The paragraph is an introduction to The Home Depot's third quarter 2024 earnings conference call. The host, Isabel Janci, welcomes participants and mentions key speakers, including Ted Decker, Ann-Marie Campbell, Billy Bastek, and Richard McPhail. The call includes a formal presentation and a question-and-answer session for analysts and investors. Forward-looking statements and non-GAAP measures will be discussed, and participants are reminded of the risks and uncertainties that could affect actual results. A reconciliation for non-GAAP measures will be provided, and the call is then turned over to Ted Decker.

In the third quarter, sales reached $40.2 billion, a 6.6% increase from the previous year, despite a 1.3% decline in comparable sales. Negative comps were noted in U.S. stores, while Mexico and Canada performed above the company average. Weather and hurricanes impacted sales variability, but performance exceeded expectations when normalized. Adjusted diluted earnings per share were slightly down from last year. The company updated its fiscal 2024 guidance, expecting 4% sales growth, a 2.5% decline in comps, and a 1% decrease in adjusted diluted earnings per share, influenced by better third-quarter performance and anticipated hurricane-related demand.

The paragraph highlights the company's efforts to enhance its interconnected experience and increase market share despite economic uncertainties. They've improved their supply chain by building a network of fulfillment centers, enabling fast delivery to 90% of the U.S. population, and expanded product assortment for quicker deliveries. Website enhancements and a recent marketing campaign have boosted customer engagement and sales. The SRS integration is on track to generate significant sales and supports growth through both organic means and acquisitions, while also offering cross-sale opportunities. The company remains committed to investing in growth across various teams and capabilities.

The paragraph opens with a tribute to late Co-Founder Bernie Marcus, acknowledging his contributions and values that shaped The Home Depot. Ann-Marie Campbell then extends sympathy to those affected by hurricanes Helene and Milton, highlighting the company's commitment to community support during natural disasters. She praises the exceptional efforts of the teams in providing necessary aid post-storms. Campbell concludes by sharing updates on the Pro Ecosystem's progress, noting its expansion to 17 U.S. markets, and emphasizes ongoing investments to enhance the store experience for professionals.

The article discusses the company's efforts to enhance the in-store experience for pro customers by introducing a Pro Customer Experience Manager role to improve connectivity with sales teams and focus on customer needs. This includes ensuring availability of critical products, allocating more labor during peak times, and using data insights to deepen engagement. There's a strong focus on reducing shrink through technology and cross-functional teamwork, reflecting positive momentum. Overall, the company is committed to improving customer service and acknowledges the contributions of its employees in this process.

The paragraph discusses Home Depot's third-quarter performance, highlighting better-than-expected results due to favorable weather and hurricane-related sales, despite challenges from high interest rates and economic uncertainty. Key departments like power, outdoor garden, and building materials showed positive performance, though overall transactions and high-value purchases declined. While there was a decrease in large discretionary projects, pro sales surpassed DIY sales, with strong results from professionals engaged with Home Depot's Pro Ecosystem. Additionally, online sales increased by 4% compared to the previous year.

During the third quarter, a significant portion of Home Depot's online orders were fulfilled through their stores, showcasing improvements in their interconnected retail experience. They hosted their Annual Supplier Partnership Meeting to enhance collaboration and innovation with vendors like Starlink, Milwaukee, and RYOBI. Events like Labor Day and Halloween saw strong customer engagement, contributing to record sales for Halloween products. Looking ahead, Home Depot plans to continue this momentum in the fourth quarter with its holiday, Black Friday, and Gift Center events, focusing on popular brands like Milwaukee and DEWALT.

The article highlights the introduction and exclusive availability of new and innovative tools and batteries, such as cordless RYOBI tools, Milwaukee M18 FUEL Toolkits, and Husky BITE Tools, at The Home Depot. It emphasizes their focus on providing a diverse range of high-quality products and solutions that simplify projects for customers. Richard McPhail shares financial updates, noting a 6.6% increase in total sales to $40.2 billion for the third quarter. However, overall company comps were down 1.3%, with variations over the months, partially offset by $200 million in hurricane-related sales, which positively affected sales figures for October.

In the third quarter, the company experienced a slight decline in its gross margin to 33.4% and an increase in operating expenses as a percentage of sales to 19.9%. This resulted in an operating margin decrease to 13.5%, with an adjusted margin of 13.8% after excluding intangible asset amortization. Interest and other expenses rose due to higher debt, and the effective tax rate increased to 24.4%. Diluted earnings per share fell by 4% to $3.67, or 2% to $3.78 when adjusted for amortization. The company expanded by opening five new stores, raising its total to 2,345, and increased merchandise inventories by $1.1 billion. Inventory turns improved to 4.8 times. The company invested $820 million back into the business through capital expenditures.

