Q2 2020 Home Depot Inc Earnings Call
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Greetings and welcome to the home depot second quarter 2020 earnings call.
At this time, all participants are in listen only mode.
He brief question and answer session will follow the formal presentation.
If anyone should require operators system. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Isabel Jancee. Please go ahead.
Thank you Christine and good morning, everyone joining us on our call today, our credit Minier, Chairman CEO and President Ted Decker Executive Vice President of merchandising and Richard Macnow Executive Vice President and Chief Financial Officer.
Following our prepared remark the call will be open for question.
Questions will be limited to analysts and investors and as a reminder, please limit yourself to one question with one follow up.
If we were unable to get to your question during the call. Please call our Investor Relations Department at 770 384 to 387.
Before I turn the call over to Craig Let me remind you that today's press release on the presentations made by our executive include forward looking statements as defined in the private Securities Litigation Reform Act of 1995.
These statements are subject to risks and uncertainties that 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 filings with the Securities and Exchange Commission.
Today's presentations will also include certain non-GAAP measures reconciliation of these measures is provided on our website.
Now, let me turn the call over to Craig.
Thank you Isabel.
Thanks to all of you for joining our call. This morning.
We hope that you on your loved ones are safe and healthy at our thoughts and prayers continued to be with all of those that have been directly impacted by cope with 19.
The cope with 19 pandemic and its impact have forced us to change the way, we live work and interact with each other.
So these tough times have been unquestionably challenging as we mentioned in the first quarter. We have navigated this crisis by aligning our decisions and actions to some of our most important values do the right thing and take care of our people.
Our focus has grown and continues to be on two key priorities, the safety and well being of our associates and customers in providing our customers with the products and services they need at this time.
In the first quarter, we had to adjust our storage to an environment that promoted social and physical distancing and we did this by implementing a change to store hours limiting the number of customers in store and eliminating traffic driving its vance as well as operational changes like floor markings signage.
And plexiglass shields.
In the second quarter, we continued to adapt based on our learnings and ever changing environment.
Our team continues to work to promote a safe shopping environment.
We made several adjustments in the quarter to our operating approach.
First we expanded our operating hours from six PM to eight pm.
This action was taken to relieve the end of de bottlenecks, we observed in some stores, while we were operating under more restrictive hours.
Second we modified the national approach that we had in the first quarter to limit the number of customers in stores.
And now are taking a more localized approach by relying on our store managers and field teams to closely monitor safety and implement customer limits as needed.
Third we announced that mass or facial coverings are required for all associates and customers and our U.S stores and other facilities.
Given the ongoing demands and complexity of the current environment. We've continued to focus on taking care of our people by extending weekly bonuses for hourly associates in our stores and distribution centers.
Through the second quarter, we have spent approximately $1.3 billion on enhanced associate pay and benefits in response to cope with 19.
Additionally, the company's first half performance resulted in a record to payout for success sharing our profit sharing program for our hourly associates.
I'm incredibly proud of our associates for the many ways that they have lived our values by serving our customers communities and each other during this unprecedented time.
Our team has demonstrated ongoing flexibilities to effectively operate in this dynamic environment, while also executing to deliver record breaking sales.
Sales for the second quarter were 38.1 billion up 23.4% from last year.
Sales were up 23.4% from last year with us comps of positive 25%.
Diluted earnings per share were $4.02 in the second quarter.
These record results were driven by broad based strength across our stores and geographies as Ted will detail both ticket and transactions were up double digit in the quarter and we saw healthy growth from both our pro and DIY customers.
During the quarter, we saw customers take on projects throughout their homes.
From deck building to painting projects landscape work and home repairs due to increase wear and tear clearly our customers engaged with home improvement in a meaningful way.
That being said as we discussed in the first quarter, we're cautious to extrapolate trends from the first half of the year into a forecast for the remaining of the year, particularly given the tremendous amount of uncertainty we face with regards to the duration and continued impacts of the virus.
So while we can't predict the sales trajectory for the back half of the year, we do know that for many of our customers. The home has never been more imports.
Our recent customer survey work tells us that customers have a continued willingness to take on both indoor and outdoor projects in the near term.
Customers are consolidating the number of retailers they visit at our blending the physical and digital elements of the shopping experience more than ever before.
As a result, the distinct competitive advantages and overarching benefits of an interconnected one home depot strategy have never been more relevant.
Our interconnected retail strategy and underlying technology infrastructures have supported record web traffic on a consistent basis for the past several months.
