The Home Depot's Third Quarter 2023 Earnings Conference Call began with an introduction from the operator and host, Isabel Janci. The call included remarks from the company's executives and was followed by a question and answer session. The executives discussed sales and earnings for the third quarter, which were slightly lower than the previous year. They also mentioned potential risks and uncertainties and provided non-GAAP measures. Overall, the third quarter results were in line with expectations.

The company experienced pressure in big-ticket discretionary categories and negative impacts from deflation and storms in the third quarter. They have narrowed their guidance range for fiscal 2023 and remain confident in their ability to navigate through the current environment. They are focused on creating a frictionless shopping experience and investing in initiatives for both DIY and Pro customers.

The Home Depot is focused on building its ecosystem of products and services and has recently elevated Ann-Marie Campbell to Senior Executive Vice President to better align its outside sales and service business. This change will allow them to better serve their Pro customers, which represents a significant growth opportunity. The company is proud to have a large number of veterans and military spouses among its employees and has surpassed its goal of investing $500 million in veterans causes. Campbell is excited about her new role and believes the company's unique competitive advantages can be leveraged to capture a greater share of the Pro's wallet.

The new organizational structure will create stronger momentum and focus on improving the experience for Pro customers. The company will invest in new capabilities and functionalities to better serve complex Pro needs, such as reserving product, using trade credit, and delivering products to job sites. These capabilities will be incorporated into the full ecosystem to provide a unique and unmatched experience for Pro customers. The company is excited about the opportunities this will bring.

The company has implemented various initiatives to improve in-store availability and productivity, such as GSR, Sidekick, and computer vision. These tools have been deployed across all U.S. stores and have shown early signs of success. They also allow associates to focus on important tasks and provide a better shopping experience. Despite a challenging year, the company's associates have remained engaged and committed to serving customers.

The author expresses gratitude towards associates and supplier partners for their dedication to customers and communities. Sales in the third quarter met expectations, but were impacted by core commodity deflation and storm-related overlaps. Softness in big-ticket discretionary purchases continued, with customers focusing on smaller projects. Building Materials and 7 other departments had positive comps, and comp transactions and average ticket decreased. Excluding deflation, average ticket grew due to demand for new products. Lumber prices decreased by over 20%, affecting average ticket growth. Big-ticket transactions were down, but there was strength in Pro-heavy categories. Online sales for the company were also discussed.

In the third quarter, sales through digital platforms increased by 5%, driven by investments in the online experience and successful events such as the Annual Labor Day appliance and Halloween events. The company plans to continue this momentum with upcoming holiday events and a strong focus on popular brands such as Milwaukee, RYOBI, DEWALT, and the new addition of WAGO. These strategic vendor relationships contribute to the company's position as a product authority in home improvement.

WAGO, a top requested innovative Pro brand, has recently launched exclusive SKUs in The Home Depot stores. The company remains focused on providing a broad assortment of best-in-class products that are in stock and available for customers. In the third quarter, total sales were $37.7 billion, with a negative 3.1% comp. The company's gross margin decreased by 20 basis points and operating expenses increased by 120 basis points compared to the third quarter of 2022.

During the third quarter, our operating expenses increased due to compensation increases and a decrease in operating margin. Interest and other expenses also increased, while our effective tax rate decreased. Our diluted earnings per share decreased compared to the same quarter last year. We opened 7 new stores and our merchandise inventories decreased. Our focus for capital allocation is to invest in our business, pay dividends, and return excess cash to shareholders through share repurchases. Our return on invested capital decreased from the previous year. For fiscal 2023, we expect a decline in sales and comparable sales between 3% and 4%.

The company is targeting an operating margin and effective tax rate for the year, with a decline in earnings per share expected. They are focused on driving productivity and cost savings, while also meeting customer needs and investing to strengthen their position. The first question on the earnings call was about inflections and the performance gap between DIY and Pro, with the possibility of the Pro segment taking longer to normalize and the overall comp getting worse before improving. The company felt good about the third quarter and narrowed their comp guidance for the year.

The company's performance has been consistent throughout the year, with a 3% decrease in sales due to factors like weather and commodity prices. The regional businesses have also shown consistency, with a smaller gap between professional and consumer sales. The supply chain is operating well and inventory positions have improved. The company's investments in wages have paid off, resulting in lower attrition and improved customer service. However, the overall consumer spending on home improvement projects has not completely returned to pre-pandemic levels, and the company is uncertain about when this will happen. The company is also keeping an eye on larger home improvement projects, which have seen a decrease in engagement.

The speaker discusses the positive news and operations of the business, highlighting the resilience of their customers and the recent 4.9% GDP growth driven by consumer spending. They mention a period of moderation in home improvement spending but express confidence in the business overall. When asked about the impact of GDP on the business, they mention focusing on the share of personal consumption expenditure (PCE) and state that they will not discuss 2024 at this time. They also mention the Fed's stance on higher-for-longer and the potential effect on durable goods and housing-related spending. The next question asks about operating margins in 2024 and the speaker says they will talk about it in the next quarter.

