Q3 2021 Home Depot Inc Earnings Call
It's around the home and we continue to focus on delivering the best experience in retail.
As we mentioned last quarter, we continue to see customers, taking on larger home improvement projects as evidenced by the continued strength with our pro customer, which once again outpaced the DIY customer.
That's been the case for the last 18 months. The team is doing an outstanding job of navigating a fluid and challenging operating environment.
Ultimately this is what has allowed us to respond to the strong home improvement demand that has persisted.
We had positive comps every week. Despite unprecedented compares last year and grew sales by three 3 billion in the third quarter, bringing.
Bringing total sales growth year to date to more than $15 $5 billion through the third quarter.
From a geographic perspective, all of our 19 U S regions posted positive comps versus last year in both Canada, and Mexico posted positive comps.
These results were driven by our associates, who have maintained a relentless focus on our customers, while simultaneously managing industry wide supply chain disruptions inflation and a tight labor market.
While these factors present challenges for retail as a whole we will use our experience tools and our scale to manage through this environment with the intent to deliver a strong value proposition to our customers.
We are thankful for the 10 year and strength of our relationships with our supplier and transportation partners.
Our respective teams have worked tirelessly to build depth in key product categories and to flow products to our stores and distribution centers as quickly and efficiently as possible.
I would like to thank them for their ongoing efforts as we continue to navigate one of the most challenging environments, we have ever faced.
Beyond the current environment, we are focused on positioning ourselves for growth.
We are investing in stores to drive further productivity, which Ted will discuss.
We are enhancing the interconnected shopping experience by investing to remove friction for our customers wherever possible.
And the build out of our supply chain vision continues to progress and we remain on track with our plans we.
We are encouraged by the results we're seeing from buildings that we've stood up as we optimize and assort these facilities to unlock their full potential.
We believe that the network. We are building is unique to the market. It will not only enhance the customer experience from a delivery standpoint.
Also expand the opportunity to capture wallet share gains with both new and existing customers drive efficiency and end and leverage our scale to further extend our low cost position in home improvement.
In the near term, we remain focused on being flexible and agile as we navigate this dynamic environment.
But we also continue to leverage the momentum of our strategic investments to further enhance the interconnected shopping experience and support of our goals to drive growth faster than the market in any environment.
Further strengthen our position as a low cost provider and home improvement with a relentless focus on productivity and efficiency and deliver exceptional shareholder value.
Our ability to invest for the future while also managing the most fluid environment in our company's history as a direct result of our associates and their extraordinary efforts.
I want to thank all of our associates for the many ways. They continue to live our values, while serving our customers and communities.
In conjunction with Veterans day last week, the home Depot Foundation announced that it has now surpassed $400 million invested in support of U S military veterans since 2011.
This brings us closer to achieving our goal to invest a half a billion dollars in veteran causes by 2025.
We honor and support our military veterans and families and we thank them for their service to our country and with that let me turn the call over to Ted.
Thanks, Craig and good morning, everyone. We had a great third quarter I want to start by thanking all of our associates as well as the supplier and transportation partners for their unwavering commitment to serving our customers and communities in what remains a very challenging operating environment.
There is no question that pressures on global supply chains increased over the last 18 months that being said, we could not be more pleased with how our cross functional teams responded.
The teams took a number of decisive actions to secure more product for our customers, while continuing to find new and different ways to flow that product.
Beginning in the second quarter of last year, our merchant inventory and supply chain teams leverage tools and analytics and worked with our vendor partners to adjust our assortments and in some cases introduce alternative products.
The teams also built up and job lot quantities and high demand products.
Improved our in stock levels in the back half of last year, and we've been able to sustain and in some cases improve our levels, even as home improvement demand remains elevated.
In addition to the challenging supply chain environment. We're also seeing rising cost pressures across several different product categories.
Our seasoned teams of merchandising finance and data analytics associates are working with our supplier partners to manage through these pressures we've effectively managed inflationary environments in the past and we feel good about our ability to continue managing through the current environment of being our customer's advocate for value.
Turning to our comp performance during the third quarter 12 of our 14 merchandising departments posted positive comps.
Appliances, plumbing, electrical and building materials tools kitchen, and bath to corn storage and millwork and flooring had comps above the company average.
Paint outdoor garden and hardware were positive, but below the company average indoor.
Indoor Garden was essentially flat and lumber posted a high single digit negative comp compared with lumber comps more than 50% in the third quarter of 2020.
On a two year basis, each of our departments posted healthy double digit positive comps.
Our comp average ticket increased 12, 7% comp transactions decreased five 8%.