Sales leveraging our digital platforms increased approximately 100% in the quarter and more than 60% of the time, our customers opted to pick up their order at a store.
The accelerated growth of our interconnected in digital offerings has given us the opportunity to showcase in a very condensed timeframe new capabilities in different ways to engage with the home depot that customers may not have been fully aware of.
The rate at which customers are authentic hitting with US is also accelerated which provides us with unique opportunity to know our customers even better.
This is critical as we continue on our journey to offer a deeper level of personalization and further enhance the interconnected shopping experience.
That being said the step change in demand across our digital platforms is not without its challenges, particularly from a delivery and fulfillment standpoint.
We've been able to leverage investments, we have made in the scale and flexibility of our supply chain network to relieve some of the pressure.
This is exactly what we did during the quarter when we temporarily transitioned one of our recently opened market delivery centers for Mdcs to a direct fulfillment center or Dfc with primarily fulfills online orders.
The investments that we have made in the underline infrastructure and systems supporting the MDC, coupled with a strong cross functional alignment across the organization enabled us to make this conversion just a few short weeks.
The net result for our customers was the reduction in lead times, where orders flowing from our direct fulfillment network.
We are focused on continuing the momentum of our strategic investments to enhance the interconnected shopping experience and position ourselves for continued share capture over the long term.
At the same time, we know that we must remain agile and flexible to execute against the demands of the current environment.
Through it all we will continue to lead with our values that I could not be more proud of the resiliency and strength of the team has demonstrated as we navigate these extraordinary circumstances together.
I want to thank our incredible associates and supplier partners for their hard work and dedication to serve our customers and communities and with that I'd like turn the call over to test.
Thanks, Craig and good morning, everyone I too want to thank all our associates and supplier partners for the relentless focus on serving our customers during the second quarter, we saw unprecedented levels of engagement from both our DIY in pro customers our team satisfied the strong demand by working together in a flexible and agile manner while.
Also prioritizing safety.
As an example, we decided to cancel our annual Memorial day event and adjust other spring offence as we didn't want to drive even more traffic into already crowded areas of our store like garden pain.
We also removed most of our off shelf merchandising displays in order to support social distance and.
Our teams are incredibly flexible and worked in a cross functional manner to coordinate changes, we altered marketing plans social media product flow product selection and space allocation.
Our merchants suppliers marketers supply chain merchandising execution in store teams remained agile throughout the quarter and focused on our customers.
We are fortunate to have the best supplier partners in the business leveraging our tools and analytics, we work together to make real time adjustments to our assortments in many instances, we introduced alternative products and reduced assortments to the highest demand skews that our partners could supply most effectively.
As an example to support in stock levels were high demand items, such as cleaning products, we worked with suppliers to streamline production.
On key products sizes, and fragrances and as you heard from Craig the investments we've made in our supply chain over the last decade allowed us to be more flexible than ever and flowing product to the right geographies.
During the second quarter 13 of our 14 merchandise and departments posted double digit comps in the quarter led by our lumber Department, our kitchen, and Bath Department posted high single digit comps.
During the quarter comp average ticket increased 10.1% in comp transactions increased 12.3% the growth in our comp average ticket was driven by both an increase in basket size as well as customers trading up to new and innovative items. In addition inflation in court commodity categories like lumber.
Positively impacted our average ticket growth by approximately 61 basis points the strength of our comp transaction growth was driven by consistently strong in store and online transactions.
During the second quarter Big ticket comp transactions are those over $1000 were up approximately 16%.
We saw very strong performance across a number of big ticket categories like appliances riding lawnmowers and patio furniture. However, this strength was partially offset by softer performance in certain indoor installation heavy categories like special kitchens and countertops.
We saw strong sales growth with both our pro and DIY customers with DIY sales growing faster than pro sales sales to our pro customers accelerated meaningfully compared to the first quarter in grew double digits compared to the second quarter of last year.
Looking deeper into our pro sales, we saw notable strength with our smaller pro customer.
As markets continued to reopen we see increasing demand from all our pro customer cohorts.
We continue to lean into our strategic investments to create a pro ecosystem that encompasses professional grade product exclusive brands enhance delivery credit digital capabilities field sales support HD rental and more we believe our differentiated ecosystem will continue to draw.
Deeper engagement with our pro customers.
Turning to our DIY customers, our DIY customers are reengaging with their home in with the home depot in a meaningful way and they are engaging across the store, while we've seen strong demand with exterior projects like building decks sheds fences and gardens. We've also seen strong growth with interior projects like hard.
