HD - Earnings call transcript Q3 2019

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Operator

Greetings. And welcome to The Home Depot Third Quarter 2019 Earnings 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.

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

Isabel Janci

you, everyone. morning, and Thank good Christine,

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

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

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

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

the to call let Now, turn me Craig. over

Craig Menear

morning, Thank you, Isabel, good everyone. and

versus were First, our X.X% earnings $X.XX Diluted And the last earnings welcoming were year. year. third up share let me sales from an Richard comps third for last of start Comp in first call. quarter. positive quarter billion, per Sales by to his increase were X.X% U.S. $XX.X the X.X%. were

to strong Canada and posted divisions our and Overall, both engage perspective, Mexico we Internationally, geographic customers. comps. a From of comps. U.S. all posted see positive continue positive

the departments outpacing detail both grew customers of of positive with sales quarter between ticket DIY balance growth pro in posted both the merchandising comps. our all electrical, in will DIY U.S. Pro exception the of saw We healthy sales transactions our Ted a As lumber and with and and

our and expectations, demonstrate sales broad-based growth collectively approximately initiatives. with of While geographies expectation below with largely our primarily a strategic third performance we points initiatives driven the to associated across beginning year, our timing departments our comp would these our our was that contribute you the benefits XXXX. At merchandising by results of XXX the in basis quarter shared performance certain

As the taking shared some are a have of deal more with initiatives progressed years we evolve, have have learned time. you that and while these quickly great others more

continue and are expect build. And long-term These the to nature. investments we seen that we've in will significant momentum

and the longer for moment just is walk this realizing rollout original largely will you assumptions. a It's implications track we're taking benefits. little our has a on Our than through our Richard In contexts. XXXX enhance that strategic more customers ability serve guidance, significantly let IT our of foundational to but will provide We've many initiatives way. me our an supporting in interconnected stream work first our

this be unwinding requires the work proven our And than website example. legacy Much systems. has of Take anticipated. more IT complex BXB for originally experience that to

our significant pros. is a unique we're for of the proposition BXB in investments Our value experience a creating personalized website component

the pros as spend on-boarded expect, customer these engaged we beginning meaningful you XXX,XXX we're familiar at would new with As is lift customers the year. a the more most become cohort in of the experience. seeing And that

our cases turning The our functionality work on IT itself in yielding Pro rollout and customers. with line be some investments are for elements But experience must of in above the underlying personalization BXB results track. or on larger of is expectations. site Other additional before completed

third XXXX. approximately quarter from online sales HomeDepot.com XX% Conversion For source and the continues of quarter a be growth example, of strength. is up Online healthy. to traffic was grew third

fulfillment respond to continue drive experience, faster frictionless, a making options. including we're Customers enhancements interconnected to investments and ongoing to the

drive incremental sales these to of growth We Home, our picked digital of also our We're to US traction our online categories. continued all and adjacent in were the up in good and seeing growth interconnected and to categories shoppers seeing across like our Cool online online of continue are XX% HD from platforms healthy Workwear our testament more stores strategy. than to stores, a orders our relevance the see of power retail leverage as

with orders rollout more and X,XXX lockers. we've stores response. stores pickup in very have the approximately We our to make continued lockers To been easier date, automated to convenient. of pleased And customer online

of positive. of of a of Customer our a As when customer response has five one increased XXX very and their have category the us new and been points out rating look clean our XX% US be locker a approximately to stores experience customer it service experience. pickup comes fundamentally versus a stars. customers that have has to XX% five to believe give We stores year. neat and Over in basis of last scores feel great

XXX points last basis check-out year. scores satisfaction over increased While versus times for have

year investments the the of investments, more second Home our the of extend the approach competitive for our even that long-term we the Depot right, to marketplace. today One have making As end we're business we conviction transformative in advantage

the doing As complex is is transformation, work team and our I'm consistently up the with way for the challenge. we're proud any of

customers. what's and to on their for dedication. our Our want by associates in continue them I important close our to And most thanking work hard focus business,

me call let Ted. to turn over that with And the

Ted Decker

morning, everyone. Thanks good Craig, and

bulbs During were was our Pro Tools, Storage, below Indoor of flat Outdoor electrical in and Plumbing were lumber due quarter, average. essentially saw to All copper. other Comps third our and with average. Décor appliances, Paint customers. the departments, above the in Electrical Garden, growth the light and deflation across and company both but DIY Hardware, the Garden, company strength driven we with of by most departments positive exception and

comp to we While saw growth. lumber price reported low deflation, unit single-digit negative continued strong due comp commodity

the our extended in the strategic the of of and in part and improving the strength was saw investments at geared number experience in in growth ticket. balanced traffic season we customer first the and transactions XXXX. comp store transactions outdoor core with by acceleration Comp During quarter, driven from a X.X% growth categories. transactions during we half The saw what third both quarter, third increased

