Q2 2023 The Home Depot Inc Earnings Call

August 15, 2023

So you're in the middle of the kitchen up there and you can't tell

Greetings and welcome to the Home Depot's second quarter, 2023 earnings conference call. At this time, all participants are in a...

A brief question and answer session will follow the formal presentation.

At this time, all participants are in a listen-only mode.

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It is now my pleasure to introduce your host, Isabel Jansi. Please go ahead.

Thank you, Christine. Good morning, everyone. Welcome to Home Depot's second quarter of 2023.

It is now my pleasure to introduce your host, Isabel Jancy. Please go ahead.

Joining us on our call today are Ted Decker, Chair, President, and CEO , Billy Bastic, Executive Vice President of Merchandise.

Anne Marie Campbell, Executive Vice President of US Stores and International Operations.

and Richard McZale, Executive Vice President and Chief Financial Officer. Following our prepared remarks.

Questions will be limited to analysts and investors. And as a reminder, please limit yourself to one question with one vote.

If we are unable to get to your question during the call, please call our Investor Relations Department at 770-384-238-

Before I turn the call over to Ted, let me remind you that today's press release and the presentation's May-Buyer Executive includes forward-looking statements as defined in the private security's litigation reform act of 1995.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations.

These risks and uncertainties include, but are not limited to the factors identified in the release and in our filings with the securities.

Today's presentations will also include certain non-gab.

Reconciliation of these measures is provided on our website. Now...

Thank you, Isabelle. Good morning, everyone. Sales for the second quarter were $42.9 billion, down 2% from the same period last year. Con sales for the total company, as well as the US stores, also declined 2% from the same period last year. Deleuded earnings per share were $4.65 in the second quarter.

All three-ever US divisions posted low single digit negative cons in the quarter.

geographic variability narrowed significantly on a sequential basis as weather normalize particularly in our Western division.

Spring-related categories rebounded relative to the first court.

While there was strength in project related categories, like building materials hardware and plumbing.

continue to see pressure in certain big ticket discretionary categories.

ProSales performance was slightly negative in the second quarter and outperformed the DIY cuss.

surveys suggest the pro backlogs are lower than they were a year ago. They're still healthy and elevated relative to historical norm.

Additionally, projects in these backlogs are generally smaller in scale.

The second quarter we're pleased with the consumers engagement with Helmut Proofen, particularly across small projects, which Billy will discuss in greater.

Going forward as we continue to navigate unique and uncertain environment, our focus continues to be on operating with agility as respond to evolving customer dynamics, while also driving productivity and efficiency throughout.

In addition, and as we mentioned at our investor conference in June , we operate in a large and fragmented $950 billion plus addressable mark.

We remain committed to growing the business and believe we are well positioned to continue capturing markets.

To that end, I'm pleased to announce HD Supplies acquisition of Ready Carpet, a National MRO-Foring Provider with a proven track.

This acquisition, which closed at the beginning of the third quarter, extends our current product offering in the multifamily customer vertical with 34 locations strategically located throughout the US.

Our team will continue to focus on what is most important. Our associates and customers.

Our merchants, store in met teams, supplier partners, and supply chain teams did an outstanding job delivering value and service to our customers throughout the quarter. And I'd like to thank them for their dedication and heart.

Before I close, I would like to send our thoughts and prayers to the people of math.

We are thankful that our people on the island are all accounted for. We are heartbroken by the loss of life and extreme devastation that the community must now not.

and we stand ready to help in the days, months, and years ahead. And with that, I'd like to turn the call over to Billy.

I want to start by also thanking all of our associates and supplier partners for their ongoing commitment to serving our customers and communities.

In the second quarter, as we saw weather improve across the country, or snow to be in our Western division, we saw an increase in spring sales and strength in smaller ticket projects.

In addition, we saw a continuation of the trend we observed starting in the fourth quarter of fiscal 2022 with softness in certain big-tickets discretionary type.

Turning to our department comp performance for the second quarter, six of our 14 merchandising departments posted positive comps including building materials, outdoor garden, hardware, plumbing, tools and milling.

During the second quarter, our comp average ticket was slightly positive and Comfortress transactions decreased 2%.

Excluding core commodities, COMP averaged ticket was primarily impacted by inflation across several product categories as well as demand for new and innovative products.

from core commodity categories negatively impacted our average ticket growth by approximately 160 bases points during the second quarter driven by deflation and lump.

During the second quarter, we saw a significant decline in lumber prices relative to a year ago.

As an example, on average, Framing Lumber was approximately $420 per thousand board fee compared to a approximately $715 in the second quarter of 2022, representing a decrease of over 40% of the total cost of the total cost of the total cost of the total cost of the

Turning to total company online sales, sales leveraging our digital platforms increased approximately 1% compared to the second quarter of last year.