Surface flooring interior lighting and painting to name a few weeks.
We firmly believe that are one home depot strategy is creating a best in class interconnected shopping experience. We are building unique capabilities that letter customers engage across our digital platforms are updated physical stores in our enhance delivery experience and our confidence in these new capabilities.
Let us to change our tag line in marketing efforts to how do we get more done.
During the second quarter, new and existing customers set record levels of engagement across our new capabilities the rate at which our existing customers are adopting new channels to engage with the home depot more than doubled year to date.
And we also saw a third of recently acquired customers Reengaged with the home depot for another purchase in a different department.
During the second quarter, our mobile App saw record number of downloads and we saw significant growth in conversion rates across all digital platforms.
These results confirm our belief that we've been making investments in the right areas of our business and that those investments are resonating with our customers.
Let me give you an example to help illustrate our enhanced capabilities in options for customers.
Over the last couple of years, we've been able to multiple fulfillment options, including by inline pickup in store with convenient pickup blockers by in line deliver from store with our express Carne van delivery and most recently, our curbside pickup option.
As customers accelerate through adoption of an interconnected shopping experience. We have seen increased usage of these different fulfillment options. During the second quarter, we saw triple digit growth across all these platforms.
Another example is our HD home business as part of our strategic investments over the last three years weve been leaning into several home decor categories as consumers shop fewer and fewer retailers. Our research showed that our customers were increasingly looking to home depot dot com to help with project Completers.
Like room to core in textiles, we're investing to create a better frictionless online shopping experience for decor, we're showcasing our collections, enabling shop by room, and highlighting our capabilities and product offerings with HD home.
With record levels of traffic on home depot Dotcom, we've seen significant outsized sales growth with our HD home assortment.
All the investments across the business make us more flexible as we continue to navigate this fluid in dynamic situation as we look to the back half of the year, we'll be working with our supplier partners as well as our cross functional teams to satisfy our customers evolving home improvement needs with that I'd like to turn.
The call over to Richard.
Thank you Ted and good morning, everyone. We appreciate everyone joining the call today, and we hope you and your loved ones are safe and healthy.
In the second quarter total sales were $38.1 billion, a 23.4% increase from last year.
Foreign exchange rates negatively impacted total sales growth by approximately $200 million.
Our total company comps were positive 23.4% for the quarter.
With positive comps of 24.6% in May 25.7% in June and 20.4% in July.
Comps in the us were positive 25% for the quarter.
With positive comps of 27.3% in May.
27.3% in June.
And 21% in July.
As you heard from Craig and Ted the strong demand. We saw was broad based with a high degree of performance uniformity among our three use divisions in Canada.
All 19 of our us regions posted double digit positive comps in our Canadian business reported record sales.
Mexico's performance was impacted by lag included 19 cases relative to the us in Canada and as a result, Mexico's performance was negative in the beginning of the quarter before turning to positive growth at the end of the quarter.
In the second quarter, our gross margin was 34%.
An increase of approximately 20 basis points from last year.
The change in our gross margin was driven by several factors, including a benefit from a reduction of annual events during the quarter.
This benefit was partially offset by the mix of products sold and pressure from shrink.
During the second quarter operating expense as a percent of sales of approximately 18.1%.
Increased approximately 10 basis points compared to last year.
Let me take a moment to comment on a few of our expense items.
First during the quarter, we continued to support our associates with enhanced benefits.
Which totaled approximately $480 million in the second quarter.
Resulting in 125 basis points of expense deleverage.
Second we incurred approximately $110 million of operational cobot related expenses, including personal protective equipment for our associates and customers and enhance cleaning of our stores, resulting in approximately 30 basis points of operating expense deleverage.
Third we recorded expenses related to our strategic investment plan of approximately $280 million, an increase of approximately $40 million compared to last year.
We are committed to completing our strategic investments.
However, given the priority around safety and the complexities of the operating environment, we find ourselves and we're deferring certain in store investments and now expect some of the projects. We initially earmarked for fiscal 2020 to be completed in fiscal 2021.
And finally during the second quarter, we showed strong expense control in all areas of the business and drove approximately 145 basis points of expense leverage.
Included in this 145 basis points of leverage.
Is approximately 90 basis points of pressure.
It's driven by accrued bonus expense related to our significant outperformance for our biannual store success sharing program in store and field based management bonuses for the first half.
Our operating margin for the second quarter was approximately 15.9%.
An increase of approximately 10 basis points from last year.