We from performance ticket big also transactions. saw solid

the ticket are U.S. third approximately quarter, big transactions X.X%. which $X,XXX represent comp were of sales, XX% those During over up

transactions up hurricane-related ticket X.X%. markets, big were comp Excluding

third The quarter, ticket customers innovative up comp X.X%. comp new ticket be pleased items. In also despite increased by to of the to impacted in average continues performance lumber growth our We trading positively and deflation. remain average our ticket our price the with significant increase

ticket deflation During points. approximately XX the commodity by basis in lumber third copper quarter, average our negatively growth impacted and

a me moment Let take on to comment tariffs.

cost tariffs. we quarter rising from increased third the during expected, As saw

data finance our are helping an teams elasticities. doing job incredible cost impacts merchants, analytics and and Our mitigating us evaluate

While days, effectively still to manage tariffs. can we continue we early believe

how impact the tariffs broadly. on we However, remain consumer could more cautious

Going for and tools forward, use help value. will being analytics us to customers advocate we focus continue our to the on

we and DIY During for continue saw experience in and U.S. overall we and time in resets our installation. both in In services sales approximately We're customers. the money. categories Pro XX% Pro saw drive like quarter, pneumatics, investing our to of which customers concrete third DIY save growth tools sales the outpace quarter, customer fasteners, third Sales to estimate represent Pro-heavy and the a a growth in strong we and suite Pros our of better

saw to take customers as extended down, DIY started season. advantage customer, Turning outdoor of our summer wind we the to

Goods, had Furniture, Patio like Live categories quarter, third all average. Soils and well company above Exterior Stains the Paint, and comps During the

investments digital strategy Our working. interconnected in are

As and from we're functionality our heard on Craig, features, you enhancing website. presentations category

ticket. We see and continue conversion average to traffic, growth in online

more in online the all In up were our growth business we nearly quarter, third online project double-digit picked departments. our these fact, stores. saw during U.S. XX% in the than our of And given nature of orders of

category colors at different example, rolled customers look XX all fulfillment the our shop helped to as our These and drive out stores. Recently, last as one patio as new allows category in the strongest well various Let's our customers Patio see comp online in on know options, both Patio easily in enhancements years. Furniture a and online the styles, that an entire new page. presentation we our collection, we

industry-leading Walt over attention new our about line assortment. Last in fourth power the we the equipment add from of response talked to market. outdoor from U.S. our Makita's and quarter. incredible tools has of cordless we're And let's to quarter, lineup Makita's RYOBI, now seeing batteries our We're customers turn the XX-volt to tools XXX our XX-volt to platform Milwaukee outdoor to excited in over EGO. XX million exclusive

award chainsaw we winning quarter, assortment. will add fourth platform. portable a the Makita's with that During compatible trimmer, power trimmer hedge All lower powerful to and

be to Makita's partner. proud exclusive box We're big

In the about addition, upcoming we're holiday thrilled season.

to hard Depot worked The destination. have shopping establish merchants holiday the as Home Our

the the of best partners with put to holidays. together We tirelessly offerings have worked product supplier for value and a broad assortment our

from special of in-store number in center with years, exclusive our gift we Black great showcasing a have will Friday As for offers along an previous brands. buys

turn I'd like that, With Richard. the over to call to

Richard McPhail

morning, the third of In good third versus And were total or Ted. fiscal everyone. the you, quarter, of billion, increase million XXXX. $XX.X an quarter $XXX X.X% Thank sales

September, comps were for October. comps last quarter, in approximately with October $XX growth impacted comp year, August, X.X% Comps August, X.X% in the with X.X% X.X% quarter in positive positive Our and of X.X% million dollar stronger and sales total company U.S. versus September or negatively positive were in X.X% the of X.X%. in X.X% a for comps in the positive in by X.X% US

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

comp comp our shift, October in negatively timing impacted to year. of in versus Friday shift timing event This impacted this the US points. this negatively October event of was result XXX a --in year our last basis As due Black our approximately by timing

were basis impacted US negatively quarter comps by XX for the approximately points.

