HD - Earnings call transcript Q2 2019

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Operator

Greetings and welcome to The Home Depot Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Isabel Janci. ahead. go Please

Isabel Janci

good and Thank morning, you, everyone.

Executive on Menear, Craig us Merchandising; Carol Officer today Services. Vice are CEO and and and Financial Chief call Chairman, Tomé, President, President; of Corporate Joining President our Vice Ted Executive Decker,

question call remarks, If get and Questions one analysts Relations be open And question the yourself we to as to a during with Following will the for your call limited follow-up. be are please our unable our to at will department prepared limit one to investors. questions. call, reminder, please Investor XXX-XXX-XXXX.

turn over cause include Reform and actual subject XXXX. from These presentations the made Before could the statements let to I the our materially expectations today's Act of risks executives our in call Litigation forward-looking me that remind Securities are you that by and results statements as Craig, uncertainties release projections. differ and press to defined to Private

identified to, uncertainties and and include, risks of factors also the Today's with our Exchange provided These release include not Commission. Securities measures. is our presentations on but limited and these non-GAAP Reconciliation filings will website. in the in certain are measures the

the me call Craig. let to turn Now, over

Craig Menear

Thank you, and good everyone. Isabel, morning,

with share from per quarter performance were $XX.X second X.X%. deliver U.S. quarter. $X.XX results. accelerating with throughout deflation the continued to X% the overcame for these Sales lumber from year We May earnings and comp Comp billion, in last quarter. up were sales X.X% year. last up a positive pleased price We're were comps the Diluted tough second of

comps comp, the and comps. XX digit positive positive our in of also exceptions all being currency. single Canada which low divisions Internationally, and high of posted high both Florida posted geographically, comps delivered regions positive posted regions Gulf results storm-related last Mexico posted our at comp Looking digit our XX single U.S. with year. local positive U.S.

grew. comp stores, ticket and broad-based saw both growth across the We transactions

and with all our a business lumber, positive sales growth categories DIY posted comps. of our merchandising Pro of in We the saw outpacing of Pro balance both healthy With exception U.S. departments the DIY among

will the more As the to with these know in we portfolio that growth. engagement deepen continue they of our offerings We level customers, our invest relationship is of spend. the Ted service more dimensional the with detail, to

by One From a the Home a I’m seamless, our we strategic shopping for deliver perspective, experience progress making encouraged Depot are experience, to interconnected customers. the

of to Our in-store investments on speed checkout. ease navigation are improved focused and

U.S. sign And clean, have XXX store the stores. our category refresh in package X,XXX We of scores way-finding customer neat service of basis implemented and in and points. our over increased have

over investments versus in increased store and designed over basis doing have frontend stores in just faster, that. checkout are they scores last time customers XXX get satisfaction Our to year. and stores are service of out at Customer points now XXX

While our online during visits in in-store the our of sales business, all are orders up remain of online that the our of by our approximately stores XX% hub many picked and quarter. stores we influenced were U.S. know

to investing to blend of as channels Our engagement, are the we do remove so. customers continue the friction and they

lockers checkout in roll without. basis-point XXX lockers versus scores a for with over with completed out those for have pickup seen stores We continue to X,XXX automated increase online stores and orders

experience, digital customer experience category. the Our store incorporate ratings investment in labels reviews shopping us has and the the appliance enhancing to world digital into overall enabled the for the our price department from in

continue in website local address to an in invest applications to experience. we digital customer further customer and our we invest interconnected also of to stores, demands As enhance unique the experience the

traffic, content better yielded continued functionality, higher site presentation product has on category sales focus Our capabilities, and improving conversion search and growth.

from sales XX% XXXX. quarter online of the second quarter grew Second

lean drive HD into incremental continue our also Home leverage and as pool platforms to we adjacencies to from like categories digital We growth workwear. new

we're standpoint, are assets also customer they encouraging, traction only not driving investments are across from experience seeing a physical the The but business. and digital productivity our from growth of

Our appliance enable Instead more price their manually be of to optimizing their can Digital a space multiple reallocate customers to changing spending engage labels investments touch and time our with productive productivity. merchandising associates are frontend hours in time. labor associates with category. signs, high

Depot continues cycle at of virtuous hallmark as years, over and we productivity of our a move The Home the The has excellence operational forward. been

supply and experience productivity investments focus enhancing on Our the well. as chain extends the customer to

or our retrofit the XX% U.S. we Hagerstown XX% parcel our During partial center, delivery approximately population. goods facility capabilities stock from quarter, the approximately the a one-day expands of completed to fulfillment which into direct of

also chain. out supply in efforts productivity upstream cost our and through [ph] our drove We patronization

track on are made network fastest, the create most in progress pleased and delivery have to with improvement home efficient the we our thus We are with plans far. that

the of outlook our place. Turning for blocks the year. financial remainder to in our The model remain building of

lowering are We expect impact the reaffirm through year, for expectation diluted as the tariffs. and account sales share mostly lumber now deflation, our reflect to As conservatism price as well $XX.XX. XXXX our growth comp some sales the X% of Carol approximately detail, announced recently guidance earnings we fiscal to per of will for of

Company work, which Ted. our call I me let sales the in And quarterly associates to by over that, their close thanking resulted want for our history. with the highest turn in hard

