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Fitch Affirms Home Depot at 'A-'; Outlook Stable

  Fitch Affirms Home Depot at 'A-'; Outlook Stable

Business Wire

CHICAGO -- November 21, 2012

Fitch Ratings has affirmed its long-term Issuer Default Rating (IDR) on The
Home Depot, Inc. at 'A-', and its short-term IDR at 'F2'. The Rating Outlook
is Stable. Home Depot had $10.8 billion of debt outstanding as of Oct. 28,
2012. A full rating list is shown below.

The affirmation reflects Home Depot's solid operating momentum, strong free
cash flow, and public statements that it has a maximum leverage target of 2x.
The ratings also consider Home Depot's leading position in the home
improvement retail sector in North America as well as the challenges posed by
a slow recovery by the housing market and persistently high unemployment.

Home Depot has been able to generate positive operating momentum in the midst
of a home improvement industry that has seen consumers focus on repair and
maintenance projects while avoiding more complex projects. Sales to pros,
which are more indicative of the housing market, make up approximately 35% of
its sales, and could support improved sales growth as the housing market
recovers. Despite industry headwinds, Fitch currently projects U.S. home
improvement spending to increase 4.5% in 2012 and 4.0% in 2013.

Home Depot's comparable store sales have been positive for ten of the past
eleven quarters, following four years of negative comps. Total sales growth is
expected to be approximately 5% in 2012 (on a 53 week basis) and in the
positive low single digits in 2013-2014, in-line with the overall market.

Home Depot has produced a strong margin recovery over the past two years, with
EBIT margins improving to 10.7% in the twelve months ending Oct. 29, 2012,
from 9.5% in the comparable period in 2011 driven by a combination of gross
margin improvement and strong expense management. Fitch sees moderate
additional margin upside made possible by the investments Home Depot is making
in its technology and supply chain, and thinks the company can achieve a 12%
EBIT margin by 2015.

Home Depot plans to build only 8-10 new stores per year over the coming few
years, to be focused primarily in Mexico. Low levels of capital expenditures
have resulted in strong free cash flow after dividends (FCF), which is
expected to track around $3-4 billion annually going forward as capital
expenditures remain at less than 2% of sales.

FCF, and some incremental borrowings, will be directed to share repurchases,
as the company manages its financial leverage (adjusted debt/EBITDAR) at or
under 2.0 times (x).

Home Depot has a solid liquidity position supported by a seasonally strong
cash balance of $2.5 billion at Oct. 29, 2012, together with an undrawn $2.0
billion credit facility. The company also benefits from its 89% store base
ownership. The next major debt maturity is a $1.3 billion note coming due in
December 2013, which Fitch expects will be refinanced.

What Would Lead To Consideration of a Negative Rating Action

Weaker operating trends or a move by management to more shareholder friendly
policies that increase adjusted leverage to the mid 2x range could lead to a
negative rating action.

What Would Lead To Consideration of a Positive Rating Action

Continued positive operating trends together with a sustained reduction in
adjusted leverage to below 1.5x, could lead to a positive rating action.

Fitch has affirmed the following ratings on Home Depot:

--Long-term Issuer Default Rating (IDR) at 'A-';

--Senior unsecured notes at 'A-';

--Bank credit facilities at 'A-';

--Short-term IDR at 'F2';

--Commercial paper at 'F2'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'. The ratings
above were unsolicited and have been provided by Fitch as a service to
investors.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 8, 2012);

--'Short-Term Ratings Criteria for Non-Financial Corporates' (Aug. 8, 2012).

Applicable Criteria and Related Research:

Corporate Rating Methodology

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=684460

Short-Term Ratings Criteria for Non-Financial Corporates

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=685553

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.
PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING
DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S
PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND
METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF
CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL,
COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM
THE 'CODE OF CONDUCT' SECTION OF THIS SITE.

Contact:

Fitch Ratings
Primary Analyst
Augustinus Wong, +1-212-908-0762
Director
Fitch, Inc.
70 West Madison Street
Chicago, IL 60602
or
Secondary Analyst
Philip Zahn, CFA, +1-312-606-2336
Senior Director
or
Committee Chairperson
Monica Aggarwal, +1-212-908-0282
Senior Director
or
Media Relations:
Brian Bertsch, New York, +1 212-908-0549
Email: brian.bertsch@fitchratings.com
 
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