The paragraph introduces the participants of the Home Depot First Quarter 2025 Earnings Conference Call, including Isabel Janci, Ted Decker, Ann-Marie Campbell, Billy Bastek, and Richard McPhail. Isabel Janci, the host, welcomes everyone and outlines the call format, noting that it will be recorded and include a Q&A session limited to analysts and investors. Participants are advised on question limitations and instructed on steps to take if their queries are not addressed. Isabel also highlights that the presentation will include forward-looking statements and non-GAAP measures, cautioning that actual results may vary due to various risks and uncertainties.

The paragraph outlines the company's financial performance for the first quarter, highlighting sales growth to $39.9 billion, despite challenges like unfavorable weather and foreign exchange pressures. There was a slight decline in comparable sales, though U.S. comps saw a minor increase. Adjusted diluted earnings per share fell compared to the previous year. The company continues to engage customers with smaller projects and spring events, and remains focused on store readiness and product variety. Additionally, the company has made significant progress in diversifying its global supply chain, with over 50% of purchases now sourced from the U.S. It plans to ensure no single country outside the U.S. accounts for more than 10% of purchases within a year. The company is confident in its ability to manage economic cycles with strong teams and tools in place to understand cost impacts at the SKU level.

The paragraph discusses the company's strategic approach to the home improvement market, emphasizing strong vendor partnerships, a bullish outlook on market fundamentals, and a focus on customer value. It highlights the aging housing stock, rising home prices, and increased home equity as factors driving customer investment in home improvement. The company is committed to investing in its business to gain market share, especially during disruptions, and is enhancing its Pro ecosystem and trade credit program for professionals. The commitment to employee engagement and recognition of strong team performance is underscored, along with an expression of concern for those affected by recent severe weather. The paragraph concludes by handing over the discussion to Ann-Marie Campbell.

The paragraph highlights Home Depot's commitment to enhancing the customer shopping experience by focusing on the development and support of its associates. The company emphasizes providing excellent customer service through deep product knowledge and better tools for its associates. Home Depot uses programs like the Pocket Guide app and new training certifications to empower its employees. The store managers' meeting is mentioned as a crucial event to celebrate and reinforce the company's dedication to service excellence and continuous learning.

The paragraph discusses the introduction of new generative AI tools that enhance operational and product knowledge for store associates via their phones, contributing to improved customer service, retention rates, and engagement. The company values its associates' dedication and notes increased associate investment, reflecting in survey improvements and customer satisfaction. Billy Bastek acknowledges the efforts of associates and supplier partners, highlighting the company's strong position in navigating the macroeconomic environment. The company's advanced merchant, supply chain, and finance capabilities give it a competitive edge, enabling effective global sourcing strategies through deep business understanding and partner collaboration.

In the first quarter, the company met expectations despite challenges like unfavorable weather and a high-interest rate environment affecting larger remodeling projects. Six out of sixteen merchandising departments reported positive comps, with strength in categories such as appliances and building materials. Average ticket prices remained flat, but inflation in key commodities like lumber increased the average ticket by 30 basis points. Big ticket items saw a slight increase in comp transactions, while larger discretionary projects continued to experience weaker engagement. Pro sales outperformed DIY sales, with growth in Pro-heavy categories. Online sales grew by approximately 8% as the company invested in enhancing its digital platform and marketing delivery speed.

The paragraph highlights several key developments and successes at Home Depot. Customers benefiting from faster delivery are spending more across categories, and the new Magic Apron AI tool is improving customer engagement and online conversions by providing expert home improvement advice digitally. The company expanded its exclusive agreement with BEHR to offer KILZ branded primer products, strengthening relationships with professional customers. The first quarter saw successful Spring Black Friday and Spring Gift Center events, with strong performances in appliances, power tools, grills, and paint. Overall, Home Depot is preparing for continued growth in the second quarter.

The paragraph discusses a company's performance and initiatives related to gardening products and sales. They emphasize their collaboration with breeders to ensure successful gardening for customers, enhancing customer confidence and brand loyalty. The company reported a total sales increase to $39.9 billion in the first quarter, despite a slight decrease in comparable store sales globally and mixed performance in different regions. The gross margin decreased due to a change in product mix, but gains were made through lower shrink and improved supply chain productivity. Operating expenses rose as a percentage of sales but were in line with expectations.

In the first quarter, the company's operating margin decreased to 12.9% from 13.9% in the first quarter of 2024, and adjusted operating margin was 13.2% after excluding intangible asset amortization. Pre-tax intangible asset amortization totaled $139 million, while interest and other expenses rose by $163 million to $591 million due to higher debt. The effective tax rate increased to 24.4% from 22.6%. Diluted earnings per share were $3.45, and adjusted earnings per share were $3.56, showing a slight decline. The company opened three new stores, raising the total store count to 2,350. Merchandise inventories rose by $3.3 billion to $25.8 billion. Investment in capital expenditures was $800 million, and $2.3 billion was paid in dividends. Return on invested capital decreased to 31.3% from 37.1%. The performance met expectations, excluding FX rate issues, with continued strong customer engagement from late 2024 into 2025.

