 2024, increasing by 4.0% year-over-year[86] - Comparable sales decreases were attributed to macroeconomic uncertainties, high interest rates impacting home improvement demand, and price stabilization, partially offset by hurricane-related demand[86] | Sales Metric (Nine Months) | Oct 27, 2024 | Oct 29, 2023 | % Change | |:---|:---|:---|:---| | Net sales (in millions) | $119,810 | $117,883 | 1.6% | | Comparable sales (% change) | (2.5)% | (3.2)% | N/A | | Comparable customer transactions (% change) | (1.5)% | (3.2)% | N/A | | Comparable average ticket (% change) | (1.2)% | — % | N/A | | Customer transactions (in millions) | 1,236.8 | 1,249.8 | (1.0)% | | Average ticket | $89.38 | $90.42 | (1.2)% | | Sales per retail square foot | $604.11 | $623.17 | (3.1)% | | Diluted earnings per share | $11.90 | $12.28 | (3.1)% | - For the first nine months, net sales increased due to SRS ($4.2 billion contribution), new store openings, and fiscal 2023 acquisitions, offset by negative comparable sales[97] Gross Profit Gross profit margin decreased slightly in Q3 due to SRS but increased for the nine-month period | Gross Profit (in millions) | Q3 Fiscal 2024 | Q3 Fiscal 2023 | Nine Months Fiscal 2024 | Nine Months Fiscal 2023 | |:---|:---|:---|:---|:---| | Gross profit | $13,425 | $12,738 | $40,274 | $39,452 | | Gross profit margin | 33.4% | 33.8% | 33.6% | 33.5% | - The decrease in Q3 gross profit margin primarily reflects the inclusion of SRS in consolidated results, partially offset by lower shrink within the Primary segment[87] - The increase in nine-month gross profit margin reflects lower transportation costs and lower shrink within the Primary segment, partially offset by the inclusion of SRS[98] Operating Expenses SG&A and D&A expenses increased, primarily driven by the SRS acquisition and higher operational costs | Operating Expenses (in millions) | Q3 Fiscal 2024 | Q3 Fiscal 2023 | Nine Months Fiscal 2024 | Nine Months Fiscal 2023 | |:---|:---|:---|:---|:---| | SG&A | $7,212 | $6,649 | $21,023 | $19,919 | | SG&A (% of net sales) | 17.9% | 17.6% | 17.5% | 16.9% | | Depreciation and amortization | $795 | $683 | $2,220 | $1,987 | | D&A (% of net sales) | 2.0% | 1.8% | 1.9% | 1.7% | - Q3 SG&A increase (8.5%) was due to higher payroll, operational costs, and deleverage from negative comparable sales, partially offset by SRS inclusion[88] - Q3 Depreciation and amortization increased by $112 million (16.4%), primarily due to $90 million in increased intangible asset amortization, with $86 million related to SRS[88] - Nine-month SG&A increase (5.5%) was due to deleverage from negative comparable sales, higher payroll costs, and lower legal-related benefits[99] - Nine-month Depreciation and amortization increased by $233 million (11.7%), primarily due to $144 million in increased intangible asset amortization, with $125 million related to SRS, and increased depreciation from business investments[99] Interest and Other, net Net interest expense increased significantly due to higher debt levels from acquisition financing | Interest and Other, net (in millions) | Q3 Fiscal 2024 | Q3 Fiscal 2023 | Nine Months Fiscal 2024 | Nine Months Fiscal 2023 | |:---|:---|:---|:---|:---| | Interest and other, net | $595 | $438 | $1,512 | $1,307 | | Interest and other, net (% of net sales) | 1.5% | 1.2% | 1.3% | 1.1% | - The Q3 increase of $157 million (35.8%) was primarily due to higher interest expense from increased long-term debt[89] - The nine-month increase of $205 million (15.7%) was primarily due to higher interest expense from increased long-term debt and commercial paper borrowings, partially offset by higher interest income from elevated cash balances prior to the SRS acquisition[100] Provision for Income Taxes The Q3 effective tax rate increased to 24.4% due to prior-year one-time tax benefits | Provision for Income Taxes (in millions) | Q3 Fiscal 2024 | Q3 Fiscal 2023 | Nine Months Fiscal 2024 | Nine Months Fiscal 2023 | |:---|:---|:---|:---|:---| | Provision for income taxes | $1,175 | $1,158 | $3,710 | $3,897 | | Effective income tax rate | 24.4% | 23.3% | 23.9% | 24.0% | - The increase in the Q3 effective tax rate reflects certain one-time tax benefits recognized during Q3 fiscal 2023[90] Diluted Earnings per Share Diluted EPS decreased for both periods due to lower net earnings, partially offset by fewer shares | Diluted EPS | Q3 Fiscal 2024 | Q3 Fiscal 2023 | Nine Months Fiscal 2024 | Nine Months Fiscal 2023 | |:---|:---|:---|:---|:---| | Diluted EPS | $3.67 | $3.81 | $11.90 | $12.28 | - The decrease in Q3 diluted EPS was primarily driven by lower net earnings, slightly offset by lower diluted shares[93] - The decrease in nine-month diluted EPS was primarily driven by lower net earnings, partially offset by lower diluted shares[104] Non-GAAP Financial Measures ROIC, a non-GAAP measure, decreased to 31.5% due to higher debt and lower operating income - ROIC is defined as Net Operating Profit After Tax (NOPAT) for the most recent twelve-month period, divided by average debt and equity[106] | ROIC Calculation (in millions) | Twelve Months Ended Oct 27, 2024 | Twelve Months Ended Oct 29, 2023 | |:---|:---|:---| | Net earnings | $14,610 | $15,704 | | Operating income | $21,174 | $22,298 | | NOPAT | $16,110 | $16,951 | | Average debt and equity | $51,190 | $43,810 | | ROIC | 31.5% | 38.7% | - The decrease in ROIC was primarily driven by higher average long-term debt and higher average equity due to the financing of the SRS acquisition, along with lower operating income[79] Liquidity and Capital Resources The company maintains sufficient liquidity, prioritizing business investment and dividends over share repurchases post-acquisition - As of October 27, 2024, the company had $1.5 billion