FOOL CONFERENCE CALL SYNOPSIS*
By Debora Tidwell (MF Debit)

Home Depot <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HD)") else Response.Write("(NYSE: HD)") end if %>
2455 Paces Ferry Road, N.W.
Atlanta, GA 30339-4024
(770) 433-8211
http://www.homedepot.com/

UNION CITY, Ca., November 12, 1996/FOOLWIRE/ --- Home Depot reported third quarter 1996 results this morning. The company had record net earnings of $221 million, a 26% increase from last year. Net earnings per share were $0.46, up 24% and this was their 43rd consecutive quarter of record earnings.

SALES. Sales for the third quarter were $4.922 billion, up 23% from last year on a 19% increase in the number of stores. In their last conference call, they said that after the positive impact of the Spring season pent-up demand, comp sales had returned to normal levels toward the end of the second quarter. They subsequently saw that trend continue in the third quarter resulting in 7% comp store sales for both the quarter and year to date.

COMP STORE SALES BY REGION. Total comp sales were consistently in the 6-7% range throughout the quarter. A couple of markets that were less than the comp average during the quarter, primarily in Texas and Louisiana, were markets that benefitted last year from the after-effects of severe weather (hail storms, tornadoes and hurricanes). A number of other markets saw strong double-digit comps, including the Pacific Northwest, Utah, and the Carolinas. Excluding the effects of cannibalization, that is 56 new stores affecting 92 existing locations, their comp store sales for the remaining 309 stores were 9%. They expect the cannibalization impact on their comp store sales to be in the 2-3% range for the fourth quarter.

COST OF GOODS. Lumber cost trends in the third quarter were similar to those in the second quarter -- dimensional lumber was up from last year and sheet goods were down. Retail pricing increased modestly into the third quarter, taking some pressure off lumber gross margins.

NEW STORE OPENINGS AND STORE COUNTS. They opened 23 new stores during the third quarter -- 4 in August, 8 in September, and 11 in October. The openings included one new-format Expo store. There were no relocations during the quarter. At the end of the quarter, the total number of stores increased 19% to 479, compared to 401 last year. Square footage crossed the 50 million mark, up 20%. In the fourth quarter they plan to open 34 new stores and relocate 2 stores. This will give them 513 stores at the end of fiscal 1996, a 21% increase for the year. They are on track with opening a total of 90 new stores and completing 7 relocations in fiscal 1996.

SALES STATISTICS. The number of customer transactions was up 22% for the quarter and up 24% year to date. Their average customer sale is up 1% to $42.56 and up slightly to $42.29 for the year to date. Their weighted average weekly store sales were up 3% to $815,000 for the quarter and up 2% to $836,000 for the year to date. Sales per square foot were up 3% for the quarter and up 2% year to date. This is the second consecutive quarter where these sales drivers have been up after being down in the first quarter of 1996 and the last quarter of 1995.

MARGINS. Gross margin was 27.19% for the quarter, an increase of 26 basis points over last year. More effective buying practices initiated in the first and second quarters and other merchandising initiatives including a strategic product review have resulted in lowering their cost of merchandise. Year to date, gross margin was 27.41% or 13 basis points higher than last year.

SELLING & OPERATING EXPENSES. Selling and operating expenses were 17.89% versus 17.87% for the quarter. Minority interest in the Home Depot Canada had a negative impact of 5 basis points compared to last year as a result of increased profits in the third quarter of 1996. Excluding minority interest, selling and store operating expenses decreased by 3 basis points for the quarter. For the quarter, selling and operating expenses included property taxes which are 8 basis points higher than last year due primarily to their rapid expansion into the Midwest and other areas with higher than average property tax rates and valuations. In other expenses, the third quarter was impacted by a one-time $3 million write-off resulting from the replacement of some computer equipment and other fixed assets.

RELOCATION EXPENSES. Relocation expenses for the quarter were $2.3 million, comparable to last year, and $20 million year to date versus $11 million last year. Home Depot has always accounted for these costs as normal operating expenses, unlike some others in their industry. Increases in selling and operating expenses were offset by net advertising expenses which were lower than the third quarter last year due to increased vendor participation and economies realized from increased national advertising. In addition, claims experience related to their self-funded Worker's Compensation and General Liability programs improved over last year as they continue to focus on safety programs in their stores.