We're excited about our customer engagement across our interconnected platforms as we continue to remove friction from the experience.

We know the vast majority of our customers engage with us in an interconnected manner, whether it be through project inspiration and research, transacting, fulfillment, or support, our customers blend the physical and digital world.

We know the vast majority of our customers engage with us in an interconnected manner, whether it be through project inspiration and research transacting fulfillment or support our customers' blend the physical and digital world.

For those customers that chose to turn in the act with us online during the second quarter, nearly half of our online orders were fulfilled through our stores.

For those customers that chose to transact with us online during the second quarter nearly half of our online orders were fulfilled through our stores.

During the second quarter, pro sales were slightly negative and I'll pay the DIY cup.

During the second quarter pro sales were slightly negative and outpaced the DIY customer.

while surveys suggest that pro backlogs are lower than they were a year ago, they are still healthy and elevated relative to historical norms.

While survey suggests that pro backlogs are lower than they were a year ago. They are still healthy and elevated relative to historical norms.

And in the second quarter, we saw strength across many pro heavy categories like gypsum, fasteners, and insulation.

And in the second quarter, we saw strength across many pro heavy categories like gypsum fasteners and installation.

In addition, we continue to see strengths across smaller projects with positive comp performance in a number of categories including live goods, hardscapes and lands.

In addition, we continued to see strength across smaller projects with positive comp performance in a number of categories, including live goods Hardscape and landscape.

Big ticket con transactions were those over $1,000 were down 5.5% compared to the second quarter of last

Big ticket comp transactions or those over $1000 were down five 5% compared to the second quarter of last year.

After three years of unprecedented demand in the home improvement market, we continue to see softer engagement in big ticket discretionary categories, like patty and appliances that likely reflects both both forward of these single item purchases and deferral.

After three years of unprecedented demand in the home improvement market, we continue to see softer engagement in big ticket discretionary categories like patio and appliances.

<unk> reflects both pull forward of the single item purchases and deferral.

Our merchandising organization remains focused on being our customers' advocates for value. This means continuing to provide a broad assortment of best-in-class products that are in stock and available for our customers when they need it.

Our merchandising organization remains focused on being our customers' advocate for value. This means continuing to provide a broad assortment of best in class products that are in stock and available for our customers when they need it.

We will also continue to lean into products that simplify the project, saving our customers time and money.

We will also continue to lean into products that simplify the project saving our customers time and money.

That's why I'm so excited about the innovation we continue to bring to the Mars.

That's why I'm. So excited about the innovation, we continue to bring to the market.

This quarter, we are excited to announce the addition of the Milwaukee brand to our assortment of electrical hand.

This quarter, we are excited to announce the addition of the Milwaukee brand to our assortment of electrical hand tools within this assortment, we will be introducing a brand new line of innovative Milwaukee hand tools that provide a high degree of precision with lasting results for our pro customers. We've already seen positive results with our pro customers.

Within this assortment, we will be introducing a brand new line of innovative Milwaukee hand tools that provide a high degree of precision with lasting results for our ProCut.

We've already seen positive results with our pro customers and feel confident that the addition of these Milwaukee tools will strengthen our position as the number one destination for the electrical trade in the big boss retail.

And feel confident that the addition of these Milwaukee tools will strengthen our position as the number one destination for the electrical trade in the big box retail channel.

Additionally, in kitchen and bath, we continue to bring innovation to the market with glacier back.

Additionally, and kitchen and Bath, we continue to bring innovation to the market with Glacier Bay.

Glacier Bay is one of the Home Depot's top proprietary brands known for performance and style.

<unk> is one of the home depot's top proprietary brands known for performance and style.

This fall we are excited to grow our faucet line up to include innovative functionality such as touchless and spring neck designs. Add to our assortment of sink and shower heads while also expanding into new categories like this goes.

This fall we are excited to grow our faucet lineup to include innovative functionality such as touch us in spring neck designs add to our assortment of synchrony shower heads, while also expanding into new categories like disposals.

We are also extremely excited about our line up for Halloween. Our merchants have worked with our supplier partners to put together an expanded assortment of product offerings for this Halloween season, including the return of many fan favorites, as well as new collections for the Halloween enthusiasts.

We are also extremely excited about our lineup for Halloween our merchants have worked with our supplier partners to put together an expanded assortment of product offerings for this Halloween season, including the return of many fan favorites as well as new collections for the Halloween enthusiasts.

These products bring excitement to our stores and help drive traffic. And our sneak preview of our Halloween lineup was a tremendous success. We were thrilled to the full roll out in the coming weeks.

These products bring excitement to our stores and helped drive traffic and our sneak preview of our Halloween lineup was a tremendous success. We are thrilled to the full rollout in the coming weeks with that I'd like to turn the call over to Ann.