Both in our comp average ticket was driven in part by inflation across several product categories.
Core commodity categories positively impacted our average ticket growth by approximately 70 basis points in the third quarter driven by inflation in copper and building materials, which was partially offset by deflation in lumber.
On a two year basis, both comp average ticket and comp trends actions were healthy and positive.
Big ticket comp transactions or those over $1000 were up approximately 18% compared to the third quarter of last year.
During the third quarter pro sales growth continued to outpace DIY growth on a two year comp basis growth with both our pro and DIY customers was consistent and strong.
Similar to the second quarter, we saw many of our customers turned to pros for help with larger projects.
We see this in the strength several pro heavy categories like drywall, pneumatics pipe and fittings and several millwork categories. We remain encouraged by what we are hearing from our pros to say tell us their backlogs are healthy.
Sales leveraging our digital platforms grew approximately 8% for the third quarter, which brings our digital two year growth to approximately 95%.
Our customers continue to shop with us in an interconnected manner is approximately 55% of our online orders are fulfilled through our stores.
While we navigate these challenging environment, we continue to invest in our business to enhance the customer shopping experience, while also driving productivity and efficiency.
We believe we have a significant opportunity to further optimize space productivity in our stores by balancing the art and science of retail. This is a continuous process that we believe leads to better.
The assortments and space allocations, which ultimately drives value for our customers.
Take a moment to comment on some unique capabilities, we've built that showcase what I mean.
More than a year ago, we started to test in some of our higher volume stores.
Idea was how can we further drive space productivity improve the shopping experience at the same time.
Our cross functional teams played a combination space optimization models in conjunction with the expertise of our local field merchants, many of whom have more than 30 years of tenure with the home depot to creates storage specific outcomes that adjust assortments and improved space utilization.
The results exceeded our expectations sales per square foot improved on shelf availability improved voice of the customer scores improved labor utilization improved.
And during the process, we were able to add net new based stores as.
As a result, we went from a small test to now targeting more than 400 stores. This year with more in the pipeline for next year.
To recognize all of the teams helping drive this success.
As we turn our attention to the fourth quarter. We are excited about the upcoming holiday season during.
During the third quarter, we hosted our Halloween event and could not be happier with the results. We saw record sales and sell through as customers responded to our exclusive product offerings and innovative approach to the category.
During the fourth quarter, we intend to continue this momentum with our annual holiday Black Friday and gift center events.
Last year, we extended these events to cover a longer period and not just focus on one day.
With that I'd like to turn the call over to Richard.
Thank you Ted and good morning, everyone.
In the third quarter total sales were $36 8 billion, an increase of $3 3 billion.
Our nine 8% from last year.
Foreign exchange rates positively impacted total sales growth by approximately $190 million.
During the third quarter, our total company comps were positive six 1% with positive comps in all three months.
We saw total company comps of three 1% in August four 5% in September and nine 9% in October.
Comps in the U S were positive five 5% for the quarter with comps of two 2% in August.
<unk>, 4% in September and.
And nine 6% in October.
In the third quarter.
Gross margin was 34, 1% at.
A decrease of approximately five basis points from the same period last year.
While there are many factors that impact gross margin during the third quarter.
Our gross margin was negatively impacted by higher transportation costs and mix of products sold.
Which was partially offset by higher retail prices.
During the third quarter.
Operating expense as a percent of sales decreased approximately 130 basis points to 18, 4%.
Our operating leverage during the third quarter reflects the lapping of significant COVID-19 related expenses that we incurred in the third quarter of 2020 to support our associates as well as payroll leverage.
Our operating margin for the third quarter was 15, 7%.
An increase of approximately 125 basis points from the third quarter of 2020.
Interest and other expense for the third quarter was essentially flat with the same period last year.
In the third quarter, our effective tax rate was 24, 5% up from 24, 1% in the third quarter of fiscal 2020.
Our diluted earnings per share for the third quarter or $3 92.
An increase of 23, 3% compared to the third quarter of 2020.
At the end of the quarter inventories were $26 billion.
Up $4 $4 billion from last year and inventory turns were five four times compared with five nine times. This time last year.
Turning to capital allocation.
After investing in our business is our intent to return excess cash to shareholders in the form of dividends and share repurchases.
As we have mentioned on previous calls we plan to continue investing in our business with Capex of approximately 2% of sales on an annual basis.
We also plan to maintain flexibility to move faster or slower depending on the environment.
A good illustration of this is what you heard from Ted.
We built capabilities to drive productivity across some of our higher volume stores.
We tested them, we saw strong results across key performance metrics and we moved quickly to expand the investment.