just margin year price gross approximately last depressed points. mix Ted, our remain third was decrease change last higher XX sales basis third from as was by million, The quarter, the over or As XX.X%, shrink by the in year. the comp heard impacted growth and XX prices deflation products points you sold year. our lumber to from driven quarter, In $XXX compared negatively lumber a primarily last during of our basis versus of gross margin

basis to decreased a last third expense year the quarter, points operating In as by XX%. of versus percent sales XX

deleverage strategic Our control $XX million or leverage. XX was expense and points and continued reflects by performance increased This million well in operating from of to As offset basis by productivity expense last $XXX as as of our basis approximately our drove expense which BAU XX in continued of approximately the investments Business expense plan investment Usual operating productivity initiatives, and strong deleverage. expenses year expenses points operating strategic in related specifically business, resulted

margin XX points for $XX third from the and in expense levels decrease XXXX. basis last third quarter million was long grew quarter ago. our rate quarter the million one for debt the XX.X%, the than year. other XX.X% due by operating third Interest to higher -term $XXX of a Our tax year quarter, In effective primarily XX.X% fiscal was of to compared to third

For the tax our XX%. lower expect be year, rate we will effective now slightly than

third earnings and $X.XX, last October, round from Dallas per the increase of an impacted the were X.X% diluted Our of a for quarter storms year. devastating area. share In tornados

And tornados Dallas. with impacted to community During in of one our stores destroyed thoughts associates. these continued are storms, our and be that

the reflecting of last third store our end Xx a inventory X,XXX X.Xx in had strategic the were of sales and from total of the turns of support of X.X% $XXX, initiatives. inventory last count ending were At from year, quarter, end down quarter, foot we an year. At load-in square up per

ending initial included will the the third for calculation. repurchased of the beginning shares XXXX. Moving the the is of X.X XXX quarter equity accelerated billion shares In fiscal XX on Final the of ASR, number third was that $X.XX long-term approximately of market return of outstanding an quarter, basis ASR -months, fourth and terminates. in third XX.X% on the ASR approximately average Computed share trailing repurchases quarter repurchased for shares program. million than invested capital the and X.X in debt approximately million quarter open on to repurchase approximately higher and shares million determined the or the or shares or when it be on points under an Note we through allocation. This repurchased X.X stock. capital

the outlook year. to of for remainder our Turning the

confident approached competitive over that of investment we end long to term. second achieving investments making extend As geared our the of One the business at our the right Home the vision. We're advantage the we're for year Depot

take to Craig As contributing But these for are realize of our than and anticipated momentum will initiatives some benefits XXXX growth. sales said, initial assumptions. the gaining to are fiscal longer our

which our includes that guidance reported XXrd a result, for XXXX, off results GAAP. guidance. with are from today a fiscal updating XXXX fiscal sales As we our sales The we Remember launch guide associated will fiscal and of XXXX earnings week.

as increase approximately basis also we expect now a on approximately XXXX. sales XX-week fiscal guidance last reflecting of sales And for year earnings-per-share to our now compare For X.X%. fiscal we XX-weeks by the to X.X%. We're by XXXX, comp calculated increase expect reaffirming

XXXX diluted approximately initiatives, you at you today's for X.X% $XX.XX. December with give Thank fiscal around call. you we an as talking expect York Conference we're earnings-per-share We grow on as to to update participation well fiscal. on XXth key our in XXXX. in We New strategic to initial our forward questions. And look now ready where for thoughts Investor your Christine will some

Operator

Instructions] [Operator

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

SimeonGutman

realize it's to the confidence and hitting? My something in have that morning. these And then initiatives then slowing gives taking that the you in what not are follow-up. gives Good I what is longer one proof initiatives macro. And Thanks. first you question

CraigMenear

with So start the let initiatives. me

First a rate original to we not And XXXX, to customers business accustomed Home the at investments we ourselves benefits make This going right experience an doing from with the term. from December that when you competitively and just such this the we're getting the our shared long in that sure the at position our to we're delivering that win this opportunity continue and in It's to the back to that is in are we do look Depot. of for of are big seeing this health long-term we're initiatives. of business, all, as of we're plan. making the

broad-based not And business. continue think to investment the We we of features getting to unwind we'll benefits relates see we And continue do else? so benefit systems, to of XXXX. our legacy that as how add half And we our it's and in we about to as growth the of continue in additional we're know as see it grow. some something complexities

ticket. As in discretionary had don't we our strength categories that Ted quarter. We point. look in spend ticket had see We out, ticket pro this that called discretionary during the transactions. us happens business are accelerate anything concerns big great we we when what strength at in And saw spend high there at particularly