PRE-OPENING EXPENSES. Pre-opening expenses for the quarter were $14.6 million compared to $14.8 million last year, down 7 basis points. Expenses were for 23 new stores in this quarter versus 22 stores and 1 relocation last year. They expect pre-opening to be higher in the fourth quarter due to the opening of 34 stores plus 2 relocations compared to 22 new stores and 1 relocation in Q4 1995. They anticipate pre-opening expenses in 1996 to average approximately $600,000 per store.

GENERAL & ADMINISTRATIVE EXPENSES. General and administrative expenses were 1.66% versus 1.67% last year for the quarter and 1.61% versus 1.70% for the year to date. G&A, which normally has more favorable quarterly comparisons to prior years, was down 1 basis point for the third quarter due to outside consulting and computer programming services needed to support projects and initiatives that will produce benefits in the future.

INTEREST. For the quarter, they had net interest income of 6 basis points compared to net interest income of 11 basis points last year. Interest expense increased due to the issuance of $1.1 billion of 3.25% convertible notes during the last month of the quarter. Capitalized interest was $5.946 million for the quarter compared to $5.953 million last year.

PRE-TAX INCOME AND TAX RATES. Pre-tax income for the quarter was 7.40% versus 7.13% last year, up 28%. Tax provision was 39.2% for the quarter compared to 38.4% last year. The tax rate for the fourth quarter the tax rate was adjusted to 38.8%. Since then, they have continued to open more stores in states with higher tax rates resulting in a higher effective state rate. They expect the rate to be 39.2% for the fourth quarter and for the year.

EARNINGS, SHARE COUNT. Net earnings for the quarter were $221,371,000, 26% ahead of last year. Earnings per share were up 24%. Weighted average shares for the quarter were 487,925,000. The increase from the prior quarter resulted primarily from the issuance of the 3.25% convertible notes on October 2nd. Assuming conversion of the notes from the day they were issued, weighted average shares for the quarter were increased by 4,563,000 shares and 1,521,000 shares for the year to date. To calculate earnings per share, the tax affected interest expense including issue cost, net of capitalized interest must be added back to net income. This total for the quarter and year to date was $1,659,000. For the third quarter earnings per share was not impacted by the conversion of the notes. For the fourth quarter, the interest add-back to earnings will be approximately $5,727,000 for the quarter and $7,386,000 for the year. They estimate the effect of assuming conversion of the notes on weighted average shares to add 15,971,000 shares for the fourth quarter and 5,324,000 for the year. After all these adjustments, they estimate the total shares to be 500,500,000 for the fourth quarter and 488,500,000 for the fiscal year. This earnings per share impact will not be material for both the fourth quarter and the fiscal year.

CASH. On the balance sheet they had cash and short term investments of $782,545,000. This includes a portion of the proceeds from the issuance of the $1.1 billion of convertible notes. The remaining proceeds have been invested in long-term securities and have been used to repay $100 million of commercial paper obligations.

INVENTORY. Inventory turnover for the year, calculated based on quarterly ending inventories was 5.7 versus 5.7 last year, maintaining the improvement that began in the second quarter of this year. Average inventory per store was up 0.5% to $5,547,000. Trade accounts payable were $1,356,748,000 or 51% of inventory compared to 52% last year. Their current ratio was 1.83 to 1 versus 1.50 to 1 last year. The increase was due to the proceeds from the issuance of the convertible notes.

DEBT. Long-term debt was $1,247,208,000. That includes the $1.1 billion of convertible notes as well as capital leases and industrial revenue bonds. Stockholder's equity was $5,711,989,000. Debt to equity ratio was 22%, again the increase from last quarter reflects the issuance of the convertible notes.

CAPITAL EXPENDITURES. Capital expenditures were $380,820,000 for the quarter and $928,511,000 for the year to date. They now own 352 of their stores, or 73%. They expect to spend approximately $1.2 billion in 1996, over 90% of that for new stores and the balance for rennovations, additions, and computers. In addition, an aggregate of $300 million in capital expenditures in 1996 and 1997 will be financed through the off-balance-sheet financing vehicle that they closed during the second quarter.

HIRING/STORE OPENING MILESTONES. Before the end of the fiscal year they will be achieving two major milestones. They will hire their 100,000th associate in December and open their 500th store in January. High levels of customer service provided by their associates separate them from their competition. They expect to end fiscal 1996 with 513 stores. They currently plan to open approximately 110 new stores and relocate 7 stores in fiscal 1997.