Thanks, Billy, and good morning, everyone. Our store teams have a relentless focus on cultivating the best customer experience in home improvement.

Thanks, Billy and good morning, everyone. Our store teams have a relentless focus on cultivating the best customer experience in home improvement.

We know that our associates are a key differentiator and they are essential in helping us sustain the customer experience we strive for.

In order to provide the best customer experience and home improvement, we must focus on cultivating the best associate experience in retail.

In order to provide the best customer experience in home improvement, we must focus on cultivating the best associate experience in retail.

This means not only invest in in competitive wages and benefits, but also providing tools, training, and development opportunities that make work at the Home Depot an enjoyable and rewarding experience.

This means not only invest in and competitive wages and benefits, but also providing tools training and development opportunities that make working at the home depot and enjoyable and rewarding experience.

I am happy to share that or approximately one billion dollars of annualized compensation investment that we announced earlier this year is having the intended effect.

I am happy to share that or approximately $1 billion of annualized compensation investment that we announced earlier this year is having the intended effects.

This quarter we continued to see meaningful improvement in orientation rates, particularly among almost tenured associates.

This quarter, we continued to see meaningful improvement in our attrition rates, particularly among our most tenured associates.

more consistent staffing levels are resulted in improved customer service, productivity, and safety.

More consistent staffing levels are resulting in improved customer service productivity and safety.

These improvements are exactly what we set out to achieve with this wage investment.

In addition to investing in our associates, we must also leverage technology to further simplify both the associate and customer experience.

As you heard at our investor and analyst conference in June , our customers journey is different. The pending on the project they're working on, they're shocked with us in different ways.

As you heard at our Investor and Analyst Conference in June our customers' journeys differ depending on the project, they're working on their shop with us in different ways.

There is the Honestist Cation Carrier Purchase, which represents the significant majority of our in-store sales. And the remaining sales are assisted purchases where customers need help in purchasing a product, a service, or installation.

There is the honest listed cash and carrier purchased which represents a significant majority of our in store sales and the remaining sales are assisted purchases where customers need help in person purchasing a product a service or installation.

It is critical that we have the right products in stock in the right quantity and on the shelf available for purchase, particularly for on assisted sales.

It is critical that we have the right products in stock in the right quantity and on the shelf available for purchase particularly on assisted sales.

That's why you hear us talk about our focus on improving our on shelf availability or or say positions.

That's why you hear us talk about our focus on improving our on shelf availability or OSA positions.

We are working to narrow the gap between what is considered imp stock, meaning or systems indicate it is imp store versus on the shelf and available for sale for the customer.

We are working to narrow the gap between what is considered in stock, meaning or systems indicate its in store versus on the shelf and available for sale for the customer.

We're doing this by starting to leverage new technology such as computer vision.

We're doing this by starting to leverage new technology, such as computer vision.

Computer vision enables technology to do what we previously relied on associate eyes to do and provides specific locations of deep Powatized product that is stored in our overhead

Pewter vision enabled technology to do what we've previously relied on associate ice to do and provide specific locations of deep palletize product that is stored in our overhead.

To start, associates will take a picture of Bayes' using their HD phone.

To start associates will take a picture big Houston, the HD phones.

These images then feed into our systems and provide a single real time view of inventory that can then seamlessly integrate into applications like sidekicks.

These images, it's been feeds into our systems and provide a single real time view of inventory that can then seamlessly integrate into applications like sidekick.

By machine learning side kick direct associates to key base, where OSA is low or out exist.

This helps to a team prioritize the highest value task inside their respective stores.

This helps with teams prioritize the highest value tasks inside their respective stores.

The beauty of the machine learning model is that the algorithm is continuously learning as computer vision images are captured and side-to-task are completed. So it will get better and better at directing our associates to the right bay at the right time.

The beauty of the machine learning model is that the algorithm is continuously learning as computer vision images are captured and sidekick tasks are completed it will get better and better at direct and our associates to the right way.

At the right time.

While it's early days, as we have begun implementing this technology, we have seen meaningful improvements in OSA, increased associate engagement and productivity and higher customer service scores.

While it's early days as we have begun implementing this technology, we have seen meaningful improvements in OSA.

Creased associate engagement and productivity and higher customer service scores.

In terms of our assisted sales experience, we have worked to improve this experience by enhancing our systems and processes and have made significant strides.

In terms of our assisted sales experience, we have worked to improve this experienced by enhancing our systems and processes and have made significant strides.

Historically, our associates had to navigate dozens of different systems. Over the last several years, we have invested to simplify the order management system in our stores with an introduction of order up.