SimeonGutman

my different would to year construct like margins XXXX and if existing today original up not, as you much Okay the it as for follow-up is from are macro land flattish to plan This looks is you around sounds plan. the at like change? XX.X. XX, up flat where to of range if to you than If plan start you margins which what the look take any It not of XX. call and three-year the it's would next going cause that

TedDecker

Simeon. there, Hi,

points. XX conference. at on within year our the what the December and from to is, was of decrease has on shrink forward year-over-year would So look the our Investor basis the delivering which talking all, highest say those we're to focused guidance pressure for about XXXX I Clearly, contributor to been there first margin

that that. steps have an address taking unplanned so is and in initiatives place many we're to And pressure and

Operator

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

MichaelLasser

for Good morning. Thanks taking a my lot question.

on associated both you're to points the lift that return previously That that on mentioned than of the for Is delta that take modeling with we XXX just basis the tack the XX expected. rather about it and You and the from investments getting to speaks we're there what basis next XX the any of basis points shouldn't year? points just why incremental reason anticipated you return. nature timing return

CraigMenear

the we it line, that will to that that know that momentum look we're ramp. at think the will we balance to I as making. see Michael, XXXX straight into expect the investments through a continue we don't continue build we're the we as XXXX, as making, certainly of see we off investments but move I it

nice for comments, we results. in website very As customers we shared seeing that experience, the the in on first opening BXB the on we're XXX,XXX my year, put example early

we of we and recently quarter, them continue they as we we the get on-boarded familiar As at lift. more experience more engaged with see a onboard see to number the the end

continue see momentum through we that So we're to some confident that build making. the investments definitely we're will

RichardMcPhail

you And environment store resonating we're about made know changes investments lift want it's with also to bit we've may in and that. our that customer that. We and making Michael, Ann the about if think, Ted comment a our and the are we're positive seeing little from

AnnMarieCampbell

Thank no. you, of Craig Yes, Richard. that things Couple out. called

our seeing repeat when the make that that online we've sales about and we what all, incredible of First in easy just growth continue seen and we're our think think about stores sales as transactions. in that's XX% picked for stores to customers, you the up as we growth

that So for with add our also And continuing delivery into things think think our that we And we're more lean to we as and and as but on stores which car see when well capabilities to on customers. end delivery front really outside it through also experience we're checkout about continue about the lockers accelerated scores the to our VOC seeing the all really to VOC called the as customer. scores, out, well. going process Van simplify Craig you of quarter. We're increased benefits our pro

investments and customers, about we see traffic think up we're you increased quarter which to going the introducing we to believe we're drive So another loyalty. just think or going to of fourth time coming is our about all investments these tremendous customers the making

MichaelLasser

be you've this And X% the comp quarter. That's is implied of you're question that throughout my fourth And a course the to higher what would done year. helpful. that's follow-up for guiding than

fourth-quarter? you or investments you're are the So that accelerating more you. you're can to X% help there from expectation? Thank to other going it your that outline optimistic that Is what's to that guiding factors the can bridge return driving this for see

RichardMcPhail

guide the that comfortable pressures our from on and called does reversal an we event we in that We're Michael, of the FX shifts saw to acceleration, deflation, Ted or QX. with the From acceleration out. walked we while lumber And for saw our guidance mostly timing by QX. question. thanks is momentum based from absence imply caused as QX in very

couple can you QX. So a look to ways of at it normalize

of see XX you the the from from points add much and basis And comped to basis QX. shifts QX we'll QX level from pressure you XX of timing take from lumber, QX versus FX points and you back lower back quarterly If Black in add QX comp over a from basis calendar to the due last points first of basically favorable you our event of Friday back impact then where week year's the compares. add X.X% XX

You'll in line right see QX. QX is a with actually normalized

it look another at way. can You

You of an could October X.X% take rate. as our comp exit

a event why You'd from of have add FX of And from that confidence back we Lumber impact. the will XXX to QX XX. timing basis again you QX. see points and XX% in progression

Operator

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

ScotCiccarelli

morning, follow-ups. Two Good guys.

the think when Richard? event that of thinking impact and a net First, about the Is so kind XX right, we about both of lumber Friday points. basis we're pricing. impact negative When Black

RichardMcPhail

From lumber, yes.

ScotCiccarelli

got Okay, it.