Ted Decker

Thanks, Craig, everyone. morning, and good

a second While interior customers throughout of start our projects. we a tackle helped we the accelerate quarter, demand were pleased to as exterior and quarter variety to slow we had the see

All exception the below appliances to commodity our were Company at storage, outdoor lumber a décor negative high-single-digit with of due Company comp but paint, inflation. garden, comps average. and Looking the the plumbing departments, were tools, building hardware departments materials, reported average. Lumber positive price and in other indoor above garden,

depressed negatively about as below transactions sheet year more average a X%. quarter the lumber approximately X% points. average price result, Second the second than ago. of basis quarter, Last OSB quarter, talked about XX% we growth a remained for by our increased ticket and during XxX $X, comp and comp Lumber a impacted prices ticket increased XXX selling

$X During that XX. the sheet same price second of the further average OSB quarter, fell about to for of an

for quarter, up second those hurricane-related lumber ticket transactions reflecting represent of year which approximately XX% comp the sales, sales price $X,XXX, of deflation. X.X%, impact big last During the in and were part U.S. over

comps only, hurricane-related were X%. ticket big markets Excluding transaction nearly

the we saw big During like vinyl plank quarter, strong performance patio. in and ticket flooring, categories,

quarter, flooring we Last our you talked opportunities in to about businesses.

performing the identified within While categories. one continues need we our vinyl plank strongest be store, assortment been flooring categories the to across has refine and to our a other of product

all actions. reflect line For experience, the example, in special styles trends, upgraded We of showrooms and reset while offering shopping latest order a recently structure. good, taken and category better, several to showcasing simpler our we’ve the carpet, the best

training in-store to Given customer drive extremely associate engagement better we the that’s the shopping for also enhanced this experience. category, important efforts our

days, early with the we’re results. While pleased

the customers During and outpacing in the second quarter, Pro DIY our both saw sales DIY with we sales Pro growth U.S. in

We customers. Pro more our Pro top suite of us. spend continue a We’ve to equipped we our focus tools with with their initiatives, on with associates know them, store we because understanding the better of more that of they engage the and number

them. customers to they our and can Our system so serve access sales Pro work can information, data better associates our with determine proactively Pro My how we allows customer View

BXB through shopping experience rental, the online continue tool to like engagement and our simplify experience. delivery expand We Pro new services and

in exterior weather Categories we May month, another at saw outdoor concrete, demand mulch like was and live the stains, categories rebound as improved. comps Company project While paint above average. wet goods

keep equipment continue yards and trimmers, for power even functionality they to product are tools to great. we’re brands Dewalt, business, up we market. our EGO lawnmowers. outdoor customer runtime and respond addition, blowers, brands strong with to superior provide Exclusive bringing Ryobi, In cordless and to looking see Milwaukee, like In our like continued demand our cordless to industry-leading customers customers the trade innovation and seeing their

best-in-class with with we you Craig, as we experience. our to happy progress making shopping are from gears, deliver investments Switching the heard interconnected are

at shop best-in-class likelihood again Looking metric, of us X. score of customers XX% our the our give to

showrooms, resets accelerated experience. investments drive and merchandise visual a and refining better assortments merchandising focused include on shopping upgrading improving strategic in-store Our to

emphasizing out rolling an department, center color to want. customers shop experience, inspired, seamlessly guarantee. our online new our be they And explore, process the wherever paint a app, satisfaction our while solution simplifies updated Project price, and color and For we customers, in or allows our new example, selection for Color our color are whenever which color, online

is the in pipe bays, our are and example fittings, and assortment at resetting new Another showcase space all of for better customers. we them our up to product categories freeing reconfiguring

to attentions half our year. let’s back Now, the of turn

of Werner are we partnership the retailer one of number of ladders. expansion Multi-position pleased number one now Pros. for segment our of with the Werner, box the ladder ladders, an exclusive big fastest retailer growing are to and announce brand As the ladders category, multi-position we’re

exclusive are Ladder big our new also Gorilla brands the Ladder partnership announce in leading happy exclusive brands, to the with Pro and with their Warner in box top starting exciting retailer, ladder fourth we’re the Louisville We Louisville for an destination quarter. Combining category. and

buys put in Our the and our events special have for hard merchants quarter. worked to customers third together

event. appetite customers’ by Day Halloween are host event, our Labor just We and continued for followed Annual home harvest excited our projects, in weeks, our about will improvement we

that, like the I’d to Carol. With turn to over call

Carol Tomé

and morning, everyone. Ted, you, good Thank

XXrd As a recall,, shifted week, our had calendar. you’ll XXXX fiscal which fiscal XXXX

$XX.X fiscal of fiscal In is reported are quarter, the basis, our in basis. sales the a sales calendar on as growth well increase shift were comp second sales year, last a as deferred billion, sales. from reflecting X.X% like-for-like Our total reported total a but on year a impact

