Good morning. Welcome to the 2014 Annual Shareholders Meeting. Thank you all for joining us. Before we start the meeting, I'd like to make a few introductions. First, it's my pleasure to introduce our board of directors. I hope you had a chance to meet them earlier this morning. They are Duane Ackerman, Ari Bousbib, Greg Brenneman, Frank Brown, Al Carey, Armando Codina, Helena Foulkes, Karen Katen, Mark Vadon, and our lead director, Bonnie Hill. I'd also like to introduce Wayne Hewett, who has been nominated for election to the board at today's meeting. Next, I'd like to just take a minute to recognize Bonnie Hill, who is retiring from our board today.
Aw.
Exactly. She has been a member of our board since 1999 and our lead director for the past 6 years. In addition to being just an outstanding director and setting the standard on corporate governance, Bonnie has provided all of us an active example of living our values. Bonnie has worked side by side with our store associates at volunteer projects across the country. Last week, she did just that at the Greater L.A. Navy Village, a housing project for veterans and their families. We dedicated a new garden at the Navy Village in honor of Bonnie's service to the company, and I have a brief video of that event that I'd like to share with all of you.
Our foundation's focus on veterans is so timely. We want to just make sure that every single veteran out there has a safe place to call home, and we've got so many homeless veterans out there today, and we just can't do enough to impact this group.
This location, Navy Village, is 75 houses that are eventually going to house women veterans and their children. On this side over here, we're building a community garden, kind of a playground and orchard for the 75 families that will be living here. On this side over here, we're creating more of a park feel, another playground, really just to give them a nice, safe place to feel like they can call home.
All the women we have serving our country today, so many of these women are moms and have children. What we're able to do here today, be part of impacting the lives, and I think just goes so far for the cause.
Think about all that these women have given to us, it's a very small thing for us to give back to them. They and their children deserve better. I think the fact that we're able to make a small dent in that really is admirable, it's rewarding, and it really, for our associates, is something that really makes them feel good about themselves and the company.
Bonnie has been such an amazing supporter of Team Depot, of the foundation, of everything that we stand for. Bonnie's no stranger to being at these builds with us, side by side with us. I've been to so many builds with her. To be able to be out here today and actually dedicating this garden to her for the many wonderful things that she's done for The Home Depot. She's been here through the thick and thin. Your service to this company is second to none. We have a very special plaque here that's going to be here forever.
The garden dedication is an awesome recognition, and it's a recognition I don't really deserve. Everyone at The Home Depot could be a part of the garden recognition. I am just completely blown away by it and certainly humbled by it. The fact that children will be able to participate in that garden and women who are homeless. Having been homeless at one point in my life as well, I get that, and I understand it. To have an oasis like this and to be affiliated with it's just indescribable.
Please join me in thanking Bonnie for her service to The Home Depot. Thank you, Bonnie. Greg Brenneman, who served on our board since 2000, will be our lead director following his re-election at today's meeting. The members of our senior leadership team are also present. I'd like to ask them to stand. Thank you all. Finally, I'd like to recognize David Middendorf and Hector Marina of KPMG, the company's independent auditor. We will begin today's meeting with the formal business portion. This consists of the election of directors named in the proxy statement, ratification of auditors, and consideration of the company and shareholder proposals. After that, I will provide a brief business overview and then open the floor for questions. I now officially call the 2014 The Home Depot Annual Meeting of Shareholders to order.
Teresa Wynn Roseborough, our general counsel and corporate secretary, is serving as secretary of the meeting, and Broadridge Investor Communication Solutions is our inspector of elections. As of March 24, 2014, which is the record date for the meeting, there were approximately 1.4 billion shares of the company's common stock entitled to vote. A majority of these shares is needed for a quorum. Over 85% of the shares are represented today. Therefore, we have a quorum. If you haven't voted yet and would like to vote today, please raise your hand now so we can give you a ballot. We'll collect your ballots after all the proposals have been presented. If you've already voted, you don't need to vote again. I now declare the polls open for voting. You can raise your hand if you need a ballot. Okay, great.
