ANNUAL REPORT 2019 - The Home Depot

1 ANNUAL REPORT 2019 Dear Shareholders: Fiscal 2019 was an exciting year for The Home Depot as we celebrated the 40th anniversary of our first store opening and continued our multi-year, accelerated investment program to create the One Home Depot experience. One Home Depot is the full realization of the interconnected, frictionless shopping experience that we started developing years ago. It will enable our customers to seamlessly blend the digital and physical worlds and was formulated using an entirely customer -back approach. The Home Depot already has a number of distinct competitive advantages in place.

2 Our investment strategy builds on those advantages to create a value proposition that we believe is unique and further extend our leadership position in the marketplace. To achieve our One Home Depot vision, we are building additional interconnected capabilities that leverage our knowledgeable associates and the convenience of our stores; further integrate our market-leading digital experience; expand our world-class merchandising efforts; and further enhance the flexibility of our supply chain to allow customers additional choice with respect to fulfillment. And while this letter focuses primarily on fiscal 2019 , as a result of the COVID-19 pandemic, our focus today is on operating our business while taking care of our LETTER TOSHAREHOLDERSL etter to Sharholderscustomers and associates.

3 Our Board and Senior Leadership Team are working together to support our stores and the communities they serve, and we thank our associates for their hard work and dedication to taking care of our customers and each other. Investing to Extend Distinct Competitive Advantages Our more than 400,000 orange-aproned associates are our greatest asset and a true competitive differentiator in the marketplace. The Company s culture and values promote ongoing investment in our associates. We offer comprehensive benefits geared towards helping associates through various life experiences, competitive wages, as well as career growth and development opportunities that make working at The Home Depot a rewarding experience.

4 We create an engaging workplace for our associates by frequently asking for and acting on associate feedback. Recent enhancements to our parental leave benefits, for example, are actionable steps taken by the Company in response to direct associate feedback. Our ANNUAL Voice of the Associate survey helps us determine how emotionally connected our associates are to the Company, and we are pleased that this survey shows, on average, four out of five associates feel emotionally committed to The Home Depot . This level of engagement empowers our associates to deliver exceptional customer service. In addition to our exceptional associates, we have a premier real estate footprint with our stores serving as the hub of our customer experience.

5 We believe the convenience of our locations provides us with a structural advantage that is nearly impossible to replicate. As a result, approximately 50 percent of our investment dollars were targeted at leveraging |the advantage we have with our convenient locations, addressing customer pain points to better deliver a great interconnected experience. Our store investments are on track, and the majority of our stores have a new look and feel. We addressed our customers number one issue, navigation, through our enhanced wayfinding sign and store refresh package, as well as an improved in-store mobile navigation experience.

6 We are also improving the checkout experience through investments in the front-end of our stores. This includes an enhanced pickup experience for online orders fulfilled through our stores by reconfiguring service desks and implementing pickup lockers. Our store investments are driving higher customer satisfaction scores, which we believe is translating into market share gains. data and drive a deeper level of collaboration with supplier partners is critical. We continue to execute merchandising resets, both in-store and online, that refine assortments, introduce innovative product and improve visual merchandising to drive a better shopping experience for customers.

7 Finally, over the last decade we have invested heavily in our supply chain network, which has provided significant competitive advantages from both a flexibility and productivity standpoint. We continue to invest in this network to drive further efficiency through additional automation and mechanization, while also capitalizing on the scale this network provides to further extend these competitive advantages. We are investing in Our enhanced associate and store experience is further complemented by investments we are making in an interconnected, digital customer experience. Over the years we have built a market-leading digital experience as we know that customers continue to blend the channels of engagement with The Home Depot .

8 We ve grown our online sales by approximately $1 billion in each of the last six years, and over 50 percent of the time, our customer chooses to pick up their online order in our stores. This is a testament to our interconnected retail strategy. In fiscal 2019 , we continued to invest in our website and mobile applications, improving search capabilities, site functionality, category presentation, product content and fulfillment options. This ongoing focus on our digital properties continues to yield improved customer satisfaction scores, better conversion and increased sales. We also continue to lean into our competitive advantage as the number one retailer in product authority for home improvement by providing our world-class merchandising organization with the tools they need to keep pace with changing customer expectations.

9 Today s customer values innovation, localization and personalization more than ever before, so investing in tools to better leverage our We believe that ultimately scale, combined with a low-cost position, will win in retail, and we intend to deploy and leverage our scale in home improvement to win with the customer and deliver exceptional returns to shareholders. Craig Menear, Chairman, CEO and PresidentLetter to Sharholdersapproximately 150 new facilities to drive speed and reliability of delivery for customers, and we are leveraging our scale to create the lowest cost network in our industry. We are now live with at least one of each of the four major types of facilities we |are building and are pleased with the early results.

10 The build out will continue to ramp from here, with the largest number of new facilities coming online in 2021 and 2022. As you can see, we have accomplished a lot on our multi-year journey. There is more work to do to unlock the full value of the One Home Depot experience, but the capabilities we have built thus far are meaningful to our customers. We believe no one has more ways to empower today s home improvement customers than we do. As a result, we recently unveiled our new tagline, How doers get more done , to signal The Home Depot s commitment to keeping pace with our customers evolving needs.