U.S. with in in were July. for June sales X.X% quarter Comps year, Versus with $XX in and positive were positive positive X.X% Company of Our million dollar in approximately in in were June of or quarter the last comp total for X.X% comps in and X.X% X.X% X% X.X% X.X%. U.S. X.X% the growth a negatively and the May, May, stronger comps positive comps July. impacted

or quarter, points. $XXX just price Ted, during last approximately sales lumber from heard growth prices you the Versus deflation depressed. remained second impacted over by lumber basis XXX this comp our million negatively year, As

margin of gross XX.X%, gross products mix year. cost startup The reflects finally, points XX year points associated than the approximately gross X X chain our supply year-over-year from contraction; margin second last our gross margin margin in our driven our of contraction initiative. approximately basis supply had change quarter, second, the gross points higher Home of In of following points decrease in strength contraction; of was by factors: the a drove One last in primarily margin X in and First, basis with changes Depot chain, we basis basis sold resulted

quarter, sales at flat compared the as expense year. essentially second last operating to percent was XX% In a of

impact during the control reflects expense and Our the our operating expense of quarter. good investment plan performance strategic

resulted and in our expenses X of Specifically, points increased expenses, in operating by $XXX was to deleverage by related which basis strategic drove plan points $XX approximately This of leverage. deleverage. X year offset business-as-usual million from million expense expense basis investment or approximately operating productivity of BAU last

was Our for a operating of the last points quarter margin from XX.X%, XX second year. decrease basis

for long-term quarter of debt Interest million, quarter, expense $XX tax XXXX. fiscal and million to to levels the effective the ago. than quarter due higher XX.X% other XX.X% our In in grew second $XXX to compared rate year second second primarily was by one the

we the expect now be rate year, our to effective approximately tax For XX%.

diluted were $X.XX, share last of year. for quarter the per X.X% an second earnings Our from increase

additional highlights. some to on moving So,

of the the end of the opened were X.X% second square X,XXX. in Mexico an sales one in for was stores, up new million quarter from Selling XXX two year. the During for count one square and store last $XXX, year foot square quarter, at footage ending per feet. we Total the U.S.

times, of At load-in X.X in quarter, were turns of from of the reflecting initiatives. part inventory down the times our end year, strategic a last in X.X support inventory

turns slightly For fiscal the expect inventory we our now reported to XXXX. year, from what we in slow

or year, we repurchases billion in shares Moving share $X capital We X.X outstanding bringing shares with of in guidance. approximately stock. our million billion, second XXXX the In $X.X of plan half to on billion of fiscal quarter, allocation. to line the approximately repurchased the outstanding to repurchase second $X.XX

advantage took $X debt, was environment we an of notes Further, came and raised interest $X.X in June. which rate during quarter, due that long-term billion repay to of attractive of the senior used billion

ending long-term months, Computed for on higher approximately XXX fiscal trailing basis the the was on XX.X%, points XXXX. capital invested XX than second of beginning and equity quarter of the and debt return average

Now, remainder the of the year. turning to our for outlook

consumer last U.S. our what we’ve high global to near Nonetheless, has financial line confidence build experienced. we assumptions due remains in plan used wages price expect pessimism are levels deflation the built the when While metrics plan. with was the to we are economic lumber Consumer is our and we currently, increased didn't year. over Housing XXXX up geopolitics, X% healthy. record from significant

of and are halfway below the XXXX. saw more the now we in the lumber year than levels are through We fiscal quarter first prices

of consumer U.S. is the Additionally, facing tariff. the impact

While fiscal trade discussions growth impacted. guidance to be XXXX Today, we earnings these and consumer are sales fluid, updating reflect could are demand changes. share per our

GAAP. Remember off that guide we

So, fiscal with will includes the XXXX fiscal for from reported earnings our which sales associated and guidance launch results XX-week. XXXX,

compare most For now the XX announced from as U.S. calculated expect on by consumer to planned prices, With approximately of reflecting for reflecting sales fiscal last comp rate to potential by increase points the the weeks impact lumber down approximately well year, sales increase a year. the part, lower as basis some we expect XXXX, this, growth X%. as to recently the from now basis we tariff. X.X%, That's beginning we X% XX-week XXX at the to

share our per fiscal are reaffirming growth We XXXX. guidance for also earnings

per share to earnings diluted XXXX earnings grow For approximately we to $XX.XX. expect fiscal share, per X.X%

We per share lower planned our hold as rate lower able than margin a initially are plan. guidance a tax category, original are to and what we projecting is our because earnings to lumber we

for Christine, And in we are for ready questions. now you call. today's your thank We participation

Isabel Janci

call up like Christine, open to over Craig. to before the the back turn questions, we for I’d call

Craig Menear

Thank you, Isabel.

to Financial is deep to quarter has consecutive past last associates, she call the our Carol after like be the commitment community Carol Tomé the results and the the I financial in mentioned XXrd years. She XX our call, years for to at our our I’d of as on reported the this retiring served earnings with fact, thank end today’s for as As Company. market. our investment And CFO XX shareholders. her our month, Chief has Officer will

calls, her our values. our Carol for transparency the these business, knowledge during the of environment, to her operating excellence in-depth has environment, but not also standard economic only and set our reflecting dedication

for your let Carol, thank career for your XX-year your me you partnership, So, Depot. Home say and and leadership at

You’ll missed. definitely be

Christine?

Carol Tomé

your crying? Craig. And get to you, Thank questions Thank without we’ll to try you. me

Operator

Thank you.

We a session. you. will be [Operator conducting Instructions] now question-and-answer Thank

UBS. of from question Our line first Lasser Michael your proceed question. comes Please with the with

Michael Lasser

in taking lot to question Thanks morning. a my a for Good That’s ask a off question. lead hard of.

Craig Menear

one. about Sorry that

Michael Lasser

those All good. you following congratulations And large footsteps. best Carol, luck. Richard, and in very too in of good luck

Richard McPhail

They certainly are.

