Title

Presentation

The Home Depot, Inc. beats earnings expectations. Reported EPS is $3.13, expectations were $3.04.

Operator: Greetings and welcome to the Home Depot Fourth Quarter 2024 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Isabel Janci. Please go ahead. Thank you, Christine, and good morning, everyone. Welcome to Home Depot’s fourth quarter and fiscal year 2024 earnings Joining us on our call today are Ted Decker, Chair, President and CEO Anne Marie Campbell, senior executive vice president. Billy Bastek, executive vice president of merchandising, and Richard McPhail, Executive Vice President and Chief Financial Officer. Following our prepared remarks, the call will be open for questions.

Questions will be limited to analysts and investors And as a reminder, please limit yourself to one question with one follow-up. If we are unable to get to your question during the call, please call Investor Relations at 770-384-2387. Before I turn the call over to Ted, let me remind you that today’s press release and the presentations made by our executives include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to the factors identified in the release and in our most recent annual report on Form 10-Ks and our other filings with the Securities and Exchange Commission.

Today’s presentation will also include certain non-GAAP measures, including but not limited to adjusted operating margin, adjusted diluted earnings per share and return on invested capital. Great reconciliation of these and other non-GAAP measures to the corresponding GAAP measures, please refer to our earnings press release and our website. Now let me turn the call over to Ted.

Ted Decker: Thank you, Isabelle and good morning everyone. Sales for fiscal 2024 were $159.5 billion an increase of 4.5% from the same period last year. Comp sales declined 1.8% from the same period last year. And our U.S. Stores had negative comps of 1.8%. Adjusted diluted earnings per share were $15.24 compared to $15.25 in the prior year. In the fourth quarter, comp sales increased 0.8% from last year. And comps in our U.S. Stores were up 1.3%. Adjusted diluted earnings per share were $3.13 compared to $2.86 in the prior year. The quarter, we saw broad-based engagement across our geographies. As fifteen of our nineteen U.S. Regions delivered positive comps. In addition, both Canada and Mexico reported positive comps in local currency.

Our fourth quarter results exceeded our expectations as we saw greater engagement home improvement spend despite ongoing pressure on large remodeling projects. Throughout the year, we remained steadfast in our investments across our strategic initiatives. Despite uncertain macroeconomic conditions and a higher interest rate environment that impacted home improvement demand. Our strategic priorities remain creating the best interconnected shopping experience, growing our pro wallet share through a unique ecosystem of capabilities, and building new stores. We are always improving our interconnect shopping experience. We know that our customers want faster delivery than ever before. Recall that last quarter I shared the progress we made with our investment in our downstream supply chain.

Including an expanded assortment in our DFCs to allow for faster delivery speeds across more products. We also began leveraging our stores to offer more delivery options. Our delivery speeds are now the fastest they’ve ever been and customers are increasing their spend. Billy will take you through these results in a moment. Growing our share of wallet with our pro customers is a key part of our growth strategy. We’ve continued investing in our store experience, fulfillment options and sales teams. These investments are delivering incremental sales growth and Anne will discuss this in detail shortly. In June, we completed the acquisition of SRS, And while we’ve only owned them for seven months, could not be happier with the business. The capabilities that SRS brings are both additive and complementary to our strategic efforts.

As expected for fiscal 2024, SRS contributed $6.4 billion in sales for the seven months we owned them. And since we acquired them in June, they have opened over twenty greenfield locations, and completed four tuck-in acquisitions. We’re also focusing on many cross-sell opportunities with SRS. As an example, we’ve talked about the opportunity with QuoteCenter. Our platform that provides real-time quote pricing in different fulfillment options for larger job lot quantities. SRS was already in quote center but not in all markets. Today, they are in nearly every market with their roofing products. And since making this change, have seen SRS’s sales and quote center more than triple Going forward, we will continue to support SRS’ momentum. We expect their organic sales to grow mid-single digits in fiscal 2025.

Our real estate footprint remains one of our distinct competitive advantages. We are expanding that footprint by investing in new stores in areas that have experienced population growth or where it makes sense to relieve pressure on existing high volume stores. In fiscal 2024, we opened twelve new stores. Ten in the US and two in Mexico. We are seeing great results from these stores which are outperforming our expectations. For fiscal 2025, we plan to open thirteen new stores. For fiscal 2025, we expect total sales growth of comparable sales growth of approximately one percent, and adjusted diluted earnings per share to decline approximately two percent. We remain excited about all our growth opportunities. We feel confident that the investments we are making will set us up for continued success.

I wanna close by thanking our associates for their hard work and dedication to our customers in the fourth quarter and throughout the year. Our results reflect strong execution by our stores, merchants and supply chain teams. As well as our vendor partners as they remain focused on delivering value and service to our customers. With that, let me turn the call over to Anne.