The first item of business is the election of directors, which is item 1 on your ballot. The board has nominated the individuals named in the proxy statement to serve for a one-year term through the 2015 annual meeting. Your board recommends that you vote for each of these directors. We'll now move on to the next proposal. The next item is the ratification of the appointment of KPMG as the independent auditors of the company for fiscal 2014, item 2 on your ballot. Your board recommends that you vote for this proposal. The next item is the advisory vote on executive compensation, also known as Say on Pay, which is item 3 on your ballot. Specifically, you are being asked to approve the compensation of the company's named executive officers as disclosed in the proxy statement for this meeting. Your board recommends that you vote for this proposal.
The next item is the consideration of the shareholder proposal regarding special shareholders meetings, item 4 on your ballot. Will Ms. Lanae Giles, the representative of Ms. Myra Young, please step to the microphone and present the proposal?
Good morning.
Morning.
Shareholder proposal regarding special shareholder meetings, item four on the proxy card, sponsored by Myra K. Young of Elk Grove, California. Resolved: Share owners ask our board to take the steps necessary unilaterally to the fullest extent permitted by law to amend our bylaws and each appropriate governing document to give holders in the aggregate of 15% of our outstanding common the power to call a special shareholder meeting. This includes that such bylaw and/or charter text will not have any exclusionary or prohibitive language in regard to calling a special meeting that apply only to share owners, but not to management and/or the board to the fullest extent permitted. This proposal does not impact our board's current power to call a special meeting. Special meetings allow share owners to vote on important matters, such as electing new directors that can arise between annual meetings.
Share owner input on the timing of share owner meetings is especially important when events unfold quickly and issues may become moot by the next annual meeting. This proposal topic won more than 70% support at Edwards Lifesciences and SunEdison in 2013. Please vote to protect shareholder value, special share owner meetings proposal four.
Thank you, Ms. Giles. Your board recommends that you vote against this proposal. The next item, consideration of the shareholder proposal regarding employment diversity reports is item five on your ballot. Will Ms. Lyn Conley, the representative of Benedictine Sisters and the other proponents, please step to the microphone and present the proposal?
Good morning, Mr. Chair.
Morning.
Members of the board and shareholders who are gathered here today. I am Lyn Conley, here today representing the Benedictine Sisters from Boerne, Texas. I also represent several members of the Interfaith Center on Corporate Responsibility, who are shareholders and co-filers to this proposal. These groups are long-term shareholders of The Home Depot. Proposal number five on the ballot seeks a board review of our company's policies regarding disclosure of equal employment opportunity data, known as EEO-1 data, and public reporting of diversity issues to shareholders. Equal employment opportunity is an investment concern. When allegations of discrimination in the workplace burden shareholders with costly litigation and added risk to a company's brand, there is an impact to shareholder value. We contend descriptions don't go far enough to mitigate potential risks.
We mentioned in the resolution that The Home Depot has paid out more than $100 million to settle discrimination lawsuits over the past 16 years. We appreciate that The Home Depot has published a diversity We reviewed it and felt it did not meet the conditions asked for in our resolution. We are asking for statistics, not more photos. The report did not give a chart identifying employees by gender and race in each of the EEOC-defined categories. This resolution, which has been filed over the past several years, focuses on the importance of measurement and disclosure of diversity issues to its shareholders. To manage diversity, companies have to be able to measure it. That is why we have asked for EEO-1 data, which offers investors a measurement tool. An EEO report is submitted annually by The Home Depot to the Equal Employment Opportunity Commission.