Michael Lasser

on comp the is due three changes question in pointed the large to is macro. price is, concern curve, activity There’s the to obviously uncertainty. as the reduction so assumed the that’s first lot a So, slowdown a you that the the macro quarter have my about we remainder, recently, due been significant for and a out, inverting lumber about in quarters a tariff and given of calling full-year remodeling institution yield of then, of your guidance education a point comp

those reduction all So, do of point in considers guidance think you a sufficiently quarter comp uncertainties? your

Craig Menear

Michael, over So, it Carol. I’ll make a turn let of me and comments, to couple

the have at think remained critical we line are largely macro up those to how you our when factors all, of look business, first overall we unchanged. So, that

we consumer feel good consumer that has about up And about high. year-over-year, confidence fact is X% the so, wages still the

So, in that the macro about and plans changed And the trend we did see feel base hasn’t how general our we pretty much. really that. good we

where to looked And feel May about we and the think guidance in then, and then the we end at compared the quarter, at you we going business, we the when commodity, about that that of hurricane have. when forward good were

Carol Tomé

there, give more I’ll bit little Michael. you color

is back just the in that around comp gave implied we guidance X%. So, you half the

at comp. in our a comp was U.S., quarter reported in If look the you X.X% second the it

add XX basis of that’s you of points hurt. hurricane-related sales, the impact back If

softness XX basis that weather-driven that demand, commodity talk was the back you basis May, And of add in XXX points saw we hurt. heard you points. us then, If about being

on and basis, are in X.X%. when look then, on U.S add back, and I X%. comp us to quite the quarter And you that performing So, July about was the an in we our comp normalized at talk strong actually was heard plan, we relative our we how adjusted are Then, second comp you exited -- the the plan. the cadence

So, you is other the comp points the all add it And suggests is look and at it up very achievable. guidance stack the just data to that comps. way

first and against comps the this stack of the reported the year, same You what what stack we second for year half. half guiding stack the about of we the to, most in last half are the is

good the given. we’ve So, about every at way very feel it, that we we look guidance

Craig Menear

business. that the day all go comment guess on have if on I’ll in it, team to this the the I way, after last long Michael, consumer I’d bet softened any

Michael Lasser

are mean seen you plan of such you you No any where you doubt. stand on through the really are Carol, that you to as mentioned yet? tariffs consumer your your do the from impact on And flowing plan, you quarter-to-date, haven't

Carol Tomé

see mean. can we exactly beauty minute. by doing our The business That’s what the I we phone; how sales of our is know that we're exactly on

very that’s based that report of [ph]. which data is that biannual on just indicator that of mentioned, housing different of So, a out activity you remodeling leading than survey coming

We have real our fingertips. at data

performance. So, good the feel we about

Michael Lasser

You so and quarter, straight particularly at and year? to the the last of question quarter remove should back margin then, fourth that of as might guidance last recognizing that app look between And in third the the end given how we is extra week my SG&A, year, the lapping the by want half the for forward, you’ll month. your be gross it’s model fourth that on you not of the

Carol Tomé

loopy relatively [ph]. a it’s So,

we’re would that be expense you, we told a write-down expect our growth that So, on trade for the for XX-week you we factor year. our names We the XX% excluding I -- talked to basis, no expenses that as longer expenses, using. XX-week we to and some told took

around XX%. it half, first was the For

half, in back a higher expect bit So, quarter-over-quarter higher and little than be it QX QX. the is will

On the year had gross of our of it in at side, the -- be penetration indicted, we won’t margin shift beginning as lumber. as because the as margin we gross anticipated low the

So, for to the that year we our was will slightly or as move our be be higher flat forward. original guide XX% original guide, was at you than

So, it won't be down as much.

half the first the as will margin as be So, down half. much second

Michael Lasser

of helpful. That’s best and again luck. Thanks

Carol Tomé

you. Thank

Operator

line with of Morgan Please with question. question your Our Stanley. comes from Gutman proceed next the Simeon

Simeon Gutman

you quarterly I'm question morning, don’t around Good you. My I done, Thank Carol. cadence initiatives. its macro you half us but guidance, And comp half Congratulations. guidance, the dependencies first can ones initiatives, second most dependencies? the And and part about second provide comps? share to to share thinking strategic the know you with on if and everyone. some are on contribute strategic And half. the for well of you is second can can which it the expected

Carol Tomé

things half to about when we second think think of about the comp. Couple

know, million $XXX occurred we’re you of $XXX as in the million of $XXX the back in first First, lapping sales hurricane-related half, million which half.

sales hurricane overlap the So, easier. is

Secondly, number simple, just in back on let's half, million the first the that million the of so to will half. use lumber about $XXX occurred price in occur deflation, $XXX it $XXX million make of

easier impact… is Then, the we have too. it So,

Craig Menear

Yes.

