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  • Letter to
    Shareholders

    Craig Menear

    Chairman, CEO and President

    Dear Shareholders:

    2017 was a record year for our company. I'm proud of our financial results, but prouder still of how our company responded to an unprecedented number of natural disasters across all geographies. Our associates and suppliers came together to not only provide for our customers in a time of need, but also to support impacted communities.

    During fiscal 2017, sales grew 6.7 percent to $100.9 billion, with comparable sales growth of 6.8 percent for the total company and 6.9 percent in the U.S. We saw sales growth in all of our U.S. regions, Canada and Mexico. Our fiscal 2017 net earnings were $8.6 billion, or $7.29 per share, a 13.0 percent increase from the prior year.

    While we are pleased with our results, we know there is more work to be done. The retail landscape is changing at an unprecedented rate. Many say that retail has changed more in the last three years than the prior few decades. Our stores are the hub of our business, but our customers are shopping and interacting with us differently. For example, our online sales now make up 6.7 percent of total sales, and over 45 percent of all online U.S. orders are picked up inside our stores. Further, customer expectations continue to evolve. To address these changing needs and continue to win in the market, we are proactively investing in our business – creating what we are calling the "One Home Depot" experience.

    Simply put, our vision for One Home Depot is a frictionless shopping experience regardless of how, when, or where our customers shop. To accomplish this, over the next three years, we will invest more than $11 billion in our stores and supply chain, our digital experience, and of course, our people. We are investing in the customer experience, we are investing in the future of our business, and we are investing to create value.

    Investing in the Customer Experience

    We are creating a seamless, interconnected shopping experience as customers increasingly blend both the physical and digital worlds. We believe that when a customer comes to one of our physical stores, it needs to be a great experience. Our customers have told us that they find our stores hard to navigate and that it takes too long to check out. We are acting on this feedback with investments in navigation, as well as in the front-end of our stores to facilitate a faster and easier checkout experience. Our store investments do not stop there. For example, we are adding lockers to our stores to facilitate the interconnected experience. With these automated lockers, picking up an online order has never been easier.

    Our customers shop The Home Depot because we offer products and services at great values for both our professional and do-it-yourself customers. Our vendor partners work with us to bring great product innovation that saves our customers time and money. And our product assortment continues to evolve. In 2017, we purchased Compact Power Equipment, a leading provider of equipment rental and maintenance. This acquisition allows us to further improve the customer experience, particularly for our professional customers, through enhanced equipment and tool rental offerings. Further, based on customer feedback, we plan to leverage our company as an online destination for expanded décor categories. Our recent purchase of The Company Store, an online retailer of textiles and décor products, accelerates this effort.

    We will continue to be the customer's advocate for value, delivering the best products and services at the best value, every single day.

    Investing in the Future of Our Business

    We have built a strong foundation as the number one retailer for home improvement. We believe the investments we are making in the One Home Depot experience will ensure that we maintain our momentum today and position the business for long-term success.

    Over the past ten years, we have been on a journey to transform our supply chain, and the team has done a fantastic job. Our supply chain moves more home improvement goods than anyone else. As expectations around product fulfillment and delivery for both our professional and do-it-yourself customers continue to grow, we will invest to ensure we have a world-class supply chain for the unique needs of home improvement items. As part of our investment plan, over the next five years, we will invest approximately $1.2 billion in our supply chain. These investments will enable same and next-day delivery capabilities for 90 percent of the U.S. population. Our goal is to create the fastest, most efficient delivery in home improvement.

    Investing to Create Value

    Our strategy to create the One Home Depot experience is driven by our desire to create value for all stakeholders. This includes our shareholders, our associates, our supplier partners and the communities that we serve. We are investing in all aspects of the business to create value for all – value that extends far beyond the current year. As we invest in the customer experience and position ourselves for future growth, we are enhancing our already strong foundation to be able to continue to return value to all parties for years to come.

    Our company is rock solid strong. And with the Tax Cuts and Jobs Act of 2017, we find ourselves in an even stronger financial position. Our capital allocation philosophy is straightforward. We will continue to invest in the business to drive growth as well as to drive productivity and efficiency. We will invest in our associates to provide them with flexible work schedules and market competitive compensation and benefits. We look to return a meaningful percentage of earnings to our shareholders through dividends and share repurchases. In fact, during fiscal 2017, after investing in the business, we returned over $12 billion to our shareholders in the form of dividends and share repurchases.

    As we look ahead, we expect our investments will result in continued growth and profitability. By fiscal 2020 we believe our sales could reach as high as $120 billion. With that, our operating margin could reach as high as 15 percent, with a return on invested capital1 of more than 40 percent.

    Our Culture

    As we continue down this path to create the One Home Depot experience, I want to share what is not changing – our culture. Our founders established the culture of The Home Depot nearly forty years ago, and it is alive and well in our business today. Our more than 400,000 orange-blooded associates live our culture every day. They are our single-greatest asset, and they differentiate us in the marketplace.

    Our culture stretches beyond our stores into the communities we serve. We will remember 2017 as a year for taking care of our communities and associates impacted by natural disasters. Together with The Home Depot Foundation, we committed over $3 million to help people recover from Hurricanes Harvey, Irma and Maria, the devastating earthquakes that struck Mexico, and the flooding and wildfires in Canada and California. In addition, The Homer Fund, a 501(c)(3) entity created by our founders to help Home Depot associates in need, gave charitable grants to approximately 15,000 associates in 2017, including approximately 6,000 grants to associates impacted by the natural disasters.

    Beyond disaster relief, we continued to positively impact the lives of military veterans and their families, completing volunteer projects with our associates and community partners in more than 1,000 cities across the country. Since 2011, The Home Depot Foundation has enhanced more than 37,000 veteran homes and facilities and contributed nearly a quarter of a billion dollars to veteran-related causes.

    Our culture also drives our focus on the social and environmental impacts of our business. During fiscal 2017, we received our tenth consecutive year of recognition from the Environmental Protection Agency as Retailer of the Year. In addition, we have made significant progress on our 2020 goal of sourcing 135 megawatts of renewable and alternative energy from the expansion of solar, wind and fuel cell technology.

    Our vision is simple – One Home Depot. Making this vision a reality will require time, effort and dedication, but we look forward to growing our business while taking care of our people and protecting our culture. I am excited for the future of our company, the opportunities that lie ahead, and the value we will create throughout our journey.

    Craig Menear

    Chairman, CEO and President

    March 22, 2018


    1Return on invested capital, or ROIC, is defined as net operating profit after tax, 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 net operating profit after tax to net earnings, the most comparable GAAP financial measure, and our calculation of ROIC, see "Non-GAAP Financial Measures" on page 23 of the Form 10-K.