RichardMcPhail

your [Multiple questions. Speaker]

AnnMarieCampbell

the repeat question? you Can

RichardMcPhail

the question. Repeat

ScotCiccarelli

Yes.

the Just net impact, right.

what's You basis. had comments points last into had on year, year Black the basis pricing. versus to of you out you've it's some suggests this XX trying a quarter net kind XQ I'm of event lumber about I made The guess impact? the net fall figure Friday the plus fourth

RichardMcPhail

way. actually go same the they No, both

basis QX from of points pressure. points timing points XX basis negative basis points XX event and basis XX pressure, and from sorry to lumber So negative pressure XX of

the about QX. bring total points then QX sense? we So total we third And of favorable a about quarter. pressures differential those basis XX of comp sort into XX where you're they And fourth alleviation as and that in and XX quarter. was at if to company looking play point walk compare company basis you add FX have a from there to the then point will in basis Does between US make really

ScotCiccarelli

it's call shrink a have any more increase? to it, test internal? comment. shrink more And you if Has Let's it's pressure the or if so. that, from follow-up do by continued external? being issues Thanks. or on feel question think your Or/and I to related for then driven

CraigMenear

continuing of a We've But increase. Scott, the seen it have we to is pressure. initiatives underway. number

AnnMarieCampbell

more in initiatives add Yes. increased considered pressure; of we in kind they implemented and we've have had that our high-risk certainly I'll are the malicious. underway seeing are store. what departments And we

done a that, that all are we a things secure of we've addition products. technology the make initiatives Some risk to to But that want the from well. in Because working have to mitigate in sure solution through past this we we perspective well. as long-term as make to we sure

of we're pressure, the the initiatives release we're also in doing short-term things in So to certain long this working term. some on while the

ScotCiccarelli

start when if so trend, to you will, expect And to reverse? that would you

AnnMarieCampbell

we We expectation stores the in have that an have implemented.

the top-line; And mitigating said, as Some the done good we've will bend sure to that want and we risk experience customers. our in of I that But we're first. initiatives make protect stores high to we a start curve. the that for created as really

in going of So been these implemented. we've that positive monitor. to But short-term to stores continue some the in the high-risk we've we're really things have seen

Operator

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

SteveForbes

to Good morning on plan for I this follow the year. investment up wanted

$XX for what of the the relative absolute was P&L you this year to So going just thought spend us impact can remind because I million be right, to XXXX? XXXX. dollars, whole plan both in out same Because I think the I similar, you I from or is year. pressure, right, yes, But $XX called million higher versus XXXX guess, dollar pressure thought

So reversal should in the a benefit we quarter? expect a or fourth

CraigMenear

ramp investment plan The through actually

RichardMcPhail

of $X.X plan investment But about total this I'm -- expense total remember year. a investment $X.X plan ramping calling billion to about year of capital investment an billion The Yes. and a last out from here. plan ramps and actually

that's that the plan back with XXXX. and we line in set so in And

that expense expenses as line in with so generally year-over-year the of the sort capital. lift lift because And with is well really

SteveForbes

a just that. follow-up on So

two it spread really help Or us you just can So $XXX the those expenses? the numbers? is that down is between break million and between incremental, capital

RichardMcPhail

capital $X to XXXX billion you is investments cadence in that of for it which about year's in are in up than ramping see levels. higher in just ramping $X year those about But really And $X.X expense expense breakdown is the in so up increment last QX. over billion year the through and that quarter-to-quarter relatively is the steady and billion of the the peaking P&L. actually, It's

continue expect, off As XXXX investment higher you will ramp as and investment than to in we would be XXXX. in was it

Operator

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

ChristopherHorvers

relative has Thanks. maybe I Good into here? market rates from The allow market later rate morning. or moderated case of So three-year And the cycle? couple to rate the think growth the in? do given past coming years. rate to a there's of in a mortgage growth that growth market do XXXX that Was that lower expectation your think we're further reaccelerate market sort moderates bit a was growth where you base think plan X% that you

CraigMenear

it will expect what market less the in the of growth the be year. And didn't than we this slightly year, shared we beginning that was previous at

overall part of. the market that that was it significant would of mean own when QX. total, in we market in however, at third-party XX% about billion expectations. data, $XXX we And if you a I that we so play And look took at indicate our in share look we

business. itself. the drive and going stay merchants need always to to on share market so enough We how about this And customer as the we the talked We continuing growth that own we at just opportunity that forward. the don't to about to fact an focused look worry

RichardMcPhail

in looking another growth. I to X% that, which really point lumber from of deflation experienced think market the headline Chris, at XXXX we just And what perspective. is there's a

it of $XXX in about market going you be As be that's year we general. in with the pressure shared the in but to pressure us, to million earlier will