website, from so, BXB And the initiatives, we on a the launched. that been Pros seeing And the when migrated you standpoint. onto we sales first is react have very about have positively Pro, a that website are think

track the XXXX. for are We Pros million X on in

website. As significant number of matter this of fact, the tail we to a at quarter, Pros a of added the end

with XX% can rent understand we've that capability an As the which we that in how know rental tools. Pro Pro as today; we've with made our of Pros customer Pro. know rent us our to is store aspect of the well. detailed, engage business, significant a then, is View Ted the from investments important is in given XX% we we delivering better to results And My associates

invest we business in grow. to an So, as have opportunity this continue to we

then, the the updates categories making interconnected improved And overhead the to pickup for our in paying want in our investments, well experience our that business. category of we that's is all fulfill in And program, the do whether which management, I well, then, productivity lockers, we're capabilities, know, in merchandising in don’t sales are the as little or investments as in driving home, which investments way. number digital store, nice enhancing the or color to more rooms the leading we've as is are made give a to the resets? customers you HD Home on conversion a and expand search in our store resets the off as

Ted Decker

Yes.

isle businesses and we've some remarks, pricing prepared what results, incredibly while thought, been continue working But of structures. all seen the and vinyl quarter and don't those our our More quarter sales we’ve are back surface time. structure our flooring, flooring hard our exited for than our the tools Company see programs. tile. appliance about comp. room and through soft much done. losing on the in adds a is you line resets, holding there our ground post two recently, On reset, which year We brand I new half. hey, we've to accelerate all going for continued that through higher resetting that structure. the our core carpet the been through extremely soft has We and resets showrooms, in changing That to the solid in we then, to half simplified at simplified Those strong and is some soft assortment power working chain pipe for this well and flooring, mentioned And

weeks, the two captured read the better. stain and year be top for the value. industry consumer Behr happy the our what winners in launched the department will pleased products, at then, by top products new color recent paint testing solution The several best in to of paint year, where a we're our So, end new posted be at this really consumer the highlighting largest we’ve We the chain that. finish and seen soft the PPG couldn’t our flooring. and reset release in And and just agencies, three surveys last we’d products and number we've lastly, entire entire Behr in our with of is with which PPG timing center the come, value, best this and

resets. all about excited very we’re So, those

Carol Tomé

And as Craig, well. one, a just driving to customer from the Number couple of experience rental. mentioned add points just you

from half half. to continuing to see growth We’re accelerate

the making exponential really there So, investments we’re are value. driving

And going when management on-shelf availability to about the kind we very incremental there. is we get only about and second the continue the performance. points in think to talked to high the driving a for the And of ability so, the product how to our overhead and/or to as To level investments, find think very, cadence, about to on the we’re the event about in half, shelf, lean is comp us, we getting the driving not get customers product do store. we

we XXX So, have done frontend transformations.

the have seen, board. across just have experience the customer We numbers the grow heard that we

over have to the year. the going by end of We’re XXX

And so, but only focus able where to our the this simple transforming that customer and making direct our deliver and sure by performance us drive business, into to we’re is not be. expects

leverage we’ll depreciated to exponential half year the the event drive and drive to second through that So, of the performance. in continue

Simeon Gutman

scenario, am That going ask you. rates hypothetical follow-up. talked I very went we your this which were recession, of plan. to ago, would we A I made scenario XX, investments flat saw was as we if Thank my the think you and all about go margins comp I rising, through Depot comprehensive. in to when could Can if Home -- the part year

closer margin your to up you’re than of that end we’re margins, would that on better one I you’re given goals? update, some think, XX, making year provide can progress now us your now forward, you another

Carol Tomé

we Home the recession reviewed might that few we Productivity at the and sort purposes, is model. of know updated before. that. when predict a of haven’t with modeling, virtuous And the that can’t I we But Simeon, recession for on Depot. shared we just economy certainly numbers a Well, state happen, the same The But, a things. cycle you

other We during are every history. still the amount our yet the the longest in recovery growth this And industry. recovery of under in average is economic nation’s recovery of

of about So, of a this GDP. is dropped, GDP been XX% cycle. in reason XXXX, about XX% as it’s has was percent of elongated Further, it’s housing GDP. an it Back one why share

economy. So, is not whenever But, that and it like comes it it’s before. was will, going downturn that cyclical comes, downturn be it to a whenever

all So, we’re manage through very positioned that. well to

Simeon Gutman

best and of again, you, luck. Thank

Operator

comes your question Ciccarelli with Please next line Scot Our question. with from proceed of RBC. the

Scot Ciccarelli

comp another morning, answer the you’re us you better follow-up next you specifically growth improvement in of this that target you the already provided. Good to Can making, flows cadence back investments I are despite the these guys. and both understand expecting, had pretty on the that the half comprehensive that into help year year, of investments.

Craig Menear

the then that that’s investments, in And thing how overall. the lumber. our that to added we housing of the the benefit, growth in and only we in took When are statements impact believe a half for changed year that of purposes back from What said got that about the will we GDP, we achieve investments X% the all practical is deflation from the earlier we that making. you

Scot Ciccarelli

it Just was year, the back kind which did I think or all into misunderstand is of for of I that? clarify loaded X.X the to half

Carol Tomé

from based You are Ted the on that be quarter the way is as right. heard higher will into as comp back And of definitely. that well completion quarter, the the third that loaded it half. fourth It’s that you’ve we’ve modeled resets events than

Scot Ciccarelli

anniversary customer should into presume is we levels And or flow it. these in to because the of Got it year, start you point lot interaction, changes it there a next the and improvements where a of should off?