Ann-Marie Campbell: Thanks, Ted, and good morning, everyone. Our thoughts continue to be with everyone impacted by hurricanes Helene and Milton as well as the devastating fires in Los Angeles. We are here as these communities rebuild with our associates and suppliers who consistently go above and beyond to serve our customers. And I wanna thank them for all that they do. As you heard from Ted, growing our share of wallet with the pro is a key part of our growth strategy, and I’d like to take a moment to talk more about the progress we’ve made. For the quarter, all OPRA cohorts positive count. And it is clear that our initiatives are working. Over the last few years, we’ve made investments in our stores, as well as through our pro ecosystem to improve the shopping experience for all of our pros.

Regardless of their purchase occasion. Whether they are shopping in store, online, or getting delivery from stores, or or distribution centers. We know that nearly all pro shop for stores. Over the years, we have been investing across our stores to simplify and enhance the in-store shopping experience through investments in our preschool process and technology to increase on-shelf availability, investments in inventory to provide a deeper assortment and job lot quantities in core skews. Enhancements in our labor model and the introduction of CSMs or dedicated customer experience managers. And the development of selling tools to provide better insights for our associates of Serve the Pro. In addition to these in-store investments, our investments in the FTC network have improved the in-store experience by taking many deliveries out of the store, which reduced clutter in the aisles from staged orders.

As a result, our in-stock have improved and our associate availability is higher. The FTC has also enabled faster delivery, expanded fulfillment options, and more consistent on-time and complete delivery of larger orders directly to the job site. We also continue to build out a more comprehensive set of capabilities in our Pro ecosystem. These capabilities include a broader and deep assortment of products in the FTC, dedicated sales teams that provide a higher level of service, enhanced selling tools with CRM capabilities, to better serve our customers, additional digital capabilities through a b to b website, loyalty, and preferred pricing programs. It is all of these capabilities as well as enhancement in store that have really allowed us to win a greater share of wallet with all or pros.

Our initiatives are originating with pros and not only are we gaining traction with a larger pro that works on complex projects, we’re also seeing meaningful lift in sales with all pros across all purchase occasions. In fact, these investments have driven over $1 billion in incremental sales on an annualized basis in seventeen markets. Even in these seventeen markets, we are in different stages of maturity, and there’s still a lot to do to better serve all our pros. From improving our delivery experience to building new capabilities like Tric and order management to leveraging SRS and improving connectivity with our stores. We know that as we invest across all of our assets, it will allow us to more uniquely serve the pro. We have a lot to be proud of this year.

We continue to focus on delivering the best customer experience in home improvement We’ve seen great associate engagement and historically high retention rates. Our safety performance was exceptional and we’ve made significant progress in shrink driven by our company specific initiatives. All of these efforts are positioning us well and will allow us to continue to grow with all of our customers. Thank you. And with that, let me turn turn the call over to Billy.

Billy Bastek: Thank you, Anne, and good morning, everyone. Wanna start by also thanking all of our associates and supplier partners for their ongoing commitment to serving our customers and communities. As you heard from Ted, our performance during the fourth quarter exceeded our expectations as we saw broader engagement across home improvement related projects. In addition, we also saw incremental sales as a result of the ongoing hurricane recovery effort, However, higher interest rate environment continues to pressure larger remodeling projects. Turning to our merchandising department. Comp performance for the fourth quarter, Ten of our sixteen departments posted positive comps including appliances, indoor garden, Lumber. Power.

Building materials, Paint. Outdoor garden, storage, hardware, and plumbing. During the fourth quarter, our comp transactions increased 0.6% and comp average ticket increased 0.2%. Inflation from core commodity categories positively impacted our average ticket by approximately twenty basis points driven by inflation in lumber and copper wire. Additionally, during the quarter, we continue to see our customers trading up for new and innovative products. Big ticket comp transactions are those over a thousand dollars we’re up. Point nine percent. Compared to the fourth quarter of last year. We were pleased with the performance we saw in categories such as appliances, building materials and lumber. However, we continue to see softer engagement in larger discretionary projects for customers typically use financing to fund the project such as kitchen and bath remodels.

During the fourth quarter, both pro and DIY comp sales were positive. With pro outpacing the DIY customer. In the fourth quarter, we saw strength across many pro heavy categories like gypsum, decking. Concrete. In fencing. Turning to total company online sales, excluding the impact of the extra week compared to the fourth quarter of last year. Are a lot of drivers to our online success. From the focus on continuously improving the shopping and browsing experience, to enhancing the delivery and post delivery experience experience leveraging AI to enhance our chat features, product descriptions, and creating rating summaries for our customers. This quarter, I’d like to talk more specifically about delivery. As you heard from Ted, we remain focused on continuing to improve our interconnected experience.

And have made significant progress on the delivery experience for our customers. We have invested in a broader assortment across our nineteen DFCs established partnerships with third party last mile providers, and made technology improvements across our two thousand plus stores to better utilize all of our assets for the benefit of our customers. Today, we have the fastest delivery speeds across the greatest number of products in company history. Our customers also have more fulfillment options than ever before. They can choose what they want, when they want. Including same day and next day delivery. We know that driving a superior customer experience, including speed of delivery, drives greater customer satisfaction, higher engagement, higher conversion, Nope.