Providing data to shareholders would not pose an added financial burden. The company actually did provide the information for one year and then stopped. In the absence of meaningful disclosure, investors cannot fully assess potential risks The Home Depot faces, nor for that matter, fully identify successful diversity efforts. Moreover, while other brand name companies have advanced transparency measures in place, we feel that The Home Depot has lagged. Intel, Merck, Coca-Cola, and Walmart, to name a few, have been disclosing EEO data for at least the past five years. We feel this is a bottom-line issue affecting competitiveness and market share. We ask The Home Depot to report diversity disclosure to all shareholders. We met with the Corporate Secretary and others to offer a way forward for 2014. We continue to hope that management will take us up on the ideas we've presented.
Thank you for the time. We ask you to vote in favor of stockholder proposal number 5.
Thank you, Ms. Conley. Your board recommends that you vote against this proposal. If you've requested a ballot, please mark your vote and sign it where indicated. When you're finished, please raise your hand and one of our volunteers will collect your ballot. All right. The ballots have been collected, and the polls are now closed. I'd like now to review the preliminary results with you. All of the director nominees named in the proxy statement have been elected by a majority of the votes cast. Approximately 99% of the votes cast have voted in favor of the ratification of the appointment of KPMG. Approximately 98% of the votes cast have voted in favor of the compensation of the company's named executive officers.
On the shareholder proposals, approximately 44% of the votes cast have voted in favor of the shareholder proposal regarding special shareholder meetings, and approximately 25% of the votes cast have voted in favor of the shareholder proposal regarding employment diversity reports. Based on the preliminary vote count, all the nominees for the board of directors have been elected, the appointment of KPMG as the company's independent auditors for fiscal 2014 has been ratified, and a majority of votes cast approved for our executive compensation, and neither of the shareholder proposals have been approved. Please note that ballots collected at this meeting will be verified and tabulated by our Inspector of Elections, and final results of the vote will be available in a Form 8-K, which we'll file next week. This concludes our formal business, and I declare the meeting adjourned.
Now we'll move to an overview of our business, and following that, any questions that you may have. I'm not going to read this, but please be advised that there may be forward-looking statements in this presentation. Fiscal 2013 was not only our fourth consecutive year of positive comps but also our strongest year in over a decade. We posted our best comp sales growth in 14 years. Total company comp sales were up 6.8%, and comps for our U.S. stores were positive 7.5%. Thank you. On a 52-week to 52-week comparison, your company grew $5 billion in one year. We saw growth in ticket and transactions. Our net earnings increased 18.7%, and our diluted earnings per share increased 25.3% to $3.76. Your company continues to generate strong cash flow.
We generated $7.6 billion in cash in fiscal 2013. We issued $3.9 billion in incremental debt, taking advantage of the interest rate environment. We spent $1.4 billion on capital improvements. We returned $2.2 billion to shareholders through dividends and repurchased $8.5 billion in shares, leaving $1.9 billion in cash. Along with delivering better than expected financial results in fiscal 2013, we announced a 21% increase in the quarterly dividend, our fifth increase to the dividend in as many years. As you can see, our yield is well above the S&P retail average. In fiscal 2013, Home Depot's stock appreciated 14%, and we outperformed the Dow Jones Industrial Average for the sixth consecutive year. Our business strategy is based on what we call our three-leg stool.
Borrowing from Jim Collins' "Good to Great," we start with what we're passionate about, customer service, then what we want to be best in the world at, product authority and home improvement, and what drives our economic engine, disciplined capital allocation, and productivity and efficiency. The element that ties this together is represented on this chart as interconnected retail. Enormous changes have impacted retail and The Home Depot over the last several years, changes in customer expectations, changes in our competitive framework, changes in our business model. The three-leg stool sets out a pretty enduring strategic construct. The first leg is customer service. Customer service starts with investing in our associates. We pay our associates an above-market wage rate. We are the only major retailer in the country that provides stock grants over and above salary and a cash bonus to our assistant store managers.