Craig Menear

into flow next definitely year. They’ll

guidance to that in the will We year. get later

Operator

your comes with of question. proceed Our the line Horvers Please Morgan. Christopher JP next question with from

Christopher Horvers

comments certainly phase a echo in the best morning, you, Craig’s Carol, and whish Thanks. I’d next of fortune of very And everybody. Good your life.

reset bit. macro, home front, rates has the a have In down quite moved on follow-up I’m on terms existing housing pricing my lot, moderated of a and are sales around but not personally, moved up. picking just perhaps the questions, about a to

different out in markets that and what anything market, the the consumer then, driving country? seeing that And you other pricing perhaps the the orientation? the coastal on there type terms that is coming related expecting? you what projects a seeing of So, the versus -- in parts trade-up or of some of in in really you of taking pricing -- on the say, are value down deceleration front, the consumer versus they're around And are we’re then, where to that’s are

Carol Tomé

the On margin. just macro on but are bit, it’s around model, yes, a moving things little the

to our is about output your no you sales inputs markets, and drive data. To that give coastal the the change I’ll there question the some create So, plan. just material

Let’s take higher was down cost the Company Francisco average. the than San coast; the

at take further Diego Company Let's was the little average. San comp south;

the And in it a is since Let's home take prices XX% Jersey, company has Dallas. high were average. a Company then, higher Dallas average. and in which let’s increase state, New the south the just above comped XXXX than comps land seen

see way are we thought performing the can that would. You things they

Christopher Horvers

then, Understood. detailed couple questions. a And model of

expectation how week? bit that on comment ‘XX X% U.S. any guide? in can help XQ the total us incremental for XX-week the for comparison, us versus XQ? You much dollars And SG&A a you related give year on more little comp First, were the perhaps XXrd your in to to XX-week about the SG&A there

Carol Tomé

questions like feel quarterly answering I about those because to much give we information.... don’t good too don’t you

Craig Menear

helps. in the to So, I’d make year, comment the kind comps one year, positive as relates for the we're if Canada that of expecting it

Carol Tomé

and is question we dollar, currency U.S. what The it the happens neutral. plan to

happen So, to model you to going you what dollar and do calculation. is think can that the

the a expense And It’s really [Ph] looked guidance the the way bloated. extra really it that of that on week on going only ignore because We're going look So, side expenses basis reported that's to week. to to growth basis, GAAP explain bloated. extra a on

at basis, daily best what fourth the work think looks to the that like. into can you is back annual you, guidance we’ve thing I look XX-week a it quarter given XX-week the within do on and to just

Operator

Our question. comes next Please the proceed Haskett. line Grom from your Gordon of with with question Charles

Charles Grom

of half you has front the type altogether? So, year been on point. seen of see we that of front, kind or at postponed the the do demand, of the past, typically not weather know just or get cancelled release pattern, that curious, projects this the you've some the in I'm just when this all

Craig Menear

category. It's by

the that some there's business have we're to that right now. extend So categories seeing ability in the and

where some all are so, And of recover that you that. There don't business. you capture

not You get it. might of part all it, of but

by it category. varies So, really

may the and if business think this back, year, back. didn't on example, about, may that we get pre-emergent when or you place, So, weather not takes get depending for you

Charles Grom

sales to or end And I'm ahead you maybe perhaps algo just to of comp on I equation? When believe the the the -- then, lower all, changes the the billion wondering, of around if to it $XXX billion. guide. targets look change long-term $XXX.X outlook your in just at bring that that

Craig Menear

to goes change it Yes. the end. range It of definitely lower But, doesn't guidance. the

Charles Grom

Carol. one the And Okay. margins, gross just then, follow-up on

was transportation headwind. year, big last pretty of a All

quarter. it I point? You just didn't you I guys it out called call this quarter. was believe if you actually this at don't last out it's helping curious,

Carol Tomé

are last we’re that we what upstream our certainly it from productivity we about in moderated seeing What has year. supply chain. the saw Well, is excited very

Upstream, X -- supply I great chain basis leveraged basis Our gross team has well, in of -- out we job our we supply upstream. a of actually X margin chain facilities. mechanizing called comps done upstream leveraged, We the points. points pressure

productivity we tremendous, leverage supply chain. So, in

Operator

Our comes your Fadem from question. of line with Wells next Please Zach Fargo. with proceed the question

Zach Fadem

talk some the from volumes called in in little Maybe in here back guide the as a detail. and could potential if more specifically impact balance potential out the half your downtick of assumptions Curious you think how you about raising in result. a the Craig, of tariffs. us you prices through conservatism the quantify

Craig Menear

Home at Yes. or on When I through $X to you list uncertainty think the about look total it being billion tariffs relates mean, impact Depot, overall. as about one sales specifically cost is XX%, impact. of the the customers at a four that's X% what we if economically it four, China

we have initiatives think as which portfolio that we’ve to actually business there’s think that. flow through to you there, way to and customers And there's for I and project. but and on tools about side relates we top sides use the tariffs a number on is. been approach. of cover to the cost And, Ted and two really use to the good let ups then, the elasticity, things our And have is side. the how relates I’ll there of can a We talk underway downs about as potential actual the customer. project There's this to there it clearly about the impact cost this. the the it initiatives that We have so, And to you number able we underway work merchants is line. business, a pretty And is of --