Ultimately, more sales. We’ve seen these customers who are engaging in our delivery capabilities meaningfully increase their overall spend with us across all purchase occasions and channels. During the fourth quarter, we hosted our appliance gift center, decorative holiday and a Black Friday event. We saw strong engagement across all of these events with our appliance and gift center events posting record sales years. We’re looking forward to the year ahead, particularly with the spring selling season right around the corner and we have a great lineup of new and innovative products from live goods to outdoor power equipment. We continue to see an industry wide shift from gas powered to battery powered tools and we have been leaning into this trend for some time.

We have the brands that matter most to our customers, including Ryobi, Milwaukee. DeWalt, and Nikita. In our spring gift center event, we will provide our largest assortment of battery powered products with longer run times and enhanced performance across a number of battery RIAVI one, Milwaukee, m eighteen forge, DEWALT XR PowerPack and Power Stack, and Makita LXT to name a few. We’re also excited about our live goods program. Each year, our merchants partner with a wide network of regional and local growers to ensure that our customers have new and improved varieties in the right localized assortment to enhance the overall garden experience. Investing in our relationships with our growers will allow us to continue to drive innovation to meet our customers’ needs and improve their shopping experience while building loyalty to the Home Depot.

As we look forward to spring, we are excited about continuing to provide a broad assortment of best in class products that are in stock and available for our when and how they need it. With that, I’d like to turn the call over to Richard.

Richard McPhail: In the fourth quarter, total sales were $39.7 billion an increase of $4.9 billion or approximately fourteen percent from last year. Fiscal 2024 included a fifty-third week which added approximately $2.5 billion in sales for the quarter and the year. During the first during the fourth quarter, our total company comps were positive 0.8% with comps of negative 1.7% in November positive 6.6% in December, and negative 2% in January. Comps in the US were positive 1.3% for the quarter, with comps of negative 2% in November positive 8% in December, and negative 1.4% in January. It is important to note that holiday shifts positively impacted December while negatively impacting November and January. Our results for the fourth quarter include a net contribution of approximately $220 million in hurricane related sales, which paused positively impacted total company comps by approximately sixty-five basis points for the quarter.

Additionally, foreign exchange rates negatively impacted total company comps by approximately seventy basis points for the quarter. For the year, our sales totaled $159.5 billion an increase of $6.8 billion or 4.5% versus fiscal 2023. For the year, total company comp sales decreased 1.8% and US comp sales decreased 1.8%. In the fourth quarter, our gross margin was approximately 32.8% a decrease of twenty-five basis points from the fourth quarter last year, Reflecting a change in mix as a result of the SRS acquisition, which was in line with our expectations. For the year, our gross margin was an increase of approximately five basis points from last year, which was in line with our expectations. During the fourth quarter, operating expense as a percent of sales increased approximately thirty basis points to 21.5% compared to the fourth quarter of 2023.

Our operating expense performance was in line with our expectations. For the year, operating expenses were approximately nine representing an increase of seventy-five basis points from fiscal 2023. Our operating margin for the fourth quarter was 11.3% compared to 11.9% in the fourth quarter of 2023. Excluding intangible asset amortization in the quarter, our adjusted operating margin for the fourth quarter was 11.7% compared to 12.1% in the fourth quarter of 2023. Our operating margin for the year was 13.5% compared to 14.2% in 2023. Excluding intangible asset amortization, our adjusted operating margin for the year was 13.8% compared to 14.3% in 2023. Interest and other expense for the fourth quarter increased by $150 million to $608 million due primarily to higher debt balances than a year ago.

In the fourth quarter, our effective tax rate was 22.9% and for the year was approximately 23.7%. Our diluted earnings per share for the fourth quarter were $3.02 an increase of approximately 7% compared to the fourth quarter of 2023. Diluted earnings per share for fiscal 2024 were $14.91 a decrease of 1.3% compared to fiscal 2023. Excluding intangible asset amortization, our adjusted diluted earnings per share for the fourth quarter were $3.13, an increase of approximately 9.4% compared to the fourth quarter of 2023. Adjusted diluted earnings per share for fiscal 2024 were $15.24 essentially flat compared to fiscal 2023. During the year, we opened twelve new stores bringing our store count to two thousand three hundred forty-seven at the end of fiscal 2024.

Retail selling square footage was approximately two hundred forty-three million square feet and total sales per retail square foot approximately six hundred dollars in fiscal 2024. At the end of the quarter, merchandise inventories were $23.5 billion up approximately $2.5 billion versus last year and inventory turns were 4.7 times up from 4.3 times last year. Turning to capital allocation. During the fourth quarter, we invested approximately $1.1 billion back into our business in the form of capital expenditures. This brings total capital expenditures for fiscal 2024 to approximately $3.5 billion. And during the year, we paid approximately $8.9 billion in dividends to our shareholders. Today, we announced our board of directors increased our quarterly dividend by 2.2% to $2.30 per share which equates to an annual dividend of $9.20.