OTHER ITEMS OF INTEREST. As previously mentioned, on October 2nd they issued $1.104 billion of convertible subordinated notes due in the year 2001. The notes pay interest at 3.25% and are convertible prior to October 1, 2001 at a conversion price of $69-1/8 per share. Proceeds remaining after they pay down commercial paper will be used for new store growth and rennovations. The impact of the notes on earnings per share over the 5-year period will be negligible. Short term it will be slightly accretive because of the lower interest rate relative to commercial paper rates and an initial higher cash balance that will result in incremental investment income. It will become slightly dilutive longer term as they use the proceeds. Home Depot consistently generates attractive returns for its stockholders and future growth plays a key role in their continuing to do so. In addition, their strong balance sheet provides tremendous unmatched leverage in the industry, allowing them to grow aggressively while maintaining financial strength and their AA credit rating. The convertible notes support their growth plans and also provide a sufficient equity base to support future financing needs. Home Depot has traditionally obtained financing on an opportunistic basis and they expect future financing decisions will also be made based on the most attractive market opportunities.

NEW EXPO UNIT IN MIAMI. On October 3rd they opened a new Expo unit in Miami. As previously discussed, the store's 80,000 square feet focuses specifically on serving higher-ticket, project based customers. It is still too early to draw any conclusions about the revised format, however they are encouraged so far by the visual impact of the store, their initial success in attacking the project side of the business with select core merchandise and categories, and the feedback they have received from their customers. They remain excited about the revised format and will continue to closely monitory its performance.

NEW DISTRIBUTION IMPROVEMENT PROJECT. After prioritizing the initiatives identified in the first phase of business process innovation, they are now moving forward on the first of two major projects. This project involves developing methods to flow goods through the distribution channels that results in the lowest handling and transportation costs for them and their vendors while meeting their target in-stock levels. On December 1st they expect to begin a test of cross-docking products at a transit facility to reduce the number of less-than-truckload shipments going to the stores. The initial test will include 48 stores in their Mid-Atlantic region and over 80 vendors representing 10,000-11,000 SKUs. The transit facility is different from a distribution center in that product will not be stored in the transit facility. Merchandise will pass through the facility within 24-48 hours and arrive at the store the same day it leaves the facility. In addition, they plan to detail-receive the merchandise at the facility, allowing goods to move directly from the trucks to the shelves. They expect to recognize a number of benefits from cross-docking, including lower freight costs, shorter lead times, reduced receiving burdens at the stores, fewer out-of-stocks for shorter durations, reduced vendor costs from handling, warehouse picking, and administrative costs; and a more economical means of supplying lower volume stores. They should begin recognizing some of these benefits to varying degrees in fiscal 1997, depending on the results of the test and the time it will take to expand the program to the balance of their stores and vendors.

NEW STORE MANAGEMENT ORGANIZATION PROJECT. The second major initiative involves a study of the organizational structure of their stores. In 1997, they plan to take a clean sheet of paper approach to determining optimum management and staffing levels for various store sizes and locations. The primary goals are to create more opportunities for training associates and serving customers. They expect to begin this project in the first few months of 1997.

NEW SOUTHWEST DIVISION. On September 23rd they announced the creation of a new Southwest division effective in February 1997. The new division will be based in Dallas, headed by division president who is currently vice president of merchandising in the Midwest division, and will initially consist of 61 stores. Stores being moved into the Southwest division are primarily from the Southeast division, but a few are also being moved from the Midwest and Western divisions. In light of their aggressive future growth plans, it was necessary to add this division to help their division managers maintain high levels of involvement in the stores. Without this change, the Southeast division alone would have been at over 300 stores by the end of 1999. They will begin including the Southwest division in their store information at the end of this year.

INTERNATIONAL EXPANSION. They continue to develop business plans for the international expansion. They have identified a number of attractive international opportunities and have already indicated that their first area of focus will be in South America. They hope to announce their first location by the end of the year.

SUMMARY. In summary, last week they stated that they were comfortable with analyst consensus estimates for the year. 1996 will be another great year of record sales and earnings at the Home Depot.

* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. Note: Statements made by a company other than historical information may constitute forward-looking statements for which the company can claim protection under the Safe Harbor Act. Please consult the company's filings with the SEC for information on risk factors which might cause actual results to differ materially from the information contained in these forward-looking statements.