In 2013, we paid out a record of almost a quarter of a billion dollars in Success Sharing, our profit-sharing program for our hourly associates. We are also adjusting our learning and training efforts to incorporate interconnected retail, making our virtual store presence part of our customer-first training. We are upgrading technology in the store to take advantage of the interconnected capabilities now available. Finally, we are focusing on the importance of our pro customer. In the past year, we've rolled out programs that improve our day-to-day service to these customers and help them build their businesses. For Home Depot, the journey on product authority began with fundamental restructuring of our supply chain. We've developed a new supply chain network with our rapid deployment centers or RDCs.
The next step is a new DC network for our dot-com business, as well as a new platform for store delivery for the last mile. We opened our first distribution facility for dot-com earlier this year, just an hour south of here in Atlanta. It has over 1 million sq ft. We will open another on the West Coast later this year and in the Midwest next year. Developing our technology, assortment planning, space allocation, and pricing, all of these have been an important part of establishing product authority. It is what we call our merchandising transformation. We're now at a point where the tools are largely in place. We can begin to use them to create additional value for our customers, associates, and shareholders.
These developments are the enablers for the larger portfolio strategy we've been working on. The focus of our merchandising strategy remains the same, winning through value, innovation, and speed to market. On interconnected retail with our online business, our goal is to improve traffic and conversion in our stores and vice versa. One of the major efforts we've undertaken over the last few years has been creating the technology platform that will support a seamless customer experience, whether shopping online or in-store. Our dot-com business is now over $2.7 billion and grew last year over 50%. We are very pleased with the progress we're making. We have more to do, though, and this remains one of our major areas for investment in 2014 and beyond. We're investing to improve the core functionalities of our site, as well as our mobile web and mobile app capabilities.
We sometimes refer to the smartphone as a store in a pocket. Like the physical store, the virtual store requires constant upgrading. Our ongoing objective is to keep improving the ease of use, personalization, and connectedness of our online experience. In Canada, The Home Depot is the number 1 home improvement retailer. We had our second year of positive comps in fiscal 2013 and continue to show improved performance. We are in the process of transforming our supply chain in Canada, and we opened our first Canadian RDC earlier this year. In Mexico, The Home Depot is also the number 1 home improvement retailer. We started in Mexico 12 years ago. We now have over 100 stores. This has been a great success story for us, and Ricardo Saldivar and his team have produced positive comps for 42 quarters in a row.
Our shareholder return principles are straightforward and haven't changed over the last several years. We will invest to maintain and grow our business. We look to increase our dividend every year, targeting a payout ratio of 50% of net earnings. We will return excess cash to our shareholders through share buybacks. Let's look at the fiscal 2014 outlook. We continue to see strength in the core of our stores. For the year, we project sales growth of approximately 4.8%. We expect our comp store sales to be up approximately 4.6% in 2014. For the year, we're planning to open seven stores, with five of those stores opening in Mexico. We expect diluted earnings per share to increase 17.6% to $4.42, including the impact of $5 billion in share repurchases. Our overall strategy has not changed.
We will continue to invest in customer service, product authority, and interconnected retail with an overall focus on a disciplined capital allocation strategy, creating value for our shareholders. I want to close with two very important company symbols, the inverted pyramid and our values wheel. The power of The Home Depot starts with the power of being a values-based business. We believe that if we take care of our associates and take care of our customers, everything else will take care of itself. Since this coming weekend is Memorial Day weekend, it's appropriate to take a moment to highlight some of our activities in 2013 that were directed to benefit our country's veterans. In over 750 cities across the country, our associates repaired and rehabbed more than 4,000 homes. We provided cash grants of nearly $29 million to hundreds of nonprofits, specifically serving veterans.
In 2011, we committed to investing $30 million to nonprofits who specifically address veterans' housing needs. In 2012, we hit that target and increased our total pledge to $80 million. To date, we've invested nearly $66 million on behalf of our veterans. It is our way of saying thank you and giving back to our community. I hope you are proud of your company, I thank you very much for attending this meeting. At this time, I'll take any questions that you have. If you have a question, please step to one of the microphones. Thank you. Yes, sir.