Interest and other expense for the second quarter grew by $54 million to $337 million due primarily to higher long term debt levels than one year ago.
In the second quarter, our effective tax rate was 24.4% compared to 24.6% in the second quarter fiscal 2019.
Our diluted earnings per share for the second quarter were $4.02, an increase of 26.8% compared to the second quarter of 2019.
At the end of the quarter merchandise inventories declined $1.2 billion to $13.5 billion driven by the significant and steady demand we saw during the quarter.
Inventory turns were 6.1 times up from 5.1 times last year.
Moving on to capital allocation.
While our long term principle of returning excess capital to shareholders remains intact. We.
We believe that in this unprecedented environment. It is appropriate for us to maintain a strong liquidity position.
During the quarter, we invested approximately $445 million back into our business in the form of capital expenditures and we repaid approximately $1.75 billion of long term debt.
We also paid $1.6 billion in dividends to our shareholders.
Computed on the average beginning and ending long term debt and equity for the trailing 12 months.
Return on invested capital was approximately 41.1%.
Down from 43.7% in the second quarter of fiscal 2019.
This decrease primarily reflects our decision to temporarily enhance our liquidity position, including the suspension of our share repurchase program back in March.
Looking ahead.
Through the first two weeks of August comparable sales growth remains at levels similar to total company second quarter comp sales.
Our customers tell us that they plan to continue to invest in a wide variety of projects to maintain and enhance their homes.
However, given the degree of uncertainty in our external environment.
We cannot extrapolate current observations to predict future performance.
As a result, we're focused on operating with discipline and flexibility in order to grow market share regardless of what demand patterns emerge.
And despite the significant uncertainty in the current environment, we do believe in the resilience of home improvement demand over the long term.
The home typically represents our customers largest asset.
The housing stock is aging and we believe the capabilities, we're investing in across our interconnect platform will position us well to continued capturing market share in any environment.
Thank you for your participation in today's call and we're now ready for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask your question. Please press star one on your telephone keypad.
Hey, confirmation total indicate your line is the question Q.
Me Bristow acutely he would like to remove your questions on the Q.
Nobody has been do you think speaker equipment, it may be necessary to pick up your hands. If people are present darkie when Miller. Please when we pull for questions.
Thank you. Our first question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Thanks, everyone. Good morning, My first question is a little medium to longer term.
On the margin potential of the business.
Environment now is pretty fluid and I'm sure you describe it is still competitive when you laid out the one HD plan.
Most of the plan was recouping some of the margin that you would be invent making.
To make investments, but you never really baked in sales upside and by default you never really promised are committed to more margin can you talk about does that change and it's not about those margin go up over time, but does that does it create the potential for margins to trickle up over time or you're going to be steadfast on on reinvesting and maintaining a certain margin level going forward.
Simeon as we shared last December everything we're doing in terms in the investments that we're putting into the business is to be able to position us to outgrow the market for the long term and as a whole objective behind that is to be able to drive incremental.
Margin dollar and bottom line growth that's really the focus that we have we're not we're really not worried about how the basis points of rate falls. This was all about incremental op margin dollar growth.
Okay. Thanks for that and then maybe sticking with you Craig you mentioned in the article I think it was this week right correlations don't work right now and they don't apply which makes sense can you talk just two components of that how how could how does the surge in home improvement could it transition from spring summer into fall.
Back to the condition of the surge conditions to persist until until there is a vaccine.
I mean, it's really still uncertain, we don't know the answer to that which is why we can't really extrapolate current performance to future performance. What we do know is again the home has never been more important to the customer. We're all spending lots of time, there, we're seeing things that need to be done.
Or things that you want to be done there's additional wear and tear and we're clearly seeing a customer engaged in a very strong way right now the most important thing for us as we think about the future going forward is we operate in key areas on a pretty short cycle. So think late.
We are planning think inventory planning those are so short cycle activities for us and that's what we're really focused on how do we remain flexible and adjust im assuming that they are asking thing is we had really unbelievable demand for multiple quarters or multiple months.
In a row.
As Richard shared the quarterly monthly comps and the team was able to react to that and Thats really what we're focused on being able to do.
Okay. Thanks, good luck.
Thank you.
Our next question comes from the line of Michael Lasser would you be US. Please proceed with your question.
Good morning, Thanks for taking my question and I guess, you practice would your free you were getting it done.
My question is on the pro business, which you mentioned was up double digit can you quantify the spread between what you think your pro business did and what you think your deal why business.