The company is not providing guidance for 2024, but they have implemented measures to create a $500 million cost buffer. They will reinvest the legal settlement gain from Q1, but it will be offset by the end of the year. There has not been a significant change in customer purchasing patterns during the quarter.

The paragraph discusses the third quarter gross margin decline for a company. The decline was attributed to lapping storm-related demand and commodity deflation. The company operates in a rational market and promotional environment, and has returned to pre-pandemic times. The company also focuses on everyday low prices, with occasional events for engagement. Certain categories, such as portable power, have seen positive inflection.

The speaker responds to a question about the company's gross margin and inflationary environment. They mention that the worst of inflation is behind them and retail prices are stabilizing. Some prices have settled higher and some lower, but overall the market is rational. Timing differences impacted the quarter's gross margin, but the full year's view remains the same with slight pressure. The company has a portfolio approach to managing costs and expects to see low single-digit leverage and $500 million in cost savings next year despite negative transactions.

The speaker is asked about the labor model and its potential changes in the future. They respond by saying that the current changes in transactions are not significant enough to affect the labor model. The next question asks about the possibility of increased discounting in the home improvement industry and how Home Depot would respond. The speaker states that they will remain committed to everyday low prices and their current promotional strategy, which has been successful in the past. They also mention specific categories where they have reduced promotions.

Home Depot's CEO discussed their strategy for being less promotional and protecting their share in a potential market downturn. He also mentioned their historical track record of underpromising and overdelivering and the potential for upside in their projected cost savings. The company is also focused on growing their business with complex Pro customers and will continue to rollout flatbed distribution centers regionally.

Steven asks Ann-Marie Campbell about the top priorities for the next 1-2 years with the complex Pro. She defers to Chip Devine, who talks about expanding outside sales teams and connecting the store ecosystem to flatbed delivery systems. Steven also asks about the key building blocks for taking the business to a more stable market backdrop, and Edward Decker discusses the balance between ticket and transactions, noting that during the COVID period, high engagement led to a 25% comp with increased AUR and ticket size.

The company has seen a decrease in ticket sales due to lower commodity prices and other factors such as the Fed's stance and higher interest rates. They are looking for a balance between ticket and transactions and are focusing on the complex Pro market to drive demand.

In the paragraph, the speaker discusses how the company is focused on taking a share of the $200 billion white space market and how their performance in the first two weeks of the fourth quarter is on track to meet their full year guidance. They also mention that average ticket prices have increased by 35% since before COVID, but inflation seems to be stabilizing. The speaker also mentions categories that have seen success with innovation, such as drywall, roofing, insulation, and portable power.

The company's big-ticket sales have been deferred due to the pandemic, but they expect stabilization in pricing and a rational environment going forward. They plan to maintain a debt-to-EBITDA leverage ratio close to 2x and continue their capital allocation strategy of investing in the business, paying dividends, and then repurchasing shares. The guidance for the fourth quarter suggests a slight deceleration, but the company had a strong Halloween and expects continued demand for holiday decorations.

In response to a question about their fourth quarter comp, Richard McPhail explains that the company has narrowed its range due to the decreasing likelihood of extreme points. Their prior guidance assumed a reversion of their share of PCE from the pandemic period back to 2019 levels, and their current range still has an assumption for Q4. McPhail also mentions that the warm fall weather has not had a significant impact on their business, and they have seen a normalization in weather patterns. Steven Forbes asks a follow-up question about the impact of warm weather on the company's business.

Ann-Marie Campbell and Chip Devine discuss the success of Home Depot's strategic initiatives focused on the complex Pro market, with the outside sales team being the best-performing cohort. They plan to continue investing in this area and adding assets where necessary. The big-ticket category performed better than expected in the quarter, with multiyear comp trends stabilizing. This was likely not the initial expectation.

The quarter progressed as planned for big-ticket items, with a balanced year across regions despite early weather shifts and hurricane effects. The Fed's stance of higher for longer has caused a deferral of larger projects, impacting the Pro segment. In the U.S., Pro sales were down around 2-2.5%, with sales through the outside sales force and CFCs making up a significant portion of Pro sales outside of the store. The Pro segment is seen as an ecosystem.

The company does not have specific goals for separating store and delivered sales, but focuses on increasing overall sales. In the third quarter, the Pro segment outperformed the consumer segment, but after adjusting for commodity impact, it was essentially flat. The company determines big projects based on category and class sales, customer feedback, and external survey data. The call concludes with an invitation to join the fourth quarter earnings call in February.

This summary was generated with AI and may contain some inaccuracies.