DBRS Confirms The Home Depot, Inc. at “A” and R-1 (low) and Home Depot of Canada Inc. at R-1 (low), Stable Trends

DBRS Limited (DBRS) confirmed the Issuer Rating and Senior Unsecured Debt rating of The Home Depot, Inc. (Home Depot or the Company) at “A” as well as the Commercial Paper ratings of Home Depot and Home Depot of Canada Inc. at R-1 (low). All trends are Stable. The confirmation of the ratings is based on Home Depot’s strong operating performance through the first nine months of F2018 and its stable leverage target while considering the Company’s higher capital intensity related to its One Home Depot strategy and expectation of higher returns to shareholders over the near to medium term. Home Depot’s ratings continue to be supported by its dominant market position, large scale, geographic diversification and free cash-generating capacity. The ratings also reflect the intense competition and cyclicality of the home improvement retail industry as well as risks related to possible future growth strategies.

Home Depot’s earnings profile through Q3 F2018 remained well placed for the current rating category based on strong operating performance that was well diversified by geography and department. Looking ahead, DBRS expects the Company to further leverage One Home Depot investments to enhance the shopping experience, including an enhanced delivery network. F2018 revenue is expected to increase to over $108 billion and rise to approximately $121 billion by F2021, reflecting continued comparable store and online revenue growth. Over the medium term, DBRS expects EBITDA margins to be flat to modestly up as the Company continues to reinvest at least a portion of benefits from expense leverage and productivity improvements in One Home Depot. As a result, DBRS expects EBITDA to increase toward $18.0 billion in F2018 and over $20.0 billion by F2021.

Home Depot’s financial profile remains well situated within its rating category, reflecting the Company’s stable leverage target as well as its healthy and consistent ability to generate free cash flow (FCF), despite increasing shareholder returns and higher capex. Over the near to medium term, DBRS expects Home Depot to maintain a financial profile consistent with the current “A” ratings based on its ability to generate solid FCF and stable leverage target, despite higher capital intensity over the next few years. Notwithstanding the significant capex increase and steady annual dividend increase, DBRS expects FCF before changes in working capital to increase year over year to over $6.0 billion in F2018 and remain above $5.0 billion through F2021.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Merchandising Industry, DBRS Criteria: Commercial Paper Liquidity Support for Non-Bank Issuers and DBRS Criteria: Guarantees and other Forms of Support, which can be found on dbrs.com under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

The rated entity or its related entities did participate in the rating process for this rating action. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

The Commercial Paper rating of Home Depot of Canada Inc. is based on a guarantee from The Home Depot, Inc.

DBRS will publish a full report shortly that will provide additional analytical detail on this rating action. If you are interested in receiving this report, contact us at info@dbrs.com.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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