And with that being said during the argument you described to me that the Pope visit the held back by consumers not wanting outside is in their home in the want to be dislocated from their own current time. So there is a pretty visible path you think your glu all the cool.
This takes over or.
The strength in the DIY business right now.
Michael we're obviously not going to split out the numbers on cohorts for obvious reasons, but.
But we were super plays that we saw double digit growth with the pro as well as incredible strength with the DIY customers, there clearly engage with projects as well I'll I'll, let bill jump in with a little bit more color as to what we're seeing in terms of major market.
Markets, where there's still a little crusher as it were pace due to permitting.
Yes, Hey, Michael Bill My name is.
We did see good pro sales growth across dog, all core hard towards all end markets in all geographies.
Notable strength with the low spend profile.
They were less impacted with the downturn in Q1, but continue to evolve rebound and accelerate in Q2. The highest enpro also continued to rebound and I would say that is as being an outcome of permitting and job inspections coming back online and there are areas, where homeowners are becoming more comfortable with having pros.
And service providers in their homes.
Some end markets that Havent total recovered I'll give you. One example, and that would be multifamily property managers. Obviously, there is slow returns on the units they have less access to the properties and they still remain in more of a break fix mode holding back on major Rehabs and capital projects.
But with that said even in multifamily pro customers, we've seen upturn in a rebound in sales to those cohorts.
Thank you very much of my my follow up question is on the gross margin Richard you get a little bit of detail and forming the moving pieces.
Noting that that Nick.
In shrink were yield drag in the quarter.
So how to think about the how should we be calibrating our models for Windstream is going to get better and what point do you think the promotional environment will move from being supportive to more normal.
Hey, Michael Thanks for the question so for the quarter. The most significant influence were related cancellations of annual events during the quarter.
If you look at the pressures again as we stated there was some pressure from mix and from shrink, but really those pressures were consistent with what we expected at the beginning of the year and what we saw in Q1.
As you know.
Shrink is a.
The.
Then an item that we has pushed a few initiative towards.
Last year in this year those efforts are ongoing we will see benefits from that overtime.
Takes a while for that work our way through the system.
But again shrink in mix.
The those components really worked out where we expect that they would have even at the beginning of the year.
And as far as promotions. So we'll continue to have promotions and events, but they will continue to be modified. So can you think at the beginning of the year, our spring Black Friday event in Memorial event, we essentially cancel those we had a modified more modest.
Fourth of July event, where there was some promotion not as deep and there was some in store activation in our event spaces I would see going forward, we continue to have modest modified events.
But but a net benefit with promotions.
That's very helpful. Thank you very much.
Our next question comes from the line of Stephen floors with Guggenheim. Please proceed with your question.
Good morning.
Maybe just focused on the additional workforce benefit that you've noted here.
On a rich you can go into a little more detail, but the foureighty is it simply just.
Tied to the weekly bonuses and then just revisit sort of what the current thinking is around the continuation of these bonuses whether it be committed to in sort of how do you sort of think about.
Balancing the cultural impact right of it.
With with obviously the commitment you have towards.
Et cetera.
Thanks for the question Stephen So if you take a look at the approximately $480 million.
That we invested in enhance benefits in the quarter.
You take a look at that and say about 360 million of it would represent spend on benefits that continue into the third quarter with the vast majority of that threesixty being in the form of weekly bonuses to associates the remainder of that the remaining hundred 20 million.
In dollars, we expensed in Q2 represent a benefits like enhanced overtime pay add that have not continues into the third quarter. So again of that second quarter about 360 continues in a third quarter, it's worth pointing out that in a 23% comp environment.
There are more hours they are more associates eligible for those weekly bonuses now we certainly we're not planning at the beginning of the quarter for a 25% or 23% comp environment. So that number is going to naturally be a little bit higher in Q2 because of that.
So that's that's the breakdown of of our associate expense and it's something that we review on a continuous basis, we think that that expense.
It was prudent and appropriate in the second quarter and we'll continue to review it as circumstances develop.
Thank you and then just a quick follow up right as we look at lumber inflation here.
And think about the puts and takes on the model I don't have you sort of just give us your current thinking about the potential implications as we look at the third quarter here.
Given that you called out mix I mean, how do we sort of contextualize.
Yes.
I will impact.
Well on on on lumber, we called out of commodity benefit in Q2 of 61 basis points points now lumber.
And the last several weeks of the quarter and into the first two weeks of this quarter has hit all time.