Per share. And finally, during fiscal 2024, we returned approximately $600 million to our shareholders in the form of share repurchases. Computed on the average of beginning and ending long-term debt and equity for the trailing twelve months, Return on invested capital. Was approximately 31.3% down from 36.7% in the fourth quarter of fiscal 2023. Now I’ll comment on our outlook for 2025. As you heard from Ted, we feel great about the investments we made in 2024 the progress we’ve made throughout the year, and the significant opportunities we have as we look ahead. And while there are signs that the home improvement market is on the way towards normalization, Uncertainties still remain. As we look ahead to fiscal 2025, We expect the underlying momentum in the business that we saw in the back half of 2024 to continue into 2025.

However, we are not assuming any meaningful changes to the macroeconomic environment. We expect our consumer will remain healthy We are not assuming a change in the rate environment nor improvements in housing turnover. As a result, we would expect continued pressure on larger remodeling projects. Given these factors, our fiscal 2025 outlook is for total sales growth to outpace sales comp with sales growth of approximately positive 2.8% and comp sales growth of approximately positive 1%. Compared to fiscal 2024. Total sales growth will benefit from the SRS acquisition, The new stores we opened in fiscal 2024 and plan to open in fiscal 2025. And for the year, we expect SRS to deliver mid-single digit organic Growth. Our gross margin is expected to be approximately 33.4% essentially flat compared to fiscal 2024.

Further, we expect operating margin of approximately 13% and adjusted operating margin of approximately 13.4%. This primarily reflects natural deleverage from sales and continued investments across the business as well as reflecting the mix impact from the SRS acquisition. Our effective tax rate is targeted approximately 24.5% We expect net interest expense of approximately $2.2 billion We expect our diluted earnings per share to decline approximately 3% compared to fiscal 2024 when comparing the fifty-two weeks in fiscal 2025 to the fifty-three weeks in fiscal 2024. We expect our adjusted diluted earnings per share to decline approximately 2% compared to fiscal 2024. On a fifty-two week basis, it would be essentially flat compared to fiscal 2024.

We plan to continue investing in our business with capital expenditures of approximately 2.5% of sales for fiscal 2025. We believe that we will grow market share in any environment by strengthening our competitive position with our customers delivering the best customer experience and home improvement. Before opening the call for questions, we are pleased to announce that we will be holding an investor conference on December 9, 2025 in New York City. We will share more details in the future but for now, please hold the date. Thank you for your participation in today’s call. And Christine we are now ready for questions.

Operator: Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Laura Ng with Morgan Stanley. Please proceed with your question.

Simeon Gutman: Good morning. It’s it’s Simeon Gutman from Morgan Stanley. My first question is on the macro housing backdrop. And the ingredients to a one percent comp. So existing home sales look like they’re set to grow mid singles. And if that’s the case, home improvement demand could arguably be a little stronger than maybe a one comp or whatever assumption you’re using. What’s your take on that? I know Richard said we’re not assuming any improvement in turnover. Is there anything changed about is any change about your forecast due to people staying in their homes longer and rates being stubborn?

Ted Decker: Hi, Simeon. Yes. At this point, while we’ve seen a little life in turnover in Q4, we’re not expecting meaningful increase of that forty year low. We’ve we’ve likely reached the bottom of housing turnover at about three percent of units. But We’re not expecting a big rebound nor significant increases in new housing starts. However, if you if you just step back, I mean, if you look at our customer, they they remain very healthy. We we look at our customer today. We think about a hundred and ten thousand dollars average income Those incomes have been growing. We’ve talked about the increase in home equity values up fifty percent since the end of twenty nineteen and then wealth effect through through stock market and other investments.

So our our customer is very healthy. And as you say, if they’re staying in their homes longer, they will take on larger remodeling projects as opposed to moving those that are locked into to lower interest rates or or just not wanting to to get mortgages with with the higher rates. But we’re not anticipating a large decrease in mortgage rates. It will be more issue of of cost of of consumers getting used to these higher rates and to take on a larger project, it’s usually finance. And that financing is through HELOCs. And we’ve started to see a little increase in in each of cash out refi’s as well as draws on HELOCs. But there’s literally trillions of dollars of equity Built up. In in US housing. And as homes continue to age and people are staying in those homes, and realize that, you know, we’re highly unlikely to see the low interest rates we saw over the past two, three years.

That they’ll eventually tap that equity and do the larger remodeling projects. We’re just not sure that turn comes in twenty twenty five at at a dramatically accelerated paste. And to follow-up on the one percent, just to to explain that, Simeon, Obviously, this is a triangulation We look at exit run rates of the business And and as we said, keep in mind that q four while certainly showing signs of momentum, growing. From q three still had some benefits from hurricanes that don’t fully repeat in twenty twenty five. So a slight dampening of the run rate and then the assumption of continued pressure on larger projects, With the shape of the year increasing slightly through the year, which also includes the inclusion of SRS in our comp. You’ll you’ll see them in our comp for the last seven months of the year.