During the third quarter, we invested approximately $700 million back into our business in the form of capital expenditures, bringing year to date capital expenditures to approximately $1 7 billion.
And during the quarter, we paid approximately $1 $7 billion in dividends to our shareholders and we returned approximately $3 5 billion to shareholders in the form of share repurchases.
Computed on the average of beginning and ending long term debt and equity for the trailing 12 months.
Return on invested capital was approximately 43, 9% up from 41, 6% in the third quarter of fiscal 2020.
As you heard from Craig.
We're very pleased with the strong performance we saw during the third quarter, particularly as we lap the unprecedented growth. We saw this time last year.
Customer engagement remains strong and demand for home improvement is healthy.
We've been pleased with our team's ability to navigate the challenging environment.
However, we do not believe we can accurately predict how the external environment and cost pressures will evolve and how they will ultimately impact consumer spending.
As we've mentioned on previous calls our teams are managing our business on a relatively short cycle and we will continue to execute with flexibility and focus on what has driven our successful performance to date.
Longer term, we remain we remain committed to what we believe is the winning formula for our customers our associates and our shareholders.
We intend to provide the best customer experience in home improvement.
We intend to extend our position as the low cost provider.
And we intend to be the most efficient investor of capital in home improvement.
If we do these things we believe we will continue to grow faster than our market.
And we will deliver exceptional value to our shareholders.
Thank you for your participation in today's call and Christine We will now open the call for questions.
Thank you we will now be conducting a question and answer session.
I would like to ask a question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Thank you. Our first question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Hi, everyone. Good morning, Nice quarter My first question.
My first question is actually something I've asked last quarter, and it's around demand reversion and whether the industry goes through some digestion phase or it continues to compound and just to add this quarter. It looks like there was very little reversion and demand seems to be holding even though we're probably getting out of stimulus. So curious if.
You have any different thoughts about the demand progression.
Sami.
I wish we actually do to the exact answer to that clearly we don't and so.
One of the things that we've stayed focus on as a result, then is how do we make sure that we're as flexible and agile as possible and deal with whatever comes our way.
That has worked well for us so far.
We've delivered strong performance.
We're going to continue to be as nimble as we possibly can.
Candidly we had.
Expected that as the year progressed, you might see customers reverting back in spending in other areas.
And that may have affected us, but we really haven't seen that.
Demand continues to remain strong customers continue to tell us that they have projects on their list pros tell us that their backlogs are significant.
So we're going to stay focused on filling that demand.
And then Jimmy and to add just to add something obviously, we saw acceleration in October what's interesting to note is that we saw improvement in both ticket and transactions sequentially from September to October.
So we think thats a sign that the customers engaged and demand is healthy.
Yes, that's right and then maybe the follow up is on the profit outlook, our operating income and I know, we're not we don't really clean to margin goals anymore. Its more of operating profit dollar growth or EBIT growth.
I was curious if this environment inhibits your ability to grow at the rates you want to grow in terms of operating profit or.
The consumer tends to take price in this segment and you can pass along price, okay and therefore.
Over time that Shouldnt have an impact meaning the operating profit dollar growth doesn't get touched.
What I'd say is for the quarter and for the year to date same and we're very pleased with our performance.
And I think that our teams.
And Ted alluded to this but the job we do in understanding and mitigating cost pressures and then as appropriate.
Using a portfolio approach too.
To cover those costs has been impressive and so we're happy with the P&L, we delivered in Q3.
Okay. Thanks, good quarter.
Thank you. Thank you.
Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.
Good morning, Thanks, a lot for taking my question.
<unk> gross margins declined 10 out of the last 11 quarters.
There was a moderation in the decline this quarter is the period of gross margin degradation coming to an end.
This line item stabilize given the retail price increases that youre, passing along and what was the impact from non commodity related inflation to your comp and gross margin this quarter.
Michael I'd say one of the things we've shared with you all as we're very very focused.
How do we drive incremental op profit dollars and theres multiple ways to get there.
And so that is our number one focus it's not that we completely ignore rate. We obviously don't ignore rate in total, but you don't take rate to the bank. So we are really laser focused on the on the incremental operating profit dollar growth.
And we're very pleased we said that in 2021, it would be a year of much more transparency.
On operating expense leverage.
That's what we've been focused on delivering.
On the latter part of your question.
On the last part of your question.
We don't take the approach that we pass costs on a unit basis, and retails and cost move independently and so Ted if you think about just how how that relationship works.
Michael I would say from a gross margin perspective, there was very little net impact from product cost pressures. So as Richard said, we don't look at things necessarily on a unit.