Record highs each each of framing and panel or over $700, they're up essentially about 115% vielle why but I would say a big piece of that was win win cobot started none of us knew.
Where this was going to go in the mills took a conservative approach in largely.
Backed off harvesting trees in cutting logs.
With that product us started up again about mid quarter, if Q2, and we're starting to see much better flow in lumber, so I'm not going to predict lumber prices, but with with more supply coming into the marketplace.
Hopefully we're going to obtain these $700 levels, although we do have substantial support with housing and all the projects.
Craig referred to certainly in pressure treated decking just a robust.
Decking boom, but.
We should see some moderation, but the unit demand even with these higher prices remain double digit an incredibly strong.
So see strength into Q3, certainly right now, but where it shakes out ultimately in margin.
Not not certain.
Thank you.
Okay.
Your next question comes your line of Karen short with Barclays. Please proceed with your question.
Hi, Thanks very much.
Just a couple of questions on the E com.
You could talk a little bit about the behavior.
Customer versus the pro I guess with respect to the growth rate for each maybe a little color on ticket and not for behavior on buy online pickup in store for each segment and then I guess I'm just curious broadly which segment you think you're gaining greater share weather did gain greater share with into Q.
One other quick question.
The carrying on the on the E com business.
We are again, we're not going to split out the cohort in terms of the numbers, but what I'll tell you is that we saw great engagement with both the pro and the DIY customer and we're seeing accelerated engagement as Ted called out with the capabilities that we have with both the pro and the DIY customer and so we're very.
Very pleased with that.
And you know tremendous growth there and we really believed that the current environment has allowed us to accelerate the exposure of the capabilities. We have built in a tremendous ways. So we're very pleased.
That it's the project nature of the business for both the pro and the DIY customer that's driving.
Helping to drive the growth in the E Com World.
When you think about doing a project customers blending the physical and digital worlds, we have an expanded assortment in the digital world as Ted called out there when it comes to completing a room are HD home categories of completion, we're seeing tremendous growth there.
As the customer purchases that product online.
That obviously has a tendency to be more DIY oriented as they complete their room.
But we're super pleased with what we're seeing with both the pro and DIY customer.
And I would say clearly with the numbers on line effectively doubling.
That business in the second quarter, increasing penetration over 14% as you can imagine every metric is positive I'm the traffic across all our properties the active customers. The app downloads the conversion rates all very very strong.
On our actual active customers a number of active customers also doubled so as Craig said our job going forward now is to just not reap the benefit of this activity in Q2, but with all these new customers engaging across all the home depot capabilities.
We're very closely watching reengagement rates and I mentioned, a couple statistics in my prepared remarks, but we're seeing or people shopping across departments are the engaging and other capabilities what is their duration before theres a repeat engagement with the.
Capability or indeed, a purchase and the name of the game for US is engagement and that is really what's all behind how do we just got more done the more our customers engage with our capabilities, whether it's in the store self checkout app downloads delivery.
Search tool rental using our lockers using our calculators every time, our customer engages in another capability that weve build out that stickiness, that's repeat business and thats customer loyalty and a quarter like this has just been terrific and advancing our.
Our initiatives and we're working very hard to keep that momentum going and Karen you asked about market share. Obviously market share is is hard to hard to calculate for us only as good as the public data we have at our fingertips, but if you do look at census data and you look the knicks categories, where we compete for four.
For and 4441 this spaces grew significantly in the low teens, we obviously grew much faster than our space. So we captured considerable share we believe.
Based on publicly available data.
Okay. That's very helpful and I just had one quick question in terms of them commentary you made a comment on trading up you are seeing trading up I'm. Just wondering if you could just get a little more color on that.
Okay.
Just continued interest with our customers fro pro and DIY wide to engage with innovative product and it certainly can be tools, but it can also be.
Yes, sure treated lumber with higher efficacy it can be stain resistance carpeting I mean, it's really across the business, where we offer.
Benefits and attributes to our product and the customer shows a willingness to trade up to that.
Great. Thanks.
Our next question comes your line of Chuck Grom with Gordon Haskett. Please proceed with your question.
Thanks, Good morning, great results with the utilizing a little bit more on category performance areas of relative strength I know you called out 13 networking business is being strong and then if you could also conceptualize the opportunity for HD home as we looked at.
Yes, I mean really the strength, we had in the business was through out the categories as well as throughout our geographies and.
When you think about Ted Ted talked about the fact that every single category of goods was double digit with the exception of high single digits in kitchen, and Bath, which is a pretty invasive indoor type category. We were super pleased with with that performance in that growth.