Simeon Gutman: K. That’s helpful. The follow-up, if comps do end up being a little stronger than one, does each point flow through at this ten points of leverage to the margin Is or is there a scenario Whether it’s you know, better DIY, more pro, more complex project, or do you spend more? Is there a mix shift that could alter that relationship above one?

Richard McPhail: No. I I I think I think, look, the the ten basis points is a is a good rough estimate of leverage from that point.

Simeon Gutman: Great. Good luck to you. You’re not gonna have meaningful shifts in in in mix. Even if mix shifts, you’re not gonna have meaningful meaningful differences in that leverage number. Thank you.

Operator: Our next question comes from the line of Christopher Horvers with JPMorgan. Please proceed with your question.

Christopher Horvers: Good morning, everybody. I wanted to go at a similar kind of question maybe on a different angle. Appliances were paint was up. You know, was that was that volume driven? And and to what extent do you think the category was up versus Home Depot you know, continuing to gain share? Because as you look forward, the replacement cycle cycle dynamics should get better from four q levels. You’ll be five years out, know, Ted, you’ve talked about in the past, every every well was painted in the US and and twenty twenty, but we’re getting further from there. So it doesn’t that replacement part of the business further accelerate And curious if you were gonna say, like, well, you know, x percent of the business is replacement versus y percent is, you know, more like big ticket remodel, which would, you know, we expect to continue to be an anchor.

Ted Decker: Sure, Chris. Let let me make a broad comment and then and Billy can can give some detail on particular categories. Look at if we just step back and look at this quarter We’re we’re happy with it. Right? Sales, exceeded our expectations. And we’re we’re happy with with positive comps, obviously, for the first time in two years, and particularly happy with positive transaction comps. Which is been negative for over three years. And as you say, the the business is strengthened across many categories and in many geographies. In fact, we haven’t seen This broader base performance in over two years in and maybe even closer to three years. And if you go back Chris, to your to your comment on on COVID, I’d say that shift of of spending back to services post COVID, and the pull forward of demand during the pandemic.

Those have largely played out. There may be a category here and there, but but I’d say that PC shift in home improvement pull forward have have largely played out. And engagement in repair in smaller updates and decor oriented updates is strengthening and Billy can give some detail on the categories. Yeah. You know, listen, as Ted mentioned, you know, the broader base performance I talked about, the ten Of the sixteen departments that posted positive comps, we had an outperform Chris, as you mentioned, in appliances in our gift center, business, which, you know, we had record sales candidly, you know, in that in those areas across the store. So we had a healthy balance of transactions and unit performance which Ted’s point, we haven’t seen I mean, a while.

With that said, still the pressure we know in finance projects, we had great performance across many of our pro heavy categories. I mentioned gypsum and decking. Concrete, fencing, and while there was some hurricane, impact in there, you know, we’re pretty pleased with the broad base of performance you know, not only across the merchandising department, but certainly across the country. But there’s just no denying the you know, the deferral that we’re still seeing. We we are pleased with the pull forward that we think is largely know, behind us at this point from a go forward standpoint. So So all those things bode well, but still the pressure and some of the you know, more finance projects, we’re still continuing to see, you know, to see that exist.

Christopher Horvers: Got it. And then, Richard, can you talk about the monthly U. S. Comps adjusting for the for the holiday shift? There’s been a lot of questions, I think, over the past five, six weeks on what’s going on with the consumer. Saw F and D talk about a, you know, slowdown relative to what they saw in the fourth quarter, and they talk about weather. So can you talk about, do you think, you know, that the weather had any influence on the business in in January in in any comment on exit rate? Thanks very much.

Richard McPhail: I think that so, you know, the the monthly progression was absolutely Influenced by holiday shifts, Again, to the benefit of December to the detriment of November and January, but no doubt weather was horrible in January. We’ve had two years in a row of tough January, but this one was was particularly tough. And so that’s why we don’t read a tremendous amount into it when we think about exit run rate, but no doubt weather had an impact.

Christopher Horvers: Great. Thanks very much. Have a great spring.

Ted Decker: Thanks.

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

Michael Lasser: Good morning. Thank you so much for taking my question. What market share assumption have you embedded into your twenty twenty five outlook? And why wouldn’t it be reasonable for us to assume that Home Depot’s market share gains do accelerate from here and be above where they’ve been historically in light of you now having SRS as well as many more capabilities given the investments that have been made over the last several years, is that a sign that you think your DIY market share is starting to peak and that could have an impact on the overall overall share gains for the Enterprise.