Ted, want talk about to if you the side? cost

Ted Decker

assortment Yes. with team. happier be finance team, I’d team, planning our say partnership on I the couldn’t the cost side, our with accounting

impact to of of in We literally down have tariff origin skew. potential data country,

into the exactly even know lists, hit. our tariff will what impacts on are when various that our in through know accounting retail hit when we impacts We the P&L. So,

great team. So, very to the you the much thank with partnership finance

of As phase a X% through sales. X, a on Craig our potential a and X said, being XX%, phase about U.S. only of impact it’s macro perspective,

with of where pricing upon that the like research customer the manufacturing taking we’re say, in with we’re engineering, supplier marginal some value margin, if into trends United to working States, outside supply I'm then, who with Now, our would China. base significant account aware merchants things negotiations of put you of suppliers, moving And you the starting put product, dollar between we’re is number activities it, the embarking currency, supplier customer-backed see single a for with a form on to our have into best of the I chain. not not value. with

back to So, States. we into have the Indonesia suppliers and to moving Thailand, United Vietnam, production to even Taiwan,

that if call then, this impacts and to customers. much, pass out, merchant all project approach best Craig And less, to as net those something net being how like approach portfolio the see you all, our see of when of business team on Xish-percent to said, up overall there it to it’s business our with the we X%. any at So, impact much to to the work we

Zach Fadem

And demand Got elevated What has overall it. have so year. dynamics to your more the And in when far through think also typically promotional or so weather you there then, some seems of maybe you activity, the the a we pricing respond Could through see changes talk do out this environment? category, talk you environment? here? driven on more process it little how the paint when deciding gotten

Craig Menear

So, with answer stains. exterior first I’d

reset and paint, the with year exterior again did number in is the and the paint We -- stain business. year, interior performance promotional with product. quickly marketplace. Behr gotten great last the this and PPG more much the two more we interior in one improved So, comprehensively On number saw weather has graded stain our exterior

best market X holidays $XX X as world. talk in of the know off. was promotional We Depot, Home remember print fall in finance not product gallons we have best at buck just and speaking there slots have, released $XX paint as times in gallon paint with its paint major advertising media in surveys. promotional can the cadence in of lot on cadence, promotional off as out there At the community, to And money as you of high-low year. And the we agencies, a was the holds a we XX% Behr the the in the breaking are about best just party marketplace. the ratings we in year much had everyday when into folks of three a third a the top off have And and value. I have a going two absolute trap we in different

we're to Some that. chose to competitors of buck, the not going our break and do

Operator

your Barclays. of question Karen next Your comes Please proceed question. from with with Short the line

Karen Short

in general. Just a question tariffs on

the the think, just negative margin. bit. on raising in price had seeing a had And question as and on I demand pricing, up you on then you terms little clarification you Maybe higher a then, points? of reaction to color what I are consumer So, on it gross tariff that last prices units impacted initially price, a relates picked appliances to quarter commented

Craig Menear

gone we it category. There working by as as in when actually number laundry have time from last highest out been and you models think cover done, total of varies that the the we’ve variance mentioned, able sales top laundry about we has actually right now. that because referenced the quarter. as And the appliances over our that comping that models have we have by, was changes time by elasticity are work we -- past, in we’ve unit line I category And And to well. we is As category, that there.

Karen Short

That’s half? the to helpful. gross front, have okay. how been would that gross you obviously, then and I mean, quantify in through us margin a this Interesting, lumber may Could then, lumber walk second And quarter. gross benefit margin margin impact the on help

Carol Tomé

to. I’m happy

categories, power. lumber expansion. it we well of points was We XX penetration second the of But, our lower growth like the in it. on margin make margin absorbed but don’t portable appliances money portable that as love sales, a basis by lower lot of as With us in quarter, gave power

So...

Ted Decker

started It general. recovery, in

Carol Tomé

Ted. Thank Thank that. you you. Absolutely, for

we’ve as for give the back So, as as half, to some about, expect for saw the back first will half which lumber you benefit half year, much we the look to would us as we not stay year. of well the down but talked down, the in

Operator

your next question. with Our comes Steve Please with Guggenheim. from proceed question Forbes

Steve Forbes

wanted engagement I trends. expand could interplay initiatives this between I experience those and website about how initiative? it, think the to of BXB maybe potential to just Pro really sort the revisit tool of you the rental on impact the augment and expect you As you what business two view

You mentioned some you sort color? can additional but of provide positive,

Craig Menear

say, first come our a a now turn I’d This now, That physical I to over that all necessarily So, date. aren’t from connecting investments I'll BXB experience. issues the make, about that in will website the around we're comment Ann, digital it the later right locations. is making right at is to

Ann-Marie Campbell

in Craig, to we -- we thing with investing the the we’re fleet, in just there's able on Number engagement Yes. first we're Pro, doing one, when support, drive have to product capital more that. your invest business. To the because And point, available.

we're right is have of last for model there Pro. doing drive the So engage label at it having just drive We've success engagement time first sure higher to that's thing the the right introduced able to the with stores the to assortment in year our we well was by tremendous level customer. there we the our associates as and we're making that had thing number two The doing experience.

how rental that lean there. level this we're into think hub And to least, that about last having to to sure ensure well ensure as areas push then, exploring within point as model rental to delivery well. we're making our we're locations we are And our that. we high going we the label a also we're continue addressing not and of expand at well into so And we that to do but forth, offering, so, we're tool and areas, two service engagement for as as able

there. to We're continue we're tremendous push seeing going to So, growth.