Two unit basis, but our merchants are well versed with running their portfolios and while we have certainly seen non commodity cost impacts.
Those have largely been offset by increases overall in the retail portfolio.
Our cost pressures.
When pressures that we've seen in the past have been more related to our supply chain build out deliver.
Delivered sales mix.
<unk> sale sales, we've talked about the appliance business in the past as an example, which is an incredibly productive high growth business with extremely high given ROI because of our inventory position, but not necessarily the highest gross margin category.
If you if you look at our ticket growth.
Certainly there is an AUR significant AUR double digit growth.
Certainly a essentially half of that is from Carter product cost that we have passed on but it's important to note that.
Our pro and consumer customers remain incredibly engaged in this category and innovation and newness still sells in this marketplace and.
Equal amount of our AUR was driven by mix and new product innovation, So think of things like appliances, the technological and features and benefits that have been introduced into appliances.
Grills.
Pellet grills smokers are outdoor power equipment and power tools with our battery platforms, we just launched.
Our new exclusive paint from bear in dynasty.
<unk> pain with home depot's ever introduced over $50.
A gallon on shelf, that's performing incredibly well as customers trade up to the innovation et cetera et cetera. So yes, there is cost pressures that the merchants have offset but equally doing.
Terrific job, finding new and innovative product that our customers are engaging in.
That's very helpful. Thank you so much my quick follow up in the planning period associated with the one home depot is coming to us.
Conclusion should we expect a step up in operating expense investments.
As you move to 2022 and beyond and do you have to continue to build out the capabilities.
That <unk> been deploying plus wage inflation.
To be quite high.
So.
As we've said we look at investment principally through the proxy of capital expenditures and what we believe in appropriate level will be is around 2% of sales and that can vary.
But you can think of that in your mind is where we expect to be.
Beyond that the associated operating expense is embedded in our cost structure now and so it's just it's a normal part of our cost structure moving forward, there will always be fluctuations quarter to quarter.
We have productivity productivity initiatives, we have investment initiatives.
A nice flywheel there are self funding.
And again quarter to quarter, you may see fluctuation, but.
Operating expense investment that's just part of us now.
Understood. Thank you.
Our next question comes from the line of Steven Forbes with Guggenheim. Please proceed with your question.
Good morning, I wanted to start with pro customer trends.
Curious if you could discuss whether you're seeing an acceleration in new pros maybe of all sizes migrate to home depot's offering given the industry wide supply chain challenges and then also the pricing environment, which I believe really weighs on the value proposition of the independents. So just any any comment on growth in new pros.
And if there is any difference among the size of the pros themselves.
Yeah, we're actually very pleased Stephen with our overall continued growth with the pro customer obviously are larger pros were more challenged during the pandemic and we've seen that recover what's really nice to see is on a two year basis really the converging.
<unk> of both our pro and our consumers.
Growing at pretty comparable rates and Thats that is what we always strive to do.
We are attracting new pros into the business and Ted I don't know if you want to comment on that yes, we're happy.
Steven across our progression with our larger pros and our smaller pros.
We've talked about their pipelines being healthy record levels of remodel indexes in the marketplace.
And.
What we like about the pros are they're responding to the capabilities that we've been building. So we've relaunched our pro loyalty program were seeing record enrollment and engagement with the new loyalty program. The pros are responding to our capabilities in terms of the delivered <unk>.
Sales in our new supply chain.
And if you take a category like paint for example, where we've had a pro paint program for some time, we're in a terrific position with our two key paint suppliers with TPG.
Bear and we've seen a terrific uptake with our pro paint volume as as pros continue to respond to the propane itself formulations, the pricing and the service levels. So our pros are active across the business and engaging in all categories.
Okay. That's helpful. Maybe leads to the follow up on the <unk> website.
Don't know if you can comment on what Youre seeing in regards to repeat behavior retention rates at the point that I'm trying to get there.
It almost appears that this is a.
Great environment for share capture and new customer growth for you.
I don't know if youre sort of seeing elevated chair.
We're elevated repeat rate and retention rate within the BBB website that makes the stickiness of new customer growth.
Eric.
Any comment there would be helpful.
Yes, absolutely the ecosystem, we're putting in place when you when you think of the <unk> website. When you think of the new loyalty program or the revamped loyalty program also translating into the pro App.
We're seeing record traffic on the App the app traffic is growing.
Pro traffic on the App is growing basket sizes in tickets and engagement is growing and our teams are doing an excellent job in stitching, what we call households, together, so our understanding and knowledge of all of our customers, but particularly our pro customer.
Because they are engaging with us.
At a much higher frequency than the average consumer.
We're able to stitch all of that behavior together.
