Home Depot 2014 Annual Report Download - page 27

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Results of Operations
For an understanding of the significant factors that influenced our performance during the past three fiscal years, the
following discussion should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated
Financial Statements presented in this report.
Fiscal 2014 Compared to Fiscal 2013
Net Sales
Net Sales for fiscal 2014 increased 5.5% to $83.2 billion from $78.8 billion for fiscal 2013. The increase in Net Sales for
fiscal 2014 reflects the impact of positive comparable store sales driven by increased customer transactions and average ticket
growth. Total comparable store sales increased 5.3% for fiscal 2014 on top of an increase of 6.8% for fiscal 2013.
The positive comparable store sales for fiscal 2014 reflect a number of factors, including the execution of our key initiatives,
continued strength in our maintenance and repair categories, and an improved U.S. home improvement market. All of our
departments posted positive comparable store sales for fiscal 2014. Comparable store sales for our Tools, Millwork, Kitchen,
Bath, Décor, Plumbing, Electrical, Lighting and Hardware product categories were above or at the Company average for
fiscal 2014. Further, our comparable store customer transactions increased 3.5% for fiscal 2014 and comparable store average
ticket increased 1.8% for fiscal 2014, due in part to strong sales in big ticket purchases, such as appliances and water heaters,
and sales growth in our services business.
Gross Profit
Gross Profit increased 5.7% to $29.0 billion for fiscal 2014 from $27.4 billion for fiscal 2013. Gross Profit as a percent of
Net Sales, or gross profit margin, was 34.8% for both fiscal 2014 and 2013. Gross profit margin for fiscal 2014 was similar to
gross profit margin for fiscal 2013 due to benefits from changes in the mix of products sold and productivity in our supply
chain, partially offset by higher shrink.
Operating Expenses
Selling, General and Administrative expenses ("SG&A") increased 1.4% to $16.8 billion for fiscal 2014 from $16.6 billion
for fiscal 2013. SG&A for fiscal 2014 included $63 million of pretax expenses related to the Data Breach, partially offset by a
$30 million receivable for costs we believe are reimbursable and probable of recovery under our insurance coverage, for
pretax net expenses of $33 million. As a percent of Net Sales, SG&A was 20.2% for fiscal 2014 compared to 21.1% for fiscal
2013. The decrease in SG&A as a percent of Net Sales for fiscal 2014 reflects expense leverage resulting from the positive
comparable store sales environment and strong expense controls, partially offset by expenses related to the Data Breach.
Depreciation and Amortization increased 1.5% to $1.7 billion for fiscal 2014 from $1.6 billion for fiscal 2013. Depreciation
and Amortization as a percent of Net Sales was 2.0% for fiscal 2014 compared to 2.1% for fiscal 2013. The decrease in
Depreciation and Amortization as a percent of Net Sales for fiscal 2014 reflects expense leverage resulting from the positive
comparable store sales environment.
Operating Income
Operating Income increased 14.2% to $10.5 billion for fiscal 2014 from $9.2 billion for fiscal 2013. Operating Income as a
percent of Net Sales was 12.6% for fiscal 2014 compared to 11.6% for fiscal 2013.
Interest and Other, net
In fiscal 2014, we recognized $493 million of Interest and Other, net, compared to $699 million for fiscal 2013. Interest and
Other, net, as a percent of Net Sales was 0.6% for fiscal 2014 compared to 0.9% for fiscal 2013. Interest and Other, net, for
fiscal 2014 included a $323 million pretax gain related to the sale of a portion of our equity ownership in HD Supply. This
was partially offset by additional interest expense associated with $2.0 billion of long-term debt issued in June 2014.
Provision for Income Taxes
Our combined effective income tax rate was 36.4% for both fiscal 2014 and 2013.
Diluted Earnings per Share
Diluted Earnings per Share were $4.71 for fiscal 2014 compared to $3.76 for fiscal 2013. Diluted Earnings per Share for
fiscal 2014 reflect $0.15 of benefit from the gain related to the sale of a portion of our equity ownership in HD Supply and a
negative impact of $0.02 for expenses incurred in connection with the Data Breach.