the we We’re it certainly engagement. Pros drive expand, for within seeing higher Depot. and be levels to loyalty And continue a will Home as complement believe of we

Steve Forbes

modeling you. quick here. just maybe a question follow-up, a then, just Thank And

$XXX impact called us incorporates? for the the outlook are and for you year. quarter think where Maybe just out to on still full-year are dollar strategic it You track give for was investment, year-to-date. million an But, D&A you and expense, on update I what the the

Carol Tomé

Yes.

investments. expense on capital and in are with to our strategic regard the We support both our of plan

Operator

of with next Seth Our question Credit line your Please the from Sigman question. Suisse. with comes proceed

Seth Sigman

follow I on up wanted deflation. to

And there guess how you part comp as You positive about of any deflation, just are I about that just net full-year price if guidance? were new thinking commodity discussed curious the I'm movements. impact. the lumber

Carol Tomé

will, time from to So, lumber said the another basis And that points then, of points. XXX we you categories was call other deflation, out basis time. if from I we had commodities inflation, XX

Seth Sigman

the And the your accelerated quarter. last quarter in versus actually average ticket deflation, then, ex

that? how gross I So, on do the in price you're seeing like about seeing outside benefit then, extent higher to store, we through we a until I a tying commodities, are the how the across that basis? of is prices, the And costs cogs, start to margin average think SKU the do guess, gross guess think about flow same with that the that actually margin initially Thanks. retail it increase higher you to

Craig Menear

innovation a Ted business let details. into it the comes that certainly the assortments, I'll The and overall our give ticket. side, as price to the on on So, positive impact relates has

Ted Decker

of standpoint, from Yes. of pressure aside this lumber back had first part a and half of last year say bit commodity taking we a would that And tariffs, year, from on I pure quite subsided.

So, actually commodity of ago, et think year generally cetera a are versus down. steel, you base if metals resin, prices

the subsided. has on pressure that So, outfit

By our our pricing of more mix-driven point, increases up increase, higher unit goods, as far innovation, price break the versus components increased. higher Craig’s which QX product in of mowers. of of the largest as are points To several quarters is past because gas are price sense retail well the innovative, average customers that to the are lawnmowers of which trading that new introductions driver in push from think out most cordless has we

On taking approach the on nothing tariffs, are sort number in number across broadly going quarter, we’re of our any this have price across country, of say and of a we portfolio tests country. of tariffs. But mixes the we point at testing because the in magnitude to of a things

Craig Menear

your question, margin. to impact And to

drives innovative line important it a but the gross structure customer margin is. lot that dollar, what margins themselves it the more dollar. higher higher gross the drives change which most is off may steps not rate, As sell we product thing It and

Carol Tomé

This it’s X.X% ticket. I wanted, has look ticket and And is an not June business. our the in we’re giving of statistics maybe in in big underlying acceleration the sign to think but probably that X.X% X.X% in been information at in interest you you Big grew the health May, been This unadjusted. July.

Seth Sigman

I it. Okay. color. Thank you the appreciate for

Isabel Janci

question. more one And Christine, we have for time

Operator

you. Thank

question. the line final Our of Greg question your from Melich Evercore. with will Please with proceed come

Greg Melich

I made it in.

the potential and -- you of XX before best really enjoy and then thank and If you you. assume had all follow-up tariffs also on everything, And XX% does to description on that you it I on annoy is a we XX% list X continue break a that you as to to tariff Carol, X? gave a It X the or lists digital. we’ll list through all X then can. XX% X, get, the inflation helped on years. really, So,

Craig Menear

then XX right. exactly X X It’s XX of That’s and X. Yes. through on the

Greg Melich

Perfect.

that factor? that, into up might been X% reason contributing to have year-over-year, why a is so, tie inventories a And

Craig Menear

about resets the accelerated large making all part. is inventory our No, the the in for investments we’re that

that. So, do it nothing with has to

Greg Melich

nicely. last around it that XX% continues of then, And it. sales? Is decelerate. Got know grow to I X% on And did up digital.

there to So, on any that did going or see in day, on? Amazon’s wondering, factor else think is next something the I'm did move the you do impact was And that? deceleration you

Craig Menear

very Mark, ago. know to X.X% No. capabilities a you pleased if I that? our our the growth; on delivery. We X.X% details day in actually share same actually the it’s quarter, in And want penetration don’t were with we’ve accelerated up from year

Mark Holifield

Yes.

parcel we earlier, next day coverage. was our As noted have expanded

coverage. of now car also XX% to stores. than XX% over We’ve the our of in next greater our We’re day delivery parcel expanded out population

we’re So, with customer. time out lead we’re to our the pleased taking time of

do, We it with time take we lead improves make move in continue and conversion. chain, every supply out each to time we the

Carol Tomé

the deceleration, fiscal thing. a calendar on on Just it’s shift point

So, that’s a a number; comp growth not that’s number.

Operator

the of Ms. turn the question-and-answer over have I end to reached comments. the Janci, we would floor session. closing now to like back you for

Isabel Janci

joining thank call earnings today. with Thank you, forward Christine, and We you in you November. to us for our quarter speaking on everyone look third

Operator

This today's teleconference. concludes

have at a your You participation may disconnect day. wonderful for time. and lines your this Thank you

The Home Depot, Inc. (HD) 20 Aug 192019 Q2 Earnings call transcript