A much more robust understanding of that customer.
April to make direct contact with them through our digital marketing channels and our outreach with our field sales team.
Teams as well as our pro associates in the stores, so that the entire pro ecosystem.
Heavy emphasis on the digital capabilities is coming together extremely nicely and driving that stickiness and share of wallet.
Thank you.
Our next question comes from the line of Mike Baker with D. A Davidson. Please proceed with your question.
Thanks, guys anti no.
You're probably not talking about fourth quarter guidance, but one thing I've noticed is that your fourth quarter very often in fact I think not in the last 12 years has been better than your third quarter. I think that's because of you guys continuing to lean more and more into holiday product, but.
But I'm wondering what you think of that what why is your fourth quarter typically such a strong quarter and maybe while we're talking about that I know you said, you're pleased with the beginning of the quarter Oftentimes you give a little bit more color on the first couple of weeks I'm wondering if you're willing to share any of that thanks.
So.
Mike.
The fourth quarter in Hawaii, why it was our fourth quarter by the stronger I think we've.
Brought tremendous value to the customer in the fourth quarter through the events that Ted talked about that we've done for multiple years now our merchants continue to focus on innovative products.
As Ted mentioned in his prepared remarks around the Halloween event.
That was largely driven by just amazing innovative product that they brought into the marketplace. So I think.
In General I think our team has done an outstanding job of delivering value to the customer.
In the fourth quarter.
As we look forward.
Into the fourth quarter, we know that there is continued pressure that we're facing around cost, which our teams will work to manage we are still working some replenishment goods at our events out of the ports and so we've got work to do there as well and of course in Q4 winter hit So you never know how that's going.
Play out and over the past few years that hasnt been a big impact.
So we've been very very pleased to your point on how our fourth quarter has has progressed over the years.
And just to give you some color on how the fourth quarter has begun.
The comp sales for the first two weeks of the fourth quarter are running a little higher than what we reported for the entirety of the third quarter, but as Craig said, we're managing this.
Short cycle basis in the current environment and are happy with how we've done it to date, but.
We attack this thing every day.
And Mike I would I would say just just can't.
Given us credit for the merchants and the programs they've put together over several years for the fourth quarter in leveraging our laydown space in the front of the store and developing our gift center.
Truly just gets better and better each year.
If you walk our stores and you see the product and the values that the merchants are bringing to the merchant bringing to the marketplace.
And you just look at the brand statement to seed the ryobi, Milwaukee, and makita and that the wallets and decline in the Diablo I mean these are just the premier brands in the industry that the merchants spring.
Unbelievable value in the most powerful gift center in our industry and just just hats off to the merchant team and the great work they are doing.
Thanks, Greg.
Great color.
One more a completely unrelated question, but Walt.
Walmart what about just on the Walmart call. They just said that they've actually seen.
It a little bit easier to hire people over the last couple of weeks or months since some of the employment stimulus has run out.
Are you seeing anything along those lines. Thanks.
I mean, we've been fortunate in the sense that.
We've been able to hire lots of people throughout 2021.
And we use everything at our disposal as it relates to our brand to our culture to the total offering that we have the growth opportunities for our associates.
That's not to say that we don't have markets, where there is pressure there has always been markets that are more pressured than others, but we've been very pleased with our ability to hire folks.
Yeah.
Okay. Thanks, I'll pass it on someone else.
Our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.
Thank you very much great quarter I was wondering if you get an update on the one supply chain rollout I guess, where you are in the development of that when we should expect to see.
Better inventory availability and also some efficiencies on the distribution side.
Sure Chuck we're very pleased we're right on schedule with the rollout and as you know that this is a number of platforms. So I'll try and give a quick run down our transition to our new bulk distribution centers were replenishing.
Our stores with lumber and building materials is going incredibly well our flatbed distribution centers that are often tied to those bulk distribution centers, we have seven or eight of those up and running now those are leaving the stores.
The delivery volume out of the stores as well as.
Being a capability to capture more share of the pro wallet.
Our direct fulfillment centers.
Again, we've opened up about seven of those those are going to be an expansion of we had three or four purpose built pick pack and ship facilities and as we look to cover 90% of the country's same or next day delivery.
Ultimately be 20 odd plus direct fulfillment centers will allow us to to cover 90% of the country in parcels same and next day and then finally, our MD OS which is our flow through for big and bulky product, particularly appliances.
We're about halfway through the rollout there and.
We've taken over the delivery of about half of our appliance volume at this point. So all are on target progressing nicely and performing at expectation I think it's also important to note that as Ted said were progressing nicely our teams are doing it.
Incredible job we also.