And looking so X%. growth down guiding X, we X you're around fact to initiatives. or our in that fact, think assumption of sort lower round the from And, out, base X% case that we're shows of you when X.X getting that of we're about sort today at market

ChristopherHorvers

to takes factors. But I plan puts on ramp I you plan. to year you as over so have think the guess expect, had then even initiatives five forward, expected and as you you do the side so got look three-year sort which guess or of that back benefits the I rate you've from other the the And the

the of So rates underlying growth do some back get the you think and allow some maybe deflation. to that --get market rate reaccelerate back

better growth you as look So forward? the be underlying could rate actually

RichardMcPhail

housing years, sharp recovery. we've as But housing from stability. that has recovery that a see expected said moderate stability of say our for I period movements macro and There's would played support housing many a going And no period is expectations. and and environment to create we with for of the recent in of healthy housing in What we line have a rate the that we out environment in right that XXXX then period stable. housing would And is use the is doubt that are and description out. would played

I rate support certainly provides The would and say healthy to again that. And so is stable. environment housing

ChristopherHorvers

That's very helpful.

comp the just season So you that was you this extended season season quarter? think number. my lapped follow-up understand is extended Do for was to year, additive an hurricane that last but impressive extended on weather traffic was

TedDecker

season But and stains well Ted. heavy paint Hey, did certainly some Southeast I'd as and and like exterior we extended then we drought say Chris. things no. in had Yes well. the particular It's in garden in projects. the

some give there's that. and with So take

X.X% unit a with you I the of and spring that of in effector a adjust years really plays if and QX QX, balance in growth, ticket year We of bathtub the When as we've year strongest think drivers do transactions. this business. balance across growth those entire the have start on Craig bigger units normalize in X.X% a stronger better we our we fundamental the you in is Real bathtub weak few business would season. always planning it or growth. called growth two always depending story. margin, and strongest When out way, that the transaction for about hits. have you on did ticket expecting we extended see the units transaction ticket, the weather think the was a are but say this for I effect, called underlying saw and stories as out also a to our

it's actually seeing store across unit we're geographies. the said, Craig As where productivity. And across this it's

Operator

Your next your question comes Please from with question. Michael the with line of Nomura. proceed Baker

MichaelBaker

couple margin. on gross Thanks. of follow-ups A the

you if terms elsewhere a category particular? you were-- managed touch basically it said what gross of you can it you Does pricing? mean manage And in First, margins? tariffs tariffs, impact margins, what as doing on are you an on paint has gross What that competitively tariffs. then to the in has And secondly, but the or you to relates seeing think offset tariffs can it mean? Thanks. you could

CraigMenear

from of So promotional we merchant of to customers. strategy see the standpoint that's approach We be know Ted escalated for whatsoever. long-term over well paint. and are That continued that played and business would include to the has delivering categories seem great sticking team to begin for the for right our marketplace. value the abating everyday to competitive a us our time. a in That with, doesn't environment

is know absolutely. don’t that if Ted, tariff. So want on you I comment

TedDecker

level into margin, classification merchants impact the tariffs. that and of down of on if unit say Since And our all that when the to I from start goods we of put teams productivity. we to business. started, the the that to have going said And mitigate with our supplier We partners data this manageable. SKU the point through, analytics all are price We the you have teams tariff, And know finance impact. there we the really drilled on Yes, don't retard the believe you it's have potential origin, tariff overall elasticities. know to working impact.

on partners of Depot laser-focused supplier this unit are and growth business. maintaining Home our in each So

work makeup of impact change other of country origin, So mitigating value product to change to features we to on the add to benefits will tariff and the can consumer. itself that the add

of actual With have not level offset all we theoretical, buildup would from that impacts. be said, being tariff what SKU the

We have over offset half. well

portfolio of supplier some a When impact to the measuring the and is that So tariff across acted the said impact in implied. had portfolio no gate out retails actions various and move and we working itself, business, we're in with moved where necessarily a taking tariff we've balance the of and our but I set impact the is well have on again elasticities where on our that's of we're of not potential the fashion. we've there SKU closely to partners with the manageable half over

whether We've our units maintained productivity best two quarter in effective, said, as unit over I this years. is last

that sum I believe So to we the it's up managing. content all would that

MichaelBaker

about And being to previous just for helpful. They That's it lead up just of guys. months stable, a sales. does simple get follow-up comps really picked historically And to a just ago. late very color. you're have on lot talking more measures simply, existing better the nine but we housing a the if in One look question, of that that macro. at it I of home as six to you

I you on of are back or the next comps expect maybe So housing we should guess surprised year? accelerating that early that aren't

CraigMenear

And across with through of that, business kind broad-based go you the forward. Richard, comp right great growth, transaction solid. very the walk growth, the the health business. to I underlying of is back Great we unit as look base

to at look current the we and where are candidly mean to we XX-plus variance thought out this you lumber year-to-date of the simple. performance deflation, is year If play would percent plain today. I where

the So we feel good about environment.