And the second quarter.
On a geography basis for example every single.
Region, All top 40 markets were double digit comp growth.
Okay. That's helpful. And then Craig will look at the strength in the business is always the concerns about you know some pull forward of demand versus the undercurrents or.
Sustainability. So when you look ahead to the back half of they talked about August is strong, but when we think about the back half and even the to 21. How are you thinking about these these mixed dynamics.
I mean, we at this point.
As I said earlier, we're we're looking at.
What's customer behavior, what's the sentiment we're monitoring that incredibly closely we are we operate on short cycle in the things are most critical to that which is our labor planning and inventory planning.
And so we we really don't know how to extrapolate from where we are to what the future is what we know is we have to rely on the capabilities that we've built to be flexible and to adjust to be able to deal with whatever gets thrown at us and thats really what our focus is.
Right.
Okay.
Yes.
Our next question comes the line of Zach State with Wells Fargo. Please proceed with your question.
Hey, good morning, so relative to Q1, it looks like your ticket growth was split similar in Q2, but curious if you could talk through the dynamics that drove transaction growth from negative 4% in Q1 to over 12% in Q2, how much of the traffic increase was with your own doing given the Q1 restriction and.
Then what would you attribute to just evolving consumer behavior in the return at the pro customer.
Yes, I think a significant portion of the change was in terms of the constraints that we put on the business in Q1, which were pretty severe I mean, when you. When you closed down 25% of your customer facing hours, that's going to have an impact and when you kill all of your spring promotions.
A major events that historically drive big amounts of traffic to the stores.
That is going to have an impact we obviously continue to learn and adjust based on the learning and feedback from our field teams and Thats really what we've done and made the adjustments that I called out.
In my prepared remarks in the second quarter, and that's certainly helped contribute to two driving transaction growth.
Got it I would say its oh.
Go ahead now it's just I was just going to add would the reduce traffic we're not just our limiting the hours, but our pro and consumer customers alike, we're consolidating trips.
Transactions were down in ticket was up and that was driven by units per transaction people were definitely consolidating trip. So part of Q2, not only did we ease in did many shelter in place in customers' willingness to visit stores all all ease.
We still saw a terrific ticket growth in units, but just eased a little bit on units per transaction, although still incredibly healthy.
Thanks, Ted that's helpful and on the supply chain curious if you would call out any headwinds there constraints from out of stocks or inventory and availability, let it that was in human all in in Q2 does or does it looked like it was the curious if you anticipate any any ongoing headwinds from from lumber or other.
Ability it as we get to the second half a year.
But.
When you when you run.
20, plus percent comps you certainly put pressure through out the supply chain network from vendor community through our own own supply chain.
So certainly there is there's pressure there.
What I would tell you is again as Richard called out with 20% comps for each of the months in a row in every single week during the quarter.
Being double digit growth north of 20%.
The team is able to adjust and to adapt to that and did a terrific job for sure.
Got it thanks appreciate the time.
Sure.
Our next question comes from the line of Scot Ciccarelli with RBC capital markets. Please proceed with your question.
Good morning, guys. So with all the sales re accelerating from july's or eight strong trends I'm curious if July was particularly impacted either from supply shortage is the at lumber or something else and that we keep hearing about or maybe a specific changes to your promotional plan.
Thanks, Scott, Yes, it actually was not supply chain or or or demand. It was it was a function of really two factors and and I think the headline here is if you normalize for these two effects June and July look almost identical from a comp perspective so.
The first element here was our pullback on event on events annual events, which had a greater impact in July.
Than for Gene and then the second dynamic here was that we saw an earlier start to hotter temperatures in June than we saw last year. So there were some comp benefit in categories like AG season Sands in June versus July when you do the year over year compare so again when you look at those two months and you.
We make those adjustments they were almost identical from a comp perspective, and that's carried on into the first two weeks of the third quarter.
No that makes a lot it sounds like you're and then you also talked about the they need to delay some of your planned investments obviously the multiyear plan can you provide some color on maybe the magnitude of cost that may have to get pushed out to 21 from 20.
Sure. So I'd say first of all we don't see the need to spend any more than we originally planned.
It's simply that dynamic of pushing spend into 21 as we make sure that we're focused on safety in our stores. So just give you a little bit of contacts to think about our capital plan for the year, which is around 2.8 billion, we might differ several hundred million.
Probably less than half a billion that could be pushed into next year, depending on the size of that deferral 2021, Capex may look more similar to 2020 levels and from an expense perspective, the deferral is lower than the Capitol Hill.
