The Home Depot First Quarter 2024 Earnings Conference Call is being held and participants are in a listen-only mode. The call will include a Q&A session and is being recorded. The call is hosted by Isabel Janci and will feature Ted Decker, Ann-Marie Campbell, Billy Bastek, and Richard McPhail. The call will include forward-looking statements and non-GAAP measures. Sales for the first quarter were $36.4 billion, down 2.3% from last year, with comp sales declining 2.8%.

In the first quarter, stores had negative comps and diluted earnings per share were lower compared to the same period last year. Despite this, the team performed well and continued to grow market share. The delayed start to spring and softness in certain projects affected the quarter, but the company is confident in their store readiness, product assortment, and associate engagement. They are focused on creating the best interconnected experience and growing their share of the $1 trillion market for home improvement products. Their main focus is on the residential Pro contractor, and they are developing a Pro ecosystem with expanded capabilities and services to better serve this market. Mature markets with this Pro ecosystem have seen success, and the company plans to expand it to other markets.

The company has successfully established its ecosystem in 17 markets and is outperforming other Pro markets. They have also announced the acquisition of SRS, a residential specialty trade distributor, to further enhance their ecosystem and better serve specialty trade Pro customers. The company has seen growth opportunities and continues to invest in their business despite market pressures. The team is dedicated and ready to serve customers during the upcoming selling season.

The company is focused on improving the shopping experience for professionals by investing in their Pro sales teams and capabilities. They have developed new tools, such as Pro Intelligence and Computer Vision, to help identify target customers and cross-selling opportunities. They are also using Computer Vision for other applications, such as maintaining product quality and reducing shrink. The company is pleased with the early results of these technology-enabled applications.

The company has made improvements to their post-sale experience, including a self-service return process for online orders and the upcoming option for job site pickup or returns. These enhancements will benefit both customers and associates, leading to increased satisfaction and store productivity. The company is focused on improving the shopping experience and driving sales, and thanks their associates for their hard work. The delayed start to spring and softness in larger projects affected sales in the first quarter, but there were positive results in areas with favorable weather.

The company has made changes to their merchandising departments in order to better align with customer shopping habits and increase sales. Some departments had positive comp performance while others were above the company average. There was a decrease in comp transactions and average ticket, but customers are still trading up for new products. Online sales increased and nearly half of online orders were fulfilled through stores. The company is focused on improving the online shopping experience and has implemented a new search engine to deliver more targeted results.

The company has improved its online business by investing in filtering capabilities and partnerships with manufacturers. Pro and DIY customer performance was negative, but engagement with Pros has increased. The company saw strong results during their Spring Black Friday and Spring Gift Center events, particularly in categories like riding lawnmowers and outdoor power equipment. The trend towards battery-powered products continues, and the company has a wide assortment of brands to meet customer demand. Their loyalty program is one of the best in the big box channel.

The live goods category at the company looks great for spring, with a variety of plants and vegetables available. Sales for the first quarter were $36.4 billion, a decrease of 2.3% from last year. Comps were negative for the quarter, with the U.S. at -3.2%. Gross margin increased by 45 basis points, while operating expenses increased by 140 basis points. Operating margin was 13.9%. Interest and other expenses decreased by $13 million. The effective tax rate was 22.6% and diluted earnings per share were $3.63, a 5% decrease from last year.

In the first quarter, the company opened two new stores, bringing the total count to 2,337. Retail selling square footage was 242 million square feet and merchandise inventories decreased by $3 billion compared to the previous year. The company invested $850 million in capital expenditures and paid $2.2 billion in dividends to shareholders, with an additional $600 million returned through share repurchases. The company maintains a disciplined approach to capital allocation and plans to invest in the business, pay dividends, and return excess cash to shareholders. The return on invested capital was 37.1%, down from the previous year. The company reaffirms its guidance for fiscal 2024, which does not currently include the impact of the announced acquisition of SRS. The acquisition is expected to close by the end of fiscal 2024.

The company expects total sales growth to be higher than sales comp, with an increase of approximately 1%. This will be aided by a 53rd week, contributing $2.3 billion in sales. Gross margin is expected to increase by 50 basis points, and operating margin is targeted at 14.1%. The effective tax rate is targeted at 24.5%, net interest expense is expected to be $1.8 billion, and diluted earnings per share growth is targeted at approximately 1%. The company will update guidance once the SRS transaction closes. They believe they are well-positioned to meet customer needs and will continue to invest in their business to drive growth and deliver shareholder value. The first question in the Q&A session is about the bathtub effect and how weather may have impacted sales. The speaker mentions that the weather was good in the spring and some categories are seeing early success due to COVID.

Ted Decker and Billy Bastek, both representatives of a company, discuss the impact of weather on their business. They acknowledge that the spring season has been "wonky" and that there hasn't been consistent weather across the country. However, they note that certain markets, particularly in the Northern regions, have had good weekends and have seen positive business. They attribute this to the popularity of their battery-powered outdoor equipment. They also mention that there has been a pull forward in discretionary purchases, but they are pleased to see some normalization in these categories. They hope for drier weather in the upcoming weeks to boost sales.