Operator

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

KarenShort

just wondering quarter. had much. And to willing thanks you growth by picture question quarter housekeeping, And ticket if that then this last I on a question. gave I a month. would big very be bigger you was provide Hi,

CraigMenear

now. us we I think can We with don't right here provide that. have that

If department. the Relations in Investor call want to you

KarenShort

then And XX-XX comments. switching to Okay. investment the

versus So higher that would be investment XX-XX XXXX. you commented the

capital? that guess apply to that does is the both is expense, comments then within the still And expense versus and I to SG&A? question skewed So more D&A

CraigMenear

Look, all we this we've color provide of and around now weeks Right got on Investor the time. our a at we're in the laser-focused couple of delivering Conference will year. this balance that

Operator

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

ZachFadem

Hey, good morning.

up following the on this So for year. investment question SG&A

million million year, my far expenses is spent so me to the about You $XXX this that in $XXX in quarter gets if right. operating math

to how strategic expect step usual these to $X you then that you confirm just versus much about. I as billion would want of the as investment? So for get down you've don't to investments talked business to that QX in strategic categorize And this year

RichardMcPhail

out we'll in of planned expectations. that number $X billion investments of billion to around are $X million investment strategic all we a with and line guided call of this QX. So the $XXX We've right of be north in year,

As out year. the of the we beginning at them set

ZachFadem

just point more? expand then when you that the a calendar the to Okay. land? in Why moving this in on QX there want comp benefit in And you parts QX right I percent-ish perhaps parts And will just And then the November. place and about that little confirm lumber X then any that we be to in to could headwind mind? the do is are bit moving on October, keep think a implied similar deflation basis other headwind you hurricane think the should subsiding. XXX

TedDecker

the to speak I'll events.

of very heavy So year. from this a merchandizing time it's calendar,

Black set we So for is appliance power great tool bring accessories, large our in is our values we We items. lot appliance event. bringing We're gift then tools, which gifting our pro very hand tools, power Pro. Friday a set And of Friday. which very, a center Black

calendar comp. on initiatives a on that's December All that will XXX the we're actually number week to In that late basis end. off that the kicked into In we those some of And go confident the of QX. into points. quite see flowing of relative

and all November, December. it will get throughout So November hit this doesn't in

Operator

Benedict next with your Peter Please proceed Baird. question. comes the from Our question of line with

PeterBenedict

So the my BXB sign-up is question Pro cadence. just around

expecting you you signed Are slowed tech end up early still were of so have some or issues guys or XXX,XXX million of the because you year sign-ups that year. of kind the a by in were about talked of the the the a that You've talking?

CraigMenear

right, No. a end on-boarded at of expect We And a we tail still million customers the number of onboard Bill? to year. them QX the about during

BillLennie

have capabilities interline to new made on continue website. except we've finished add the pros new And we registration introduced QX now automatic. our the functionality. things It so Yes. done they legacy We like user with the card that purchase buy pro can migrated quarter. customers We've XXX,XXX HomeDepot.com. Again Buy onto been we And just Peter, above as we through go

up those of So as to customers we we have and at our them can migrate Pro new sign-up get the onto platform, automatically the signing can BXB time customers extra we website.

So we're on track and with capabilities. with the migration the all on-track customer

PeterBenedict

that get think your longer-term? So --roughly target, percent I guys what pros does that penetration represent? of million you kind And what can of guess you what

RichardMcPhail

of we you can pros, look long the all pro verified if we it, the customers think our at get onto our Well, website over migrated term.

represent So XX%. about that would

RichardMcPhail

then knowledgeable the to then Yes, XX% the capabilities had accordingly. total originally do to base we we as more them about right of our that market build to will pros and we of as now. obviously make And continue to planned

PeterBenedict

of follow-up to some earlier, Okay, would getting am know little I how great. just but what trade manage tariff. you absent mentioned And just, and back just my elasticities you're be a not, I things question one to bit just around even around a down. trying the

certain you're of higher-end, trade some any was seen not down curious to or for or line maybe either there? opting of opposed within middle sign categories I if seeing you have anything more pros as So product are the what