The company is reaffirming its fiscal 2025 guidance, expecting total sales growth of about 2.8% and comparable sales growth of approximately 1% compared to fiscal 2024. The gross margin is projected to be around 33.4%, with an operating margin of about 13% and an adjusted operating margin of 13.4%. The company forecasts an effective tax rate of approximately 24.5% and net interest expenses of $2.2 billion. Diluted earnings per share are expected to decline by roughly 3%, and adjusted diluted earnings per share by about 2% compared to fiscal 2024, primarily due to a difference in the number of fiscal weeks. Capital expenditures will be around 2.5% of sales. Despite various factors affecting the business environment, the company aims to strengthen its market position and customer experience. After presenting this outlook, the call was opened for questions.

In the paragraph, Ted Decker discusses the overall consumer demand environment, noting that economic concerns such as a potential recession and stock market correction have eased, with consumer sentiment and unemployment indicators showing improvement. Despite high interest and mortgage rates keeping housing turnover low, home equity and wages have increased significantly. However, the anticipated large-scale remodeling projects have not yet materialized, although there was increased consumer engagement in late 2024 and early 2025.

The paragraph discusses the challenges and factors affecting financing for large home improvement projects, noting that despite available home equity, macroeconomic uncertainty and high interest rates are hindering people's willingness to invest in bigger projects. The company anticipates growth in these projects once economic confidence improves. Additionally, Christopher Horvers questions the increase in SG&A expenses, which grew by 12% year-over-year. Richard McPhail explains this rise is partly due to overlapping a significant legal settlement from the previous year and adding expenses from a newly integrated segment, SRS. Despite this, the company effectively managed expenses in line with their expectations, crediting their merchants and supply chain teams for maintaining productivity and managing costs.

The paragraph discusses the company's financial guidance and expectations for the upcoming year. It mentions a decline in operating margin from 13.8% to 13.4% year-over-year from '24 to '25, attributing 20 basis points of this decline to expected natural de-leverage and 15 basis points to the partial year-over-year impact of acquiring SRS. The remaining 5 basis points are due to transitioning from a 53-week year to a 52-week year. Despite these challenges, the company is generating strong productivity and reinvesting in the business. Additionally, the company discusses its comp guidance, suggesting an optimistic outlook with an expected increase in SRS's impact in the second quarter and better performance in the year's back half.

In the paragraph, Richard McPhail and Ted Decker discuss the company's outlook and performance. McPhail notes that the team met expectations for the first quarter, but foreign exchange (FX) pressures affected the top line by $275 million. Despite this, they are optimistic about the business heading into the second quarter and are reaffirming their current guidance. Decker expresses satisfaction with the performance of SRS, highlighting its growth across three verticals: roofing, pool, and landscape. SRS is gaining market share and expanding through comp branch growth, new branches, and acquisitions. Decker also emphasizes the importance of SRS's trade credit program in their pro ecosystem, which enhances delivery, sales force, pricing, and order management capabilities. SRS's expertise in trade credit, with over 90,000 accounts, supports the company's broader strategy.

The paragraph discusses Home Depot's strategy of outsourcing credit program development to SRS in Dallas to enhance their Home Depot Core Pro services. Currently, they have onboarded a few thousand accounts, with aspirations to reach millions in the future. The conversation then shifts to a question from Michael Lasser about how Home Depot is handling tariffs on goods, considering about 50% of their sales are international. With tariffs ranging from 10% to 30%, Home Depot absorbs approximately half of these costs, effectively imposing a 5% tariff on the cost of goods. Lasser inquires how this impacts pricing strategies and whether it affects potential shareholder benefits from supply chain and productivity improvements. Billy Bastek acknowledges the question, setting the stage for a discussion on managing tariff impacts.

The paragraph discusses Home Depot's sourcing and pricing strategy. Over 50% of its purchases are sourced in the U.S., and the company has worked with suppliers to diversify sourcing across various countries. Home Depot aims to ensure that no single foreign country will account for more than 10% of its purchases within a year, highlighting its flexible and diversified supply chain. While maintaining partnerships and productivity, Home Depot does not foresee broad price increases for its customers and sees this approach as an opportunity to gain market share. When asked about maintaining prices potentially affecting gross margins, Billy Bastek mentions utilizing various levers, like productivity, and adjusting line structures to manage potential impacts from tariffs.

The paragraph discusses Home Depot's approach to managing its supply chain and product lines, emphasizing the importance of line structure over specific items and percentages. Home Depot has worked with suppliers to diversify global supply chains effectively, maintaining productivity for customers. Michael Lasser asks about a potential $10 billion to $15 billion in deferred demand for home improvement, based on Home Depot's market share. Ted Decker confirms that capturing this deferred demand is an opportunity for significant sales growth beyond the projected 3% to 4%, especially as Home Depot enhances its services for DIY customers and professionals. This potential growth will be further discussed at the upcoming investor conference.