Ted Decker: Hi, Michael. Thanks for the question. As we look at the overall market for for twenty twenty five. We see it overall being flat you know, maybe up slightly, Those expectations have come down over the last several months. And r plus one, as Richard explained, is is a continuation of some of the underlying strength in the business and our initiatives that we absolutely are are gaining incremental sales for us. So that’s why, you know, we we peg our comp growth at one percent. Now if you look at the the combination of of what’s driving our share gain for both pro and consumer in the core, it is all the capabilities that that we’re putting in the marketplace. We we talked a lot about interconnected and all the investments we’ve made on the interconnected journey.

And then certainly all the investments on our pro ecosystem and and I’ll have Jordan spend a few minutes more on what we’re doing on Interconnected. And then you add what we’re doing with SRS, you know, SRS will grow fast than the core, and we believe they’re taking share in each of their three verticals. So we’re very pleased with what SRS is doing. So all that with our our new stores, which are starting to add some some meaningful dollars to our growth, Gets us to the the one percent comp and 2.8% overall growth in a flat market. So we wouldn’t say our our share has peaked by any means in DIY or pro. And then Jordan, if you chat about what we’re doing to drive share in pro and consumer Yeah. With interconnections. Sure. So I mean, we Billy Billy shared the excitement we have had on dot com sales performance, and that’s really across both the consumer and the pro, both of them up healthily.

Online. And it’s been a combination of investments that we made that have helped deliver that. From the site experience and really making that journey so much better from a from a browse and search perspective and finding the right product to the fulfillment. Billy mentioned that we’ve had the fastest delivery speeds in the history of our company, same day delivery, next day delivery, whether that’s concrete and lumber or whether that’s a light bulb or power tool. Been really fast and we and and all of those investments come together to really drive an improvement in conversion rate on the site. And then what we see is an increased engagement across channel with more purchases that come in store. So we’re real excited about the momentum there.

And see the investments that we’ve made really really paying off.

Michael Lasser: Thank you for that. My follow-up question is on what’s been happening as of late. There’s been a lot of focus on the impact that the government efficiency measures and or immigration policy implementation could have on the US consumer How did you factor that and those considerations into the guidance? And while you had just indicated that weather was really the underlying cause of some of the results in January. Are you seeing any evidence that these factors are having an impact on the business? There’s been talk about housing inventory in the mid Atlantic starting to creep higher So anything you could provide that would be very helpful.

Ted Decker: Michael, I don’t think we’ve we’ve seen anything specifically. If you tick through some of the things You mentioned in in some some I’d add, you know, tax policy would be know, one of the most important to Home Depot is a full taxpayer, so we’d be very pleased the corporate rate stays at twenty one percent Tariffs is obviously a lot of discussion on what rates what countries would be impacted and what categories of goods We’ve been through that before and I think we have the best team to manage through. Any tariff environment, which would impact the industry broadly, I’d say our diversification efforts out of certain concentrations in countries has been quite good over the last six or seven years. You mentioned immigration, You know, we’ve talked about having a shortage of skilled trades folks in the country, for some time.

We we believe it’s like, four hundred odd thousand trades folks short And not sure how that number would would change with any any meaningful change in in immigration And then specifically to the government efficiency in mid Atlantic, no, we’ve we’ve not seen anything there.

Michael Lasser: Thank you very much, and good luck.

Ted Decker: Thank you.

Operator: Our next question comes from the line of Scott Ciccarelli with Truist. Please proceed with your question.

Scott Ciccarelli: Good morning, guys. Anne talked about a a billion dollars of incremental sales in the seventeen markets where you’ve started to build out complex pro capabilities. How do you actually measure that? And then what kind of ramp would you expect in those markets in twenty five as you continue to phase in order management, credit expansion, etcetera, some of the other capabilities that you’ve discussed. Thanks.

Ann-Marie Campbell: Yes. Thank you, Scott. Yeah. As we mentioned that we’re incredibly pleased with what we’ve seen so far. We’re generating a billion dollars and growing. So that’s been fantastic. And as we mentioned this well, you know, it’s geared across all of participation. The way we measure that is the incremental sales in the seventeen markets versus what we see in the top forty markets. So the billion dollars of annualized sales is that in those seventeen markets, we have been outperforming all the top top forty markets. And so you think about twenty twenty five, we we’re focused on really maturing the capabilities in these seventy markets, which is really important. Not only maturing the existing capabilities, but really, really rolling out new capabilities as well.

So whether it be delivery, expanding our sales force, those are key things that we’ll continue to focus on. As well as new capabilities as we talk about trade credit, order management, account management. Those are opportunities that we have continue to grow in twenty twenty five. And Ted talked about SRS. And there’s also an opportunity for us to really drive cross at an opportunity across SRS portfolio. Last but not least, we have more FPCs in the pipeline as well. We have three FPCs under construction We have more in the pipeline. So we’re incredibly pleased with what we’ve seen. Twenty twenty four when you think about the seventeen markets. Across, four company and compared to the top forty markets But more importantly, what we’ve seen with the pro ecosystem across the country as well and making sure that we’re doubling down on the, you know, opportunities that we see.