In the updated fiscal 2024 outlook, the company anticipates total sales growth of around 4%, aided by an additional 53rd week and hurricane-related sales. The 53rd week is expected to add $2.3 billion to sales, with an additional $6.4 billion from SRS. Despite a projected 2.5% decline in comparable sales for the 52-week period, the company plans to open 12 new stores. Gross margin is forecasted at 33.5%, operating margin at 13.5%, and adjusted operating margin at 13.8%, with an effective tax rate of 24% and net interest expense of $2.1 billion. The earnings per share are expected to decline by approximately 2%, with the extra week contributing $0.30 per share, and adjusted EPS declining by about 1%. The company aims to grow its market share despite challenges.

The paragraph presents a segment from a conference call involving a Q&A session between company executives and analysts. Scot Ciccarelli from Truist attempted to ask about sales performance, particularly related to hurricane impacts, but experienced audio issues. The session moved on to Zach Fadem from Wells Fargo, who inquired about the effects of a recent hurricane on sales, asking whether sales leaned more towards DIY or professional customers. Ted Decker pointed to Billy Bastek, who explained that typical hurricane-related sales include items like generators and lumber, which are largely consumer-driven as people prepare for such events. The conversation also touched upon sales guidance for the future quarter.

In the paragraph, Richard McPhail discusses the company's performance, highlighting that the 2.5% guidance for the year reflects strong Q3 results driven by hurricane-related sales and favorable weather conditions. The full-year outlook incorporates these factors, with some additional hurricane-related sales expected in Q4. Zach Fadem inquires about the balance between needs-based and discretionary projects, noting that larger, discretionary projects are being deferred, while essential projects are still being completed. Ted Decker confirms this trend, emphasizing steady engagement in home improvement, especially among professionals. The dialogue then shifts to Chuck Grom's question regarding the progress in cross-selling products and services between different business sectors, with Ted Decker expressing satisfaction with the progress made.

In the third quarter, SRS continued its strategic plan by growing its business through existing and new branches and small acquisitions. Their product catalog is being integrated into The Home Depot ecosystem, resulting in rapid sales growth, albeit from a small base. Efforts to cross-sell products to each company's customer base are in early stages, but collaboration is positive. SRS contributed $2.9 billion in sales for the quarter and is projected to reach $6.4 billion over roughly seven months. Gross margins decreased by 40 basis points, mainly attributed to SRS.

In the paragraph, Richard McPhail discusses the factors impacting the company's gross margin. He explains that the major year-over-year impact was an 80 basis point reduction due to the mix from SRS. Despite this, the company's overall gross margin aligned with expectations, and guidance for the full year remains unchanged. For 2024, the SRS impact is expected to be around 45 basis points since the company will own them for only seven months, translating to an annualized impact of about 70 basis points. Additionally, benefits from decreasing transportation expenses were noted in the year's first half but have since leveled off. Overall, the company is pleased with its margin performance.

In the paragraph, the company discusses its anticipated stable gross margins as part of its long-term operating model, highlighting the productivity contributions from its supply chain team. However, the acquisition of SRS may impact these margins. During an investor call, a question from Seth Sigman of Barclays inquires about market share, noting Home Depot's improved performance relative to the industry. Ted Decker acknowledges the difficulty of quantifying market share but suggests that Home Depot outperformed industry competitors according to broader macroeconomic data and competitor performance in specific categories. Billy Bastek is introduced to elaborate further on specific categories where the company may be gaining market share.

The paragraph discusses a company's strong performance in various categories, such as Halloween and paint, despite weather-related challenges affecting exterior business. The company has seen significant growth in paint due to partnerships with BEHR and PPG, as well as in-store service enhancements and job site delivery expansions. Building materials have also performed well over multiple quarters. During a follow-up discussion, Seth Sigman questions a decline in big-ticket items, despite weather events like hurricanes boosting demand for some products like generators. Ted Decker responds by highlighting overall favorable sales, influenced by weather and hurricane-related demand.

The paragraph discusses the impact of current macroeconomic conditions, particularly higher interest rates, on large remodeling projects and existing home sales. Despite interest rate cuts by the Federal Reserve, mortgage rates have risen, resulting in reduced housing turnover, which is at a 40-year low. Financing options like cash-out financing and HELOCs are also down despite some rate reductions. The text notes a shift from goods to services consumption has mostly stabilized post-pandemic, and although larger projects face challenges due to financing costs, there is optimism for the home improvement sector as certain market pressures ease.

The paragraph discusses the impact of macroeconomic uncertainty and interest rates on home improvement demand, highlighting that the market will eventually stabilize. It includes a Q&A segment where Steven Zaccone asks about the effects of hurricane-related sales and shrink on gross margin. Richard McPhail responds that there was slight pressure on gross margin due to the sales mix during hurricane preparation and cleanup, which involved selling more low-margin goods. Regarding shrink, he mentions their ongoing efforts to combat organized retail theft, noting that the investments are yielding positive results despite the increasingly challenging retail environment.