Reserve the right to move appropriately we've pivoted a few times during this development as we learned.
Kind of the.
How to optimize the commercial offering and I don't think we're done learning yet so we're going to we're going to roll out at the right pace and the right pace means doing this right.
Im learning pivoting.
And optimizing the commercial promise of the network.
That's very helpful. Thank you very much and then just one near term question you talk about the pro backlog being healthy you. Just wondering if you could put that into some context for us as it actually increased to a degree given that maybe some people put off projects due to the rise in lumber and now the Lumbers come down if we started to see an increase just wanted to put some context on that.
No I mean the.
The conversations.
Conversations that we have with our approach.
They have basically been.
Multiple weeks and months in backlog and that continues so I have not seen any major shift.
Okay. Thanks very much.
Our next question comes from the line of Christopher <unk> with JP Morgan. Please proceed with your question.
Thanks, Good morning, everybody.
It looks like ex Labor day ship August and September were pretty consistent and then you had that really strong acceleration in October and on a two year basis. So can you talk about what you think drove that to your acceleration how much do you think maybe it was price and.
Do you have any concern that maybe we pull forward some of the holiday and seasonal spending given all the local news around you better get to the store and pick up your fake Christmas tree.
Thanks.
Sure, Chris I'll start and then let.
Some other comments come in I'd say, the first first thing to recognize is that.
That acceleration was broad based we saw.
<unk> consumers online at all.
Paul.
Accelerated as we moved through the quarter.
So we're very pleased to see that I think in part.
As we're still high compared to norms, but as lumber came down to more reasonable levels.
Compared to the last couple of years we.
We certainly saw an acceleration there and that always carries across the store.
Lumber is a driver of projects throughout the business and that certainly.
<unk>. So we're really pleased with the broad based it was geographic as well, we actually saw a narrowing of geographic variance during the quarter.
So we're very very pleased with how that played out.
And as we said ticket and transaction both improved sequentially.
The open question, obviously will be high.
How the consumer reacts in the future.
But at least for October.
Both of those moves in positive direction.
Got it.
There's a there's a lot of the season to come. So we're certainly pleased with with the response to the gift centers I mentioned in our in our decorative holiday program.
The Christmas sets are following the strength of the Halloween, but were earlier in the ramp up towards where the volumes come in starting.
Next week Thanksgiving week so.
A lot to go in the fourth quarter, but with the ramp looks good.
Got it and then as a follow up.
You alluded a little bit price elasticity are you seeing any of it.
Have some pretty rapid inflation.
And areas like major appliances, I would I would assume anything coming in from Asia as a lot of freight driven inflation, so and some of those bigger ticket areas or anywhere in the mix are you seeing any price elasticity, which sort of is compressing.
Volume, perhaps down.
What do you think whirlpool talked about but more than offset by price.
Yes, I would say certainly we watch it very carefully.
Have not seen it broadly I think lumber was the Best example is Craig just alluded to with lumber prices were.
Three and four acts.
The near term levels we.
Clearly saw units drop off which then leads to project dropping off across the store as lumber prices came down and as we sit today for example, framing up only about 5% on last year and panel is slightly below last year and if you look back.
<unk>.
At the end of the second quarter.
Those prices were up significantly over over prior year's framing had peaked out at roughly $500 and were down at about $5 75, So lumber clearly a commodity.
Very representative of elasticities across the rest of the business.
We haven't we haven't seen specific.
Fall offs in categories because of.
Overly robust if you will cost moves.
Watching it carefully, but but so far.
Have not have not seen it and I think it's important to note the cost environment still dynamic.
Pressures are building.
And so.
As you know.
We havent seen specific instances to date, but we are in a unique cost environment.
Got it and just sneak in one last one is as you think about mix in the fourth quarter does that generally have more of products. That's sourced out of Asia, such that sort of that supply chain pressure thats hung up.
And inventory is.
As a as a bigger pressure as we look at the fourth quarter.
The mix, yes, Chris So so you think of.
The mix of gift center product less outdoor product, which is which.
Do you think of the Garden Department and pressure treated lumber in more outdoor lumber oriented projects. Those are those are suppressed somewhat in the fourth quarter. So your mix of tools and the like that are that are largely sourced from overseas.
Does impact Q4, and as Craig said.
We've received most of the goods for the fourth quarter.
But there is still product and we have 95 odd ships in total parked outside la long Beach, and we track our containers on those ships and and also getting onto the ports and off the port So.
Not too terribly concerned.
Huge amounts of Q4, but there is Q4 product still working through the supply chain.
Got it have a great holiday season. Thanks.
Thank you.