Scott Ciccarelli: Appreciate that. What what’s the biggest sticking point as you roll this out? Is it building, especially, Salesforce? Is it the the recognition from your complex pros, etcetera? Like, what what what’s the toughest piece that you Kinda learned that, you’d have to what what her what’s your toughest hurdle you have to clear?

Ann-Marie Campbell: Yes, Scott. This is, you know, what we continue to find. This is an entire entire ecosystem. Right? So it’s not just one component of the ecosystem. Right? When we talk about the outside sales or we talk about delivery, or we talk about order management and account management. It’s all of those things working in concert. So what you know, is always kinda difficult is as you roll these capabilities out and they are different levels of maturity, our focus is to refine and really perfect what we’re seeing. And that takes time in a market, especially when you’re building relationships. We don’t wanna create new relationships with our new capabilities with our pros. And then have big failure points. So the difficult part is making sure that we’re doubling down and moving at a speed that drives outcomes, but the same time that we’re focused on perfecting within the market.

So it’s incredibly complex. It is really important that we do this right. And in twenty twenty four, we saw some really, really great progress, and that’s what makes us excited about what we will do in twenty twenty five and beyond. Thank you.

Operator: Our next question comes from the line of Karen Short with Melius Research Please proceed with your question.

Karen Short: Hi. Thanks very much and good to talk to you. So I had one question regarding guidance. And another totally unrelated. So actually intangibles in terms of operating margin guidance, So so should we look at that as the right way to think about the relationship between sales growth and operating margin growth. I. E. Excluding intangible impact from SRS, on your guidance.

Richard McPhail: Yes. Yes. Karen, We believe that removing the noncash amortization expense related to the amortization of intangible assets is the best way to look at our underlying operating margin. And so that’s where we would we we have guided for last couple of quarters and will continue to guide on the basis of moving forward.

Karen Short: So how should we And and it includes Karen, by the way, it includes it include we we the operating margin is adjusted for all non cash amortization expense at the Home Depot. Not just that related to SRS.

Karen Short: Okay. Thank you. So how should we think about the relationship on total sales growth versus operating margin or operating profit growth on the way you define it.

Richard McPhail: Reverse de lever is essentially the same. When you’re looking at adjusted operating margin versus versus GAAP operating margin. So there’s no change needed in the way that we’ve talked about leverage or deleverage in the past.

Karen Short: Okay. And is two point five percent of sales the rate run rate to think about on capex?

Richard McPhail: So, you know, historically, we’ve said two percent is a is sort of a rough expectation. We we have increased That percentage really to to reflect two things. Number one, obviously, we’re we’re happy with the investments we’ve made. They are generating exceptional returns, and so we’re leaning into those investments. But second, you know, a big part of that investment portfolio are our new stores. And it’s it’s worth calling our new SOAR program out. In twenty twenty three, we announced we would build eighty stores over five years. Including the year twenty twenty three. We are twenty five stores into that program. So far, the results have been fantastic. We’re tracking ahead of expectations. So we are going to continue, and and we will complete That program this year will be the third year of the program.

We’ll complete it by year five, which is twenty twenty seven. So that two point five percent of sales is is reflective of that new store program as well as leaning into investments that are working.

Karen Short: Okay. Great. Thank you so much. You are?

Operator: Our next question comes from the line of Steven Seguin with Citi. Please proceed your question.

Steven Seguin: Hey. Good morning. Thanks very much for taking my question. I actually want to follow-up on Karen’s question there and maybe dig into the SRS contribution a bit more. Can you The bottom line tracking versus expectations. Dollars to our top line from seven months of ownership. They hit that on the button, and we feel great about their p and l top to bottom. And and so it from a you know, as we discussed during the deal, we expected this to be cash accretive within the first year of of of of ownership, we’ll be, you know, coming up on that first year anniversary soon. They’re already contributing top and bottom line. And so we feel really happy about that. Just to to be clear, to make sure that everyone understands this, obviously, we report our results on a consolidated basis.

If you think about the pro form a impact of SRS, the reflection of SRS and and its mix impact on the Home Depot there’s about a forty basis point full year mix impact to the Home Depot. And so think about Home Depot you know, in in total, being being impacted by about forty basis points, but that’s a mix effect. And we’ll take that all day long. You know, they are they are leaders in their spaces. They’re performing exceptionally well, and and we’re happy with that.

Steven Seguin: Okay. Thanks. The follow-up question I have was just on maybe the pricing environment. In the past, I think you’ve talked about prices kinda settling. Do you feel like we’re at a point now where we should see sort of a a natural you know, return to a normal environment for pricing. And then how does you know, the potential for tariffs kind of fit into that view?

Billy Bastek: Well, thanks, Steven. It’s Billy. Listen. As it relates to the just the general pricing environment, and then I’ll talk for a minute about tariffs. Mean, we are in a very rational Market just by definition. And, you know, prices, as we’ve mentioned on the last couple of calls really have settled to your point. And the promotional activity is is the same as it’s been, you know, kind of pre COVID as well. So no differences in that. And and as I mentioned, again, the last couple quarters pricing is is settled into the market accordingly. As it relates to to tariffs, and we’ve spoken a little bit about it this morning. I mean, listen. We’ve been through this before. We’ll continue to assess, you know, just you know, how these impact our business from a go forward standpoint.