In the paragraph, Scot Ciccarelli requests an update on the rollout of capabilities in 17 markets with flatbed distribution centers, where there's a focus on complex Pro offerings. Ted Decker responds by stating that there are no new markets and providing details on improvements in delivery performance, sales team maturation, and pricing strategies. He also mentions enhancements in market delivery operations and IT developments in order and account management, expected to be completed by 2025. Scot then asks Richard McPhail about expectations regarding the integration of SRS into company operations, to which Richard responds by noting that the acquisition of SRS was completed in mid-June of the previous year.

The paragraph discusses the integration of SRS into the company's financial reporting. SRS will be included in the total company comparable metrics but not in the U.S. comp, similar to HD Supply, to maintain a clear view of U.S. retail operations. SRS exceeded sales expectations, delivering $2.6 billion, with anticipated mid-single-digit growth for the year. The acquisition is seen positively, with ongoing progress noted. The question from Zhihan Ma addresses a 15% increase in inventory. Richard McPhail explains this increase is mainly due to adding SRS inventory to the base, as well as investments from gains in online speed initiatives and supply chain improvements. The company feels confident about its inventory position.

The paragraph discusses the business's strong momentum, particularly in relation to customer experience and inventory management. The company strategically increased inventory in their distribution centers to align with this momentum and confirmed no advance inventory purchases were made. Q2 is described as a critical period, with all necessary seasonal goods already in place. Despite a slower start in February, inventory levels and in-stock rates have improved significantly, thanks to supplier contributions. The company is confident about their position for the upcoming high-demand period and has invested in their distribution network to enhance speed, a crucial factor for customer conversion. A subsequent discussion highlights an Easter timing shift that affected sales figures, benefiting March at the expense of April, with adjusted U.S. comps for April being around 2.5%.

In this conversation, Zach Fadem from Wells Fargo asks Richard McPhail about pricing, margins, and how these might compare to competitors. Zach also inquires about the impact of tariffs on pricing and elasticity models. Richard responds by emphasizing their confidence in their current pricing position and their robust models in place, without speculating on competitors' actions. He assures that they regularly test elasticity models and feels confident in their strategy owing to their strong merchant, supply chain, and finance teams. Zach also seeks clarification on any changes to accounting methods, specifically regarding how tariff costs are recognized in relation to sales, to which Richard provides assurance of consistency in their approach.

In the conversation, Richard McPhail discusses the use of the retail inventory method, noting minor quarter-to-quarter variability due to retail price changes but nothing significant to highlight. Seth Sigman from Barclays inquires about the impact of housing market conditions, particularly in regions experiencing softened home prices, and whether this affects sales. Ted Decker responds, indicating that there's no notable change in sales tied to housing price shifts and that weather is a key factor in regional performance. Sigman also questions the potential impact of rising prices on consumer spending as other companies increase prices. Decker acknowledges concerns about demand destruction but does not elaborate further.

The paragraph discusses the economic conditions and consumer behavior related to the home improvement sector. The speaker indicates that any previous concerns about a significant economic downturn and reduced demand have largely passed. However, they are monitoring the impact of rising prices in other sectors on consumer spending. The customer base for home improvements is considered strong, with an average income of $110,000, and 80% are homeowners benefiting from home price appreciation. Positive trends in stock markets, job growth, and wage increases also support their financial standing. Although energy and food prices are noted as concerns, overall demand destruction is not expected. The dialogue ends with an inquiry about consumer demand and project timing, particularly if there was a rush to complete projects before potential price increases.

The paragraph discusses the company's current business performance and outlook. While they observed some minor forward purchasing in appliances, overall business activity remained steady. Smaller customer projects are still ongoing despite financial pressures. The company is pleased with customer engagement and recent performance. Chuck Grom asks about shrink benefits, and Richard McPhail responds, indicating that while there are current benefits from shrink, challenges remain compared to 2019, but the company is improving operations. McPhail also notes that they aren't ready to discuss 2026 specifics about SRS but highlights its track record of growth and market share gains.

The paragraph is from a Q&A session in which Steven Zaccone from Citi asks questions about the company's performance and pricing strategies. Richard McPhail responds, noting that weather, particularly in the north and Canada, impacted first-quarter performance, and there was some anticipated benefit from hurricane recovery efforts, which is accounted for in their annual guidance. On pricing, Billy Bastek mentions that the competitive environment has seen consistent pricing, with no significant changes observed yet, as it's still early in the period.

The paragraph is part of a teleconference with Home Depot, where it was reiterated that there are no widespread price increases at the store. Steven Zaccone acknowledged this, and Isabel Janci provided closing remarks, thanking participants and mentioning the next earnings call in August. The operator then concluded the teleconference.

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