in cash and cash equivalents, with $1.1 billion held by foreign subsidiaries[108] - The capital allocation strategy prioritizes investing in the business, followed by paying dividends, and then returning excess cash to shareholders via share repurchases[110] - Capital expenditures for the first nine months of fiscal 2024 were $2.4 billion, with plans for $3.0 billion to $3.5 billion for the full fiscal year, focused on new stores and customer experience improvements[110] - Cash dividends of $6.7 billion were paid in the first nine months of fiscal 2024[110] - The quarterly cash dividend increased to $2.25 per share in February 2024[110] - Share repurchases were paused in March 2024 due to the SRS acquisition, with $11.7 billion remaining under authorization[110] - The company does not plan to resume repurchases until outstanding debt is reduced[110] - The commercial paper program was expanded to $19.5 billion and then reduced to $9.5 billion, supported by $9.5 billion in back-up credit facilities, primarily to finance the SRS acquisition[111] - Net cash provided by operating activities decreased by $1.3 billion for the first nine months of fiscal 2024, primarily due to changes in working capital related to inventory levels and vendor payment timing[114] - Net cash used in investing activities increased by $16.8 billion, mainly due to $17.6 billion in cash consideration for the SRS acquisition[115] - Net cash provided by financing activities increased by $16.6 billion, reflecting $10.0 billion from long-term debt and $1.3 billion from commercial paper borrowings, used to fund the SRS acquisition, partially offset by dividends and debt repayments[116] Critical Accounting Estimates No changes to critical estimates occurred, except for the preliminary valuation of assets from the SRS acquisition - No changes to critical accounting estimates or significant accounting policies occurred during the first nine months of fiscal 2024, except for those related to business combinations[119] - The valuation of intangible assets acquired in the SRS acquisition, such as customer relationships, used the multi-period excess earnings method, requiring significant judgment on forecasted revenues, customer attrition rates, and discount rates[120] - The fair values of assets acquired and liabilities assumed in the SRS acquisition are preliminary and subject to adjustment within the one-year measurement period[120] Item 3. Quantitative and Qualitative Disclosures About Market Risk. The company's primary market risks from interest and foreign currency rates remained materially unchanged - The company's market risk exposure primarily stems from interest rate fluctuations on its long-term debt and foreign currency exchange rate fluctuations on foreign operations and purchases[122] - No material changes to market risk exposures or the types of instruments used to manage them occurred during the first nine months of fiscal 2024[122] Item 4. Controls and Procedures. Disclosure controls were deemed effective, with ongoing modifications to internal controls due to a business transformation - Disclosure controls and procedures were evaluated and concluded to be effective as of October 27, 2024[123] - An ongoing business transformation initiative, including accounting and finance system upgrades, is leading to modifications in internal control processes[123] PART II – OTHER INFORMATION Item 1. Legal Proceedings. No material changes to legal proceedings were reported during the period - No material changes to legal proceedings occurred during the first nine months of fiscal 2024[125] - The company uses a $1 million threshold for disclosing proceedings arising under federal, state, or local environmental regulations[127] Item 1A. Risk Factors. No material changes to previously disclosed risk factors have occurred - No material changes in the risk factors discussed in the 2023 Form 10-K have occurred[128] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Share repurchases remained paused, with minor share activity related to employee stock plans | Period (Q3 Fiscal 2024) | Total Number of Shares Purchased (1) | Average Price Paid Per Share (1)(3) | |:---|:---|:---| | July 29, 2024 – August 25, 2024 | 13,486 | $361.72 | | August 26, 2024 – September 22, 2024 | 1,668 | $368.92 | | September 23, 2024 – October 27, 2024 | 10,251 | $394.46 | | Total | 25,405 | $375.40 | - No shares were purchased as part of publicly announced share repurchase programs during Q3 fiscal 2024, as repurchases were paused in March 2024[130] - The total dollar value of shares that may yet be purchased under the publicly announced program remained at $11,657,503,041 as of October 27, 2024[130] - 480 deferred stock units were issued to non-employee directors, and 876 deferred stock units were credited under Restoration Plans, both pursuant to exemptions from registration requirements[132] Item 5. Other Information. No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter - No director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the fiscal quarter ended October 27, 2024[133] Item 6. Exhibits. This section lists all exhibits filed, including merger agreements, certifications, and XBRL data - Key exhibits include the Agreement and Plan of Merger for SRS, Amended and Restated Certificate of Incorporation, By-Laws, certifications from the CEO and CFO (Rule 13a-14(a) and Section 906), and various XBRL documents[135] SIGNATURES - The report is duly signed on November 18, 2024, by Edward P. Decker (Chair, President and Chief Executive Officer), Richard V. McPhail (Executive Vice President and Chief Financial Officer), and Kimberly R. Scardino (Senior Vice President – Finance, Chief Accounting Officer and Controller)[138]