We’ve been focused on diversifying sourcing for several years. So we’ll continue to assess that going forward. But our number one job in merchandising is to be the customer’s advocate for value. We have great, great vendor relationships. And with our scale, we feel that we’re as well or better positioned to than anyone in the market place to navigate the environment going forward. And, actually, I wanna go back one question and just follow-up on Steven’s question. So Steven, just to to put a a year over year comparison together for you and and talk about how SRS impacts year over year from an operating margin perspective. So as you can as you’ve seen our guidance, we’re guiding to a thirteen point four percent adjusted operating margin from a thirteen point eight that’s a forty basis point decrease.

Here’s how that forty basis points breaks down. Coincidental to the pro form a impact, but the year over year is different. So that forty reflects twenty basis points of natural deleverage. And recall, we think this business leverages about a three percent comp. At a one percent comp, we’re getting about two comp points of deleverage. So two times about ten basis points per is twenty basis points. Then the inclusion of twelve months of ownership of SRS compared to seven months of ownership, is reflected in fifteen basis points of mix shift. So you’ve got about a fifteen basis point impact of that year over year comparison of twelve months versus seven months. And then finally, the comparison versus a fifty-three week year also shifts margin by five basis points.

So you’ve got twenty bps from naturally leverage, You’ve got fifteen from SRS, impact, and you’ve got five from the fifty-third week comparison. Within that, I think it’s worth saying, but we are leaning into investments We’re paying for those investments through productivity. And so that’s also within that operating margin guidance. There’s there’s productivity inside it as well as as leaning into investment. And I hope that makes it a little bit more clear.

Steven Seguin: Yeah. That answers our question. Thank you so much for that follow-up.

Operator: Our next question comes from the line of Seth Sigman with Barclays.

Seth Sigman: Thanks. Good morning, everyone. I do want to follow-up on that last point around the flow through you step back and look at your sales over the last several years, I think since twenty nineteen, sales are up maybe forty five percent, s g and a is actually up a similar percent. Along the way, there have been investments and plenty of cost pressures I guess the real question is to the extent that comps start to improve here, they progress throughout twenty twenty five. Are we at that point where sales should grow faster than expenses you can really start to see that flow through come through. Seth, you know what? I would point you back to our investor conference back in twenty twenty three, right, Once this market normalizes, we would expect a base case of three to four percent top line growth We would expect and and and within that, we expect flat gross margin is kind of a base expectation.

And then we do expect operating expense leverage. And so that Takes you to the the the earnings per share expectation of mid to high single digit growth once our market is normalized and once we are back to that level of sales growth. And that view hasn’t changed since twenty twenty three.

Seth Sigman: Okay. Great. Thank you for that. And then just on that point around the gross margin, you are guiding flat in twenty five. You still have some SRS dilution wrapping into this year. Can you talk about some of the underlying assumptions for core Home Depot and and speak to the offsets that would be helping mitigate that SRS dilution. Thanks so much. Sure. I’d I’d I’d I’d point it to you. You’re right about that. We still have a little bit of a lapse And so there’s pressure from SRS mix. Just two great callouts. Number one, our outstanding supply chain and merchandising teams finding productivity and and, you know, I I could I could go on and on about it, but The the the benefits we’ve seen in supply chain productivity alone Our are are really encouraging.

And we would call out our fantastic store operations team who have now driven improvements in shrink, for about a year and a half. Year over year, quarter by quarter, We expect that to continue into twenty twenty five. And so it’s really a story of SRS mix being offset by supply chain productivity, some other great things the merchants are doing. And our fantastic store ops team.

Seth Sigman: Thanks. Appreciate it.

Operator: Christine, we have time for one more question. Thank you. Our final question will come from the line of Zihan Ma with Bernstein.

Zihan Ma: Hi. Thank you so much for taking my question. Just a a final quick one. How does your Complex Pro initiatives impact your long term ROI expectations, taking into account that you are extending more trade credit and potentially holding more inventory with a broader assortment from here. Thank you.

Ted Decker: I I wouldn’t expect a meaningful impact on ROIC through capital investment. Driving incremental sales and profit dollar growth That business has a different margin profile, but certainly incremental sales and and profit growth But it it’s really a reasonably asset light investment. We leased the DCs, We lease trucks. We bring on sales teams that are commissioned sales forces that sort of earn their keep as they build their portfolios. Trade credit, as we scale that, we’re tiny, tiny exposure at the moment, but as we build that, it it’s just not going to be a meaningful balance sheet item given given the scale of our overall balance sheet.

Zihan Ma: Great. Thank you.

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

Isabel Janci: Thank you, Christine, and thank you everybody for joining us today. We look forward to speaking with you on our first quarter earnings call in May.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.