Good morning, Mr. Chairman.
Maybe you can adjust that so you don't have to Yeah.
Good morning, Mr. Chairman. My name is Jim White from Philadelphia, a shareholder thanking you for great results and appreciate your good work. I am a customer. My firm, J.J. White, is a contracting firm in the Midwest and Mid-Atlantic. We're a customer of The Home Depot. We've used The Home Depot cards as safety incentives for a number of years, and they've been a great success with our employees, so thank you for that. I just wanted to find out how we could come together not only in understanding as a company interested in being a better customer to The Home Depot, as also potentially interested in being a service provider to The Home Depot. Is there somebody that leads your supply chain in terms of your real estate and stores?
Is that Marvin Ellison that I could talk to, then somebody in your sales side that could deal with more of the commercial accounts that we do since we do commercial contracting? Thank you very much.
Thank you very much, Mr. White. Thank you for doing business with us. What a perfect venue to ask because we've got pretty much everyone here. What I would say is after this meeting, we have our head of our pro business, J.T. Rieves , here, and he will talk to you about your commercial business. We also have Carol Tomé, who is our CFO and in charge of real estate, and she can talk to you about any real estate opportunities and
Thank you. Where are they located?
They'll find you.
Great. Thank you very much.
They'll find you, Mr. White. Thank you. Thank you very much.
Good morning, Mr. Chairman. My name is Charles Miller. I've been a stockholder in The Home Depot since 1982. I've never asked you a question in all the time that we've actually met at these meetings. First of all, I want to congratulate you on the great results for The Home Depot for this most recent year. Secondly, I want to congratulate you and wish us mutual congratulations on Arsenal winning the FA Cup.
My sister lives in England and is a great Arsenal fan.
Good
share that congratulations with you.
The first of three questions I would like to ask, if you don't mind, as I've never asked a question here before. The first question is: what is the single biggest corporate concern that keeps you awake at night, or that stirs your board to controversial conversation? That's my first question. The second question is that there seems to be a major demographic shift back from the suburbs to the cities throughout the country, and how is Home Depot adjusting to this shift? In places like Europe, it seems that, particularly in places like Germany, there's no aspiration amongst young people to own homes, but to rent homes. With apartment developments in this country, are you seeing some change in the aspirations of young people regarding home ownership?
The third question is relating to IKEA and Costco, who have developed very successful corporate models to export to places like Asia and Europe and throughout the world in general. Home Depot has a somewhat indifferent record in this regard, other than for Canada and Mexico, with possibly the most notable problem being in China. What is Home Depot doing to expand internationally, and what is your thinking regarding these changes? Thank you.
Thank you very much, and thank you for those three very thoughtful questions. I'll take them in order. On the first question, in terms of the single biggest concern, I would say it's not so much something that keeps us or the board awake at night, but we do understand that the environment of retail is changing and changing rapidly because of dot-com. If you looked at where your company is making its major investments, as I outlined, our major investments are focused on making sure that we have absolutely the best, what we call interconnected experience. That experience between researching or buying online, picking up something in the store, researching it in the store, that is all interconnected because we believe that that's going to be an enormous competitive advantage for us in the decade ahead.
It's not so much a concern as an opportunity that we are very much leaning into and investing towards. On the demographic shift to the cities, we would say it's interesting. It sort of ebbs and flows in the U.S. In fact, there is an article in today's The Wall Street Journal that was on the opposite side of that of people moving back to the suburbs. The great thing about your company is that we have over 2,200 stores. We have stores in very urban areas. We have stores in very rural areas. We are able to shift our resources to adjust to wherever our customers are moving because of the great scope and breadth that we have in our stores across North America. Finally, on the international opportunity, you're quite right.