TedDecker

not. We're No.

there. and continue of up in seeing business, a see points higher, picking clients tools in And innovation technology cordless category Appliances couple then with to going approaching power we're the observation are the points there. highest great the and of net pickup up outdoor price we've which the and outdoor all lots business So just higher Fosh, of innovation these for the is trade we example, power equipment. now power introduced great of across phenomenon new with equipment, end

Operator

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

SethSigman

I want that point. up last to follow Good guys. morning. Hey, on did

we ticket up last was it basis when on X%. similar X.X at surprised your accelerating average look where it's pretty a I'm I not guess to comp So quarter more.

of bit the Sound seem had a back little like trends commodity deflation less you little this maybe pretty bit had tariffs. healthy, quarter, on of a big-ticket inflation

maybe? curious have So that's categories or to is a something related back else there Black of ticket growth? where Maybe the shift Friday else I'm something the ticket lot that you big holding just is

TedDecker

be That's the would for Yes. big the exactly holiday Delta the events promotion.

on gifting et So that point ticket isn't kits power appliance, much entirely appliances, more that isn't, so portable think so XXX transactions. your shifted basis but than of combo average ticket tools, cetera,

RichardMcPhail

that this with adjusted Seth, in quarter right line again that in we $X,XXX ticket when is expectations. I just X.X And over think a say, big about X.X at at our the hurricane markets

SethSigman

Yes.

really been I'm you just do just may in sense. that business exclusions in announced Thanks. have and It curious comps? have recently how at well like just --that How impacting of follow it And inflation there the offsets. you're think be Okay, that second meaningful on then guys. you we that, And that found sounds back you certain is have up the that part to all managed for that's about then do some And the playing. categories and if makes SKU tariffs. guys seeing some same

TedDecker

for we're on introduction seemingly Vinyl items, example exclusions, had amount. the of number Plank number the through, a price exclusions higher our far than flooring of And the it moves nominal contribution very which about AUR way number tariffs. most been very that going actually working category was the say would price what made list. mean be It's of believe that, fastest-growing tariffs exclusion I is portfolio, I working Vinyl any would for of Sure. associated is by in sales driver of it's is ticket of we A to Plank. a We to category that announced. growth, on far would a we the items of our innovative with Luxury those have and has are going bigger the to that last we in optimistic Friday that new on X.X% through our lower

very we're Again, we're through encouraged. but working detailed, the

Operator

question will with your line Kate McShane proceed Sachs. Please question. final from the come Our of with Goldman

KateMcShane

just so DIY. and Hi. mentioned Delta wondered seen I pro was just in that taking any changes I still trends. outpacing question. Thanks the for my between you wanted if the the had pro DIY much you to,

RichardMcPhail

see we I the look dramatically, this hasn't changed strengthen Delta few the quarter. did but some think at quarters, last pro if in we the

Pro Ted So the But the are unit versus a ticket. encouraging and then is about through one primarily the bit transactions in talked comps, was but both I business make would seeing, pro strengthen. growth comment about little very the we're which

So just good strength broad business. on base the

KateMcShane

follow-up I Okay. to just Thank had with macro the one that unrelated just question for color. environment. you regards

differential could between you the of talk standpoint. geographic areas about affordability a any If in from performance different

RichardMcPhail

in time. look actually narrowest it salt or whether the third actually at in that are not. We every the And some high And we've states was quite includes single seen quarter. variability regional states quarter, the all there

variability are we So that existed. pleased the narrow with very

of Q&A End

Operator

turn would you floor now over closing to back the for comments. like to I Janci, Ms

Isabel Janci

of us today. at in December. Thank joining you our to many seeing We you forward Conference look for Investor

Operator

Ladies and gentlemen, teleconference. this does conclude today's

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

Isabel Janci	VP, IR
Craig Menear	Chairman, President and CEO
Ted Decker	EVP, Merchandising
Richard McPhail	SVP, Finance Control & Administration
Ann Marie Campbell	EVP, U.S. Stores
Bill Lennie	EVP, Outside sale & Service
Simeon Gutman	Morgan Stanley
Michael Lasser	UBS
Scot Ciccarelli	RBC
Steve Forbes	Guggenheim
Christopher Horvers	JP Morgan
Michael Baker	Nomura
Karen Short	Barclays
Zach Fadem	Wells Fargo
Peter Benedict	Baird
Seth Sigman	Credit Suisse
Kate McShane	Goldman Sachs

The Home Depot, Inc. (HD) 19 Nov 192019 Q3 Earnings call transcript