Our next question comes from the line of Karen short with Barclays. Please proceed with your question.
Hi, Thanks very much.
Bigger picture question is just I think.
Definitely heard from Investor pushback that.
This elevated demand that we've seen.
Basically just going to be.
Reduce back to them.
Normal Pam I wanted to get into 2022.
And I'm wondering what your perspective is on that because that doesn't seem likely it just seems to me that the actual Tam is significantly higher on a much more permanently embedded basis, and then I had another quick question.
Karen I think.
Most people and if you looked at what economists are saying as the year started everybody believed during 2021 that we'd see a significant shift away from goods back to services as the economic environment opened up as we got our arms around the pandemic.
Clearly, we have not seen that.
I would say that from the standpoint that yes, you've seen things like travel and restaurants open up but the customers continuing to spend and the home improvement space.
And.
To date, we have not seen that dramatic shift back that everybody predicted.
So we're going to we're going to stay focused.
We think that the underlying factors for the home improvement industry are strong.
And we're going to we're going to do everything we can to serve that demand going forward. Yeah. I think I think long term when you look at all the factors. We believe are driven home improvement demand.
We are we're in a very supportive environment.
Short term harder to know where that demand moves, but long term there is a lot of support.
And Kevin to your point on on total market, where we're actually doing some refresh work on that right now.
We'll probably talk more about that to you later on in the year, but we're re size in the market right now.
Okay, Great and then just on this quarter in particular, so sales growth versus EBIT growth.
That relationship is obviously very volatile given all the moving parts, but EBIT growth relative to sales growth certainly widened and thank you relative to two Q wondering just how to think about that relationship going forward.
Yeah.
Well, so there really.
There is no typical quarter I think we are.
We're pleased with the quarter, we're pleased with year to date.
Theres always going to be fluctuation quarter to quarter. If you think about Q3 flow through.
There are really three.
Significant dynamics. The first is that we're anniversarying significant COVID-19 related compensation and benefits from last year, but recall that we reinvested.
Good bit of that in the form of permanent wage increases at the end of last year.
The second dynamic is.
Is just that the comparison between ticket and transaction comp.
When ticket comp is higher than transaction, because our payroll model is activity based.
See more leverage and when you see in the converse when transaction outpaces tickets. So we saw leverage benefit there.
And then finally to a much lesser degree as Craig said, we've hired a lot of people this year.
And and feel great about how our stores are operating.
We at the same time, probably could've seen staffing a little higher.
If we had had our preference.
We'll continue to work on that within the candidly we cannot expect October acceleration at the rate that it was and so we probably added some opportunities from a staffing standpoint in October but as far as flow through goes again.
We do have cost pressure in the environment, we see product cost, we see transportation cost, we see wage pressure and all those things are real elements of today's economy.
So we will continue to manage our best throughout the yes, we are.
I'm pleased with the quarter.
Great. Thanks, very much have a great holiday.
Our next question comes from the line of Zach <unk> with Wells Fargo. Please proceed with your question.
Hey, good morning, as you think about all of the favorable long term indicators around housing.
Turnover home price appreciation contractor backlog et cetera are there any of these items more front and center in terms of driving demand today and as you think about the strength of your performance in the quarter, what would you attribute to be robust external environment versus what would you categorize.
And share gains.
I mean, I'd say couple of things here first of all when you when you look at.
The constrained availability of new housing that clearly is having a positive impact on the home values.
And when customers home values are at a positive side of the ledger. They feel good about investing in their homes. So I think that is for sure.
An element that is helping the overall home improvement.
Dynamic.
That.
New housing availability shortage, probably isn't going to get solved anytime soon at the rate that we're we're building homes, even even though it's an accelerated rate from where it's been that backlog is going to be there for quite some time.
Yeah.
Got it and then as you look to 2022 and beyond I realize you aren't providing any guidance.
As you think about all the drivers of your business today, what do you think will be the primary areas of upside be it from the pro DIY innovation.
Strategic initiatives any thoughts there.
Yes, I mean, we think it's kind of all of the above.
We know we have an enormous opportunity with our pro customers, particularly as we enhance our capabilities to grab a larger share of spend with the planned purchase with larger pros.
And we believe that innovation.
Which is a huge element of both pro and consumer but is certainly a driver for the the consumer as well and people have spent a lot of time horizon.
Around their homes, they tell us that they've got.
Project with us.
That.
Are things that they wanted to get done.
And so we feel good about the opportunity that exists with both the pro and the consumer looking forward.
Got it thanks for the time Greg.
Okay.
Our next question comes from the line of Brian Nagel with Oppenheimer. Please proceed with your question.