We closed our efforts in China a little over a year and a half ago. We were never able to make that very successful. We do have extremely successful businesses in Canada and in Mexico, as well as the U.S., and we're really focused on making our North American presence better. We see continued opportunities in North America. As I mentioned at the very start, in one year, your company grew $5 billion based on our focusing intensely on our North American opportunities. We plan to continue to do that because we think that's where the largest opportunities are for us at the moment. Thank you very much for all of those questions. Yes, welcome back. Good to see you.
Hi, my name is Everett Santa Maria, and my family's a big, big buyer of The Home Depot. We go there almost three times a week.
Well done.
My little brother, Carson, he's like a living commercial. We'll run out of gas for the lawnmower, my dad will think, "Where can we buy some more?" Carson will walk up, he says, "Well, you know, The Home Depot commercial says you can buy so and so gas here for so and so price on sale." "Maybe we should go to The Home Depot.
There you go.
My mom, she gardens, she mows the weed cutter thingy.
Yep.
My brother loves to help with the leaf blower, he loves the backpack leaf blowers for some reason. He thinks they're the most high tech.
Sounds like he's a handy brother to have around, doesn't it?
Yeah.
That's good.
They're the most high tech gardening tool.
Yep
there is. He's always using them, my mom's always has to hold it up, he won't fall backwards. I was thinking maybe you could sell more leaf blowers and backpack blowers if you could make different sizes, because there are a lot of people and children who love gardening-
Yep
and stuff like helping outside and construction. If you made different size blowers, you could sell more.
Everett, thank you very much for the comment. Thank you particularly for making this two meetings in a row. I very much appreciate your interest in the company and very much appreciate your entire family's commitment to the company. Maybe next year it'll be three visits a week if we do our job right. Take the comment on continuing to provide more opportunities. We actually have some very lightweight blowers that you might want your younger brother to get acquainted with that will help him with his work. Thank you. Thank you for the comment. Gary, good to see you again. Welcome back.
Thank you very much. Frank.
You might want to introduce yourself.
Okay. I'm Gary Patton from store 1119 in Greenville, South Carolina. Hoping to one day get to store 1104 in Greenville, South Carolina. It's just so much closer to my house and everything. I've been buying stock since 1992. My wife and I have been buying and selling stock since 2001. I sold more than I wish I hadn't sold because you're doing such a great job with the company, I thank you for that. I've been asking you questions since your very first meeting here seven or eight years ago. I'm not sure. I want to thank you. I have two small children, they're taking more and more of my time during this week of graduation, harder to come down to Atlanta from Greenville.
I want to thank you for allowing me the opportunity to come up here and ask a question every year, not having to pre-submit it or anything like that, because that would not have worked because I kind of do it off the cuff. You're doing a good job, I've been able to tell you that in person, thanks to all your leadership. I just wanted to say that if I'm not able to make it back, I've really enjoyed the experience. I feel like The Home Depot is my family. I've been here since 1992. How many companies can you really, you're just a salesman off the floor or a small peon of an employee, you might say, come to something like this and express yourself?
I'm sure that it's helped me personally in my career and everything because I remember the first couple of years how nervous I was. It's helping my public speaking, hopefully. Anyway, I wanted to thank you very much.
Well-
We appreciate you.
Thank you. Thank you very much, Gary. It's always a pleasure to see you here. Thank you.
Hi, my name is Wellington Lee. I know in the past, the philosophy of a stock split has been when the stock got around 40, it split way in the beginning years. What's your philosophy and the board's philosophy on the stock split?
Do get asked that question a good deal. We really don't see the benefit from a split. The shareholder's in the same spot pre- and post-split.
Right
There are some costs associated with it. Now, as trading has changed over time, and it's easier to buy smaller lot shares, we don't think that there's a great value provided to the shareholder either. Wouldn't be anticipating a share split.
Okay. Thank you.
Thank you very much for that question. Thank you all very much for taking of your time to participate in this meeting. I very much look forward to the 2015 annual meeting.