In the paragraph, Steven Zaccone asks Ted Decker about the housing market outlook for 2025. Decker responds that it is difficult to predict due to uncertain rate environments and is not ready to discuss larger remodeling projects for 2025. Scot Ciccarelli then asks Richard about the broader weather impact on sales in the quarter and the performance difference in markets with new pro capabilities. Decker notes that the excellent weather across the country makes it challenging to isolate the weather's impact without a control group.

The paragraph discusses the success and growth opportunities for a business due to favorable weather conditions and effective customer engagement strategies. It emphasizes the importance of offering a great experience both inside and outside stores, particularly in 17 key investment markets. Ann-Marie Campbell and Chip Devine highlight the significant efforts being made to support professional markets, enhance customer experience, and build confidence through strategic initiatives. The investments in foundational capabilities, like inventory and supply chain improvements, have led to market share gains and outperformance in these areas.

The paragraph discusses a company's successful engagement with its customers through its ecosystem, particularly highlighting a new trade credit offering that has gained traction. Hector Padilla emphasizes the positive impact of strategic adjustments aimed at improving in-store customer experiences, such as faster checkout and better stock availability. Michael Lasser from UBS questions Ted Decker about the multi-year outlook for the home improvement industry, focusing on how prolonged high interest rates might be causing homeowners to delay projects, potentially leading to a strong recovery when rates decrease. Decker acknowledges the impact of high rates on market turnover and home equity line of credit (HELOC) extractions.

The paragraph discusses the impact of interest rates on housing activity, emphasizing that recent fluctuations have affected home equity line of credit (HELOC) extraction and overall market activity. While there's been significant discussion about future rate drops, the author suggests that stability at any rate might be more beneficial than expecting dramatic decreases. Once rates stabilize, normal housing market activities, like household formation and home size adjustments, will resume. The author argues that rates don't need to drop significantly; instead, the ongoing speculation about Federal Reserve actions needs to subside. Following this analysis, Michael Lasser shifts the conversation to inquire about the potential impact of tariffs on Home Depot's sales, specifically regarding imports from China and other countries.

The paragraph discusses the potential industry-wide impact of tariffs on merchandise costs and consumer spending, particularly focusing on sourcing from Southeast Asia and China. Ted Decker mentions that a significant portion of goods are sourced domestically, and the company has experience handling past tariffs. Billy Bastek highlights that the company plans to manage new tariffs similarly to previous instances and is focused on diversifying sourcing in North America. John Deaton adds that they are addressing immediate concerns like resolving situations at East Coast ports to ensure smooth supply chain operations.

In the conversation, several individuals discuss the impact of trade policy changes and weather on business performance. Ted Decker and Billy express confidence in managing disruptions. Simeon Gutman from Morgan Stanley asks questions about Q3 to Q4 performance, noting that Q3 exceeded expectations partly due to favorable weather, and inquiries whether conservatism is influencing Q4 projections. Richard McPhail explains that while Q3 benefited from weather, they are cautious about projecting similar results for Q4 and anticipate a roughly negative 2.5% in comp sales. Simeon also seeks insight on macroeconomic factors like tappable equity and housing turnover, questioning if high rates might affect these areas differently. Richard acknowledges that reduced housing turnover might lead to more spending on repairs and remodeling.

The paragraph discusses the impact of macroeconomic and political uncertainty on people's financial decisions, particularly regarding large projects and home equity lines of credit (HELOCs). It notes that there's a significant amount of tappable equity, which has increased from under $6 trillion to $11.5 trillion. During the housing boom, people were withdrawing up to $120 billion per quarter, but this has decreased to $20 billion per quarter. The paragraph suggests that confidence in economic and political dynamics is a key factor in whether people decide to undertake large projects. Additionally, Steven Forbes asks Ted Decker about the sales force at SRS, noting that there are about 2,500 outside salespeople, and inquires how this could influence decisions about scaling the sales force at HD.

The paragraph discusses the company's sales strategies and processes, highlighting the effectiveness of their inside and outside sales teams, along with their management and compensation structures. It notes the importance of credit for large projects, enabling larger purchases that surpass typical credit card limits. The interaction between Chip's team and the SRS sales team is positive, yielding beneficial insights. Chip Devine mentions plans to fully implement an order management system, including features like inventory reservation, by the end of 2025. The conversation concludes with Isabel Janci expressing gratitude for participation in the teleconference and announcing the next earnings call in February.

The paragraph instructs readers that they can disconnect and thanks them for their participation, wishing them a good day.

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