In the finance big projects, there has been pressure in kitchen and bath remodeling projects, but there has been a positive customer engagement in some categories like garden equipment and grills. The pressure in big ticket categories has increased, but there has been an increase in customer engagement in categories like riding mowers. The company is pleased with the pull-forward categories and the cyclical customer engagement in some high-priced items.

The speaker discusses the impact of housing turnover and the lock-in effect on their business. They mention the decrease in housing turnover over the past two years and how it has affected their sales. They also consider the influence of interest rates on consumer behavior and the potential for pent-up demand in the housing market.

The impact of current economic factors is affecting customers' spending mindset, particularly in regards to large projects and debt financing. This is reflected in the underperformance of goods and durable goods, especially in home-related categories. Home Depot's transactions are still negative, but there is an improving trend that may be attributed to the company taking share from competitors. This could also be a result of the lap of the COVID demand surge, as big-ticket items were pulled forward last year.

The housing turnover rate has significantly decreased in the past 18 months, which is a newer trend that is impacting demand. However, the company believes that this trend will not continue to decline much further. They have also seen an increase in transactions and units per basket, which is in line with their expectations and included in their guidance. Despite the pressure from large projects, there has been a significant decrease in HELOC withdrawals and cash-out refinancing.

The company has seen a sequential recovery in transactions despite a challenging macro environment. They have reiterated their guidance and the pause in share repurchases is offset by interest income from their cash reserves. Both Pro and DIY transactions were negative, with larger Pros outperforming and those engaged in the ecosystem performing even better.

The company has expanded their supply chain capabilities and outside sales teams, resulting in positive comps in the markets. They plan to expand in three more markets in the next nine months. The SG&A on a per store basis was flat year-over-year, but the company is focused on productivity and controlling expenses. The company plans to utilize SRS and their Pro relationships to leverage their broader complex Pro initiatives.

The paragraph discusses the recent acquisition of SRS by the company and highlights the potential benefits it brings. SRS is a well-run company operating in three large and fragmented markets, which increases the total addressable market (TAM) by $50 billion. The acquisition also brings complementary capabilities, such as wholesale distribution, trade credit, and efficient delivery, which the company can learn from and incorporate into their own operations. Additionally, SRS's extensive product catalog can be cross-sold to the company's residential pro customers. The company expects to expand their complex Pro capabilities to 17 markets by the end of the year and eventually to the top 40 markets.

Ted Decker, responding to a question about moderating expectations for the rest of the year, states that the company's focus is on executing well in the core business. He highlights the team's success in reducing shrink, improving in-store processes and technology, and maintaining a strong price position. He also mentions the team's efforts in reducing inventory and increasing turnover and in-stock availability. Overall, he expresses confidence in the team's performance and their ability to adapt to market changes.

The Home Depot has seen increased productivity and cost efficiency due to their execution of a $500 million cost reduction plan. The company is focused on controlling what they can control, and they are pleased with their team's execution. There is a belief that the acquisition of SRS was an attempt to address the challenging Pro segment of the market, but Home Depot remains optimistic about their organic efforts and sees SRS as a valuable asset with a strong management team. Overall, the company is confident in their position in the market and their ability to serve a large asset class.

The company is expecting to gain more share with consumers through in-store and online shopping, especially with larger projects. There has been a delay in the start of spring, but the business is tracking well in May so far. The main factor affecting spending is the deferral mindset of customers, rather than income levels.

Richard McPhail, the CEO of the company, is happy with the customer engagement and the progress made in outdoor projects. He also confirms the 33.9% gross margin rate for the year and is confident in the company's ability to manage shrink and transportation costs. However, he acknowledges that shrink continues to be a problem and the external environment is not helping. He praises the efforts of the team in addressing the issue and mentions that it is a return on investment in terms of financial performance, customer, and associate safety. He also mentions a dynamic to consider when looking at the company's margin for the year.

The company is not concerned about the 2% AUR pressure in the first quarter because it is an artifact of a year-over-year comparison. They expect the pressure to decrease throughout the year and for same-store sales to improve in the second half due to AUR.

The speaker, Billy Bastek, responds to a question about the promotional environment and competition in the DIY market. He states that Home Depot's events are intended to drive excitement and foot traffic, rather than simply offering sales. He also mentions that the current promotional landscape is similar to pre-COVID times. The next question from Brian Nagel asks about the impact of macro pressures on Home Depot's guidance for 2024.

In the paragraph, Richard McPhail and Billy Bastek of Home Depot discuss the company's guidance and potential inflationary pressures. They reaffirm their guidance despite a delayed spring, and state that inflation is being driven by services rather than goods. They also mention that there has been no impact on commodities and that the environment is stable. The final question comes from Steven Forbes of Guggenheim.

The weakness in certain discretionary projects, such as kitchen and bath renovations, is due to a decrease in demand for larger, decor-oriented projects and a trend towards smaller, more affordable projects. This is primarily driven by a decline in housing turnover and an increase in mortgage rates. However, this trend is expected to pass as housing turnover is not expected to decrease further.

The speaker is discussing the potential impact of higher interest rates and asking for clarification on the positive comps in markets servicing the Complex Pro. The speaker also mentions that they have seen positive comps in markets where they have invested in sales professionals and FTC markets. The call ends with the speaker thanking the participants and announcing the next earnings call in August.

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