Hi, good morning.
Congratulations on a nice quarter.
A quick one first question I have there you would talk.
It may be a quarter maybe two.
Just about how consumers were shopping your stores.
As the pandemic was sort of say ignorance beginning to ease.
You saw a shift in kind of weakened spending to weekday spending.
Just help us understand better how this is how.
How youre Traffics progressing obviously continued very strong but are you seeing any further shifting just wait people shopping the stores.
Yes actually.
Throughout the third quarter, we saw Reacceleration of weekend.
Traffic flow.
With no real deceleration during the week.
And as I mentioned earlier.
That we saw consumer growth.
Go Pro growth go up online growth go up.
<unk>.
Geographically narrowed.
So we were very very pleased with a broad base improvement that we saw in all of those segments of our business and and the increase on the weekends.
Got it that's helpful. Second question I have look recognizing its difficult to gauge market share in short periods of time, particularly against such a fluid backdrop, but there's given the.
Extraordinary lengths.
Home depot is going to manage the supply chain pressures you've done so well.
You think or do you see as your data Youre actually captured.
<unk> share now for <unk>.
Competitors out there maybe some ancillary competitors that are not managing the supply chain as well as you are.
I mean, when we when we look at share. It's obviously a triangulation there's no perfect data, but when you look at multiple different.
Data points, whether that's from government data from independent third parties that track share and then of course as our conversations with our suppliers and what they are putting into the marketplace.
We believe that we're continuing to gain share we think that our investments that we've made have helped us be in a position to continue to grow share that was the objective behind why we made the investments we want to be able to grow faster than the market in any environment whatsoever.
And we feel like we're doing that right now.
<unk>, who were taking that share from us is a little bit harder to to know we plan, a really big market and it's highly fragmented and so we think that.
We're capturing share but it based on category that can be very very different.
Yes, Brian I would say if you look at look at the IX data.
The cleanup slug would indicate yet another another quarter of taking share, but as we think about our scale and our position in the marketplace.
With with the shortage of goods and particularly in certain categories. We've been very pleased with responses from long term supplier partners and in some cases supplier partners, saying, we can't service the industry.
So we'd rather focus on on the best partner with.
Called out in prior quarters with with <unk>.
<unk> Ultra Louisiana Pacific.
Moving with us on OSB and exclusive manner, Karl on which is the box in electrical.
PVC boxes, moving to us exclusive Henry roof coatings, just thrilled thrilled to mention this today.
<unk> announced that they will be moving to us exclusive as well <unk>, which is the share leader in wiring devices.
Another robust category exclusive to the home depot and I mentioned earlier the position we're in with having joint supply from from bear in Moscow, as well as PPG and paint has given us great flow of liquid paint product as well so I think.
Our suppliers are leaning into the home depot, and we couldnt be happier and more thankful with those for those relationships.
Thanks, Greg I appreciate all the color congrats again, thank you.
Thank you Christine we have time for one more question.
Our final question will come from the line of Dennis Mcgill with Zelman. Please proceed with your question.
Alright, Thank you guys.
Just a couple quick ones and then a bigger picture on the acceleration from September into October Richard Keeping Inc.
Specifics behind how comp transactions trended how much of an improvement you saw.
Don't want to break that out, but the degree of improvement in transactions and ticket were roughly equivalent.
Okay, perfect and then any impact from the northeast storms that you see in the data.
Maybe $100 million not not necessarily that material, but.
Obviously proud that we can be there for our community.
Perfect.
Yes.
And then Ted maybe bigger picture on the supply chain just curious a lot of people, obviously speculating how long some of these challenges can persist how do you think about maybe the bigger bottlenecks and how long those are maybe going to persist and how you guys would.
Be able to maintain some of these advantages. It seems you have in the marketplace with their superior supply chain infrastructure.
Well I think from from the market I mean.
Hard.
To judge, but I would say this goes well into if not through 2022.
And.
<unk>.
And we'll keep doing what we're doing.
Innovation, we've talked about and leveraging our scale.
As well as our new assets I mean, when you think of our inventory growth part of that is stocking. These new facilities. So not only have we improved our in store stocking levels.
And been able to meet the.
Accelerating demand through the quarter, but we're also starting not starting we are stocking all those new facilities that I talked about so we're clearly getting disproportionate flow and that's for our merchants and supply chain teams will continue to push.
Okay. Thank you good luck guys.
Thank you.
Ms. Jackie I would now like to turn the floor back over to you for closing comments.
Thanks, Christine and thank you all for joining US today, we look forward to speaking with you on our fourth quarter earnings call in February.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.