Got it very helpful. Thanks, guys.
Your next question comes the line of Christopher Horvers with JP Morgan. Please proceed with your question.
Thanks, Good morning.
Wanted to think about the categories, a little bit more as well can you talk maybe broadly about what indoor comps versus outdoor comps looks like particularly as we try to get a sense of what underlying demand might look like as we get deeper into the fall.
Let me, let me start with one comment and that is if you back out our garden business our seasonal business.
We were north of 20% comps, even without backed out. So so this isn't this isn't a a quarter that was dependent upon our seasonal business and I'll, let I'll, let Ted share some color on how we're seeing engagement.
Yes, Chris It was.
Really strong demand across the business clearly more de iwai in the interior projects as we've talked about the pros and having third parties in the house and permitting and the like but short of the installation heavy categories.
Flooring in paint and plumbing and electrical all strong kitchen, and Bath that we said it was just under.
Double digit our Bath business would have it was double digits. So again it was the heavy installation of of kitchen oriented product.
Just just super strength in add that we'd like the medium and longer term implications of of this because or been questions for years now with the Gen X and millennial engage to the same level of home improvement when you think the home depot at a big part.
In teaching the baby boomer to gain confidence and take on D. Iwai, what we're seeing is that that all generations are engaging in gen X and millennial and when you start with that first the Iwai project. It may be a garden. It may be painting painting is tradition.
Finally been the number one DIY project and once you accomplish that first more modest task you gained confidence and you take on the next task in the next task and they become bigger and then you need more sophisticated.
In broader breadth of tools to continue the more ambitious projects you're taking on so this is what we saw with the baby Boomer in the growth in the establishment of this industry in that one of them the bigger medium and long term benefits of this is no we know that.
This next very very large generation is a very active home improver.
That's great and then.
Couple of quick ones on the expense side can you talk about.
Some of the investment levels that you're pushing out relative to the $40 million in year over year investment into Q, how do you think about that and in the third and fourth quarter and.
Also it encasing in touch it how much the.
PBP pp in covert cost continuing in the back half. Thank you.
Sure on the expense portion of our investment program.
Obviously, we are operating in a very dynamic environment.
Not going to the shift is not going to be material to the company.
But again, we're we're managing that as circumstances warrant with respect to Pp E.
We incurred costs of approximately $110 million with respect to associate and customer safety. The majority of that were related to masking TP eat at that expense became material in the second quarter as we mandated them for our associates and our customers.
And we've become more efficient in the distribution of those mass. So this expense is going to moderate in the third quarter.
Got it best of luck.
Thank you.
Our next question comes from the line of live Elizabeth Suzuki with Bank of America Merrill Lynch. Please proceed with your question.
Hi, Thank you I'm just with your ULA lack worry is given some color around sales growth in urban markets sources were all and then the gap there I mean did that get closed this quarter in are you seeing open markets getting closer to the overall chain average.
And again, we saw all of our top 40 markets double digit growth and it's one of them a narrow performances, we've seen by region by market in quite some time.
Great. Thank.
Christine we have time for one more question.
Our final question comes the line of Mike Baker with Nomura. Please proceed with your question.
Hi, actually it's Mike Baker now at D.A. Davidson.
I wanted to ask a follow up on the region.
You'd said, they're all very consistent but is there any difference at all in areas, where we're seeing a resurgence in some of the cobot cases or not and then I guess a follow up or related to that is the other retailers have talked about seeing a big benefit from stimulus I guess the continued strength that you guys you've seen with Jeff.
Perhaps.
Stimulus didnt really help that much and you're not dependent on stimulus, but could you provide color on that thank you.
So.
So like in terms of.
Overall benefit from stimulus.
Hard to quantify but we have to believe that theres. Some when customers have more money in their pocket there are some benefit to that.
So we don't Kid ourselves to think that that didnt have some kind of impact, but clearly the customer is engaged around their home.
And looking to get things fix looking to take on projects as they have time to be able to do that and with respect to the curve. It.
Environment, we've really found no relationship between covert case counts and sales performance.
Well.
Oh thanks.
And any color on areas, where back to school has started versus some areas where.
Kids aren't going back to school yet.
No.
Alright, thank you.
Appreciate that.
Weve reached the end of the question and answer session. Ms. Jancee I would now like to turn the floor back over to you for closing comments.
Thank you Christine and thank you all for joining US today, we look forward to speaking with you on our third quarter earnings call November.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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