Historically, our associates had to navigate dozens of different systems over the last several years, we have invested to simplify the order management system in our stores with the introduction of order up.

We have created a more robust intuitive system that is easy for the first day associate to you.

We have created a more robust intuitive system that is easy for the birth date associate to use.

The system enables any associate to more easily serve customers across a number of different applications, whether that's picking up an order, placing an order, changing an order, or scheduling a service or installation.

This system enables any associate to more easily serve customers across a number of different applications, whether that's picking up and order, placing an order change in an order or schedule in east service or installation.

Not only does order up make it easier to fulfill a customer's needs, but it also frees up more time for social suspend servant customers that needs assistance while in or stores.

Not only does order up makes it easier to fulfill our customers' needs, but it also frees up more time for social spend serving customers that needs assistance, while in all stores.

These enhancements have made the average order-up experience over 40% faster for the customer, which has led to improved customer service scores.

These enhancements have made the average order up experienced over 40% faster for the customer which has led to improved customer service scores. These.

These initiatives are just a few examples of the many different types of projects that can drive significant impacts for customers, our associates and shareholders.

These initiatives are just a few examples of the many different types of projects that can drive significant impact for our customers our associates and shareholders.

I am so excited about all that our store teams are doing to focus on both the customer and associate experience. None of this would be possible without our amazing associates, and I want to thank them, but all they do to take care of our customers. With that, let me turn to customers.

I am so excited about all of that our store teams are doing to focus on both the customer and associate experience.

None of this would be possible without or amazing associates and I want to thank them for all they do to take care of our customers with that let me turn the call over to Richard.

Thank you Ann and good morning everyone. In the second quarter, total sales were $42.9 billion, a decrease of approximately $900 million, or 2% from last year.

Thank you Anne and good morning, everyone.

In the second quarter total sales were $42 9 billion, a decrease of approximately $900 million four 2% from last year.

During the second quarter, our total company comps were negative 2% with comps of negative 2.6% in May, negative 3.3% in June , and negative 0.2% in July .

During the second quarter, our total company comps were negative 2% with comps of negative two 6% in may negative three 3% in June and negative 2% in July .

Compson the US were negative 2% for the quarter, with Compson's negative 2.6% in May, negative 3.3% in June , and negative 0.4% in July .

So the U S were negative 2% for the quarter with comps of negative two 6% in may negative three 3% in June and negative 4% in July .

As you heard from Billy, during the second quarter, we continued to experience lumber deflation compared to the prior year.

As you heard from Billy during the second quarter, we continued to experience lumber deflation compared to the prior year.

While lumber prices were down, we saw an improvement in unit productivity, resulting in a net negative comp impact of approximately 85 basis points versus the second quarter of...

While lumber prices were down we saw an improvement in unit productivity, resulting in a net negative comp impact of approximately 85 basis points versus the second quarter of 2022.

In the second quarter, our gross margin was 33%. A decrease of eight basis points from the second quarter last year, primarily driven by pressure from...

In the second quarter, our gross margin was 33%.

A decrease of eight basis points from the second quarter last year, primarily driven by pressure from shrink.

During the second quarter, operating expense as a percent of sales increased approximately 100 basis points.

During the second quarter operating expense as a percent of sales increased approximately 100 basis points to 17, 6% compared to the second quarter of 2022.

17.6% compared to the second quarter of 2022.

Our operating expense performance during the second quarter reflects our previously executed compensation increases for hourly associates, as well as the de-laverage from our top line results.

Our operating expense performance during the second quarter reflects our previously executed compensation increases for hourly associates as well as deleverage from our topline results.

Our operating margin for the second quarter was 15.4% compared to 16.5% in the second quarter of 2022.

Our operating margin for the second quarter was 15, 4% compared to 16, 5% in the second quarter of 2022.

Interest and other expense for the second quarter increased by $49 million to $428 million due primarily to interest on our floating rate debt as well as higher debt balances than a year.

Interest and other expense for the second quarter increased by $49 million to $428 million due.

Primarily to interest on our floating rate debt as well as higher debt balances and a year ago.

In the second quarter, our effective tax rate was 24.4% up from 24.3% in the second quarter of fiscal 2020.

In the second quarter, our effective tax rate was 24, 4% up from 24, 3% in the second quarter of fiscal 2022.

Our diluted earnings per share for the second quarter were $4.65.

Our diluted earnings per share for the second quarter were $4 65.

decrease of 7.9% compared to the second quarter of 2022.

A decrease of seven 9% compared to the second quarter of 2022.

During the second quarter, we opened two new stores bringing our total store count to 2,326.

During the second quarter, we opened two new stores, bringing our total store count to 2326.

Retail selling square footage was approximately 241 million square

Retail selling square footage was approximately 241 million square feet.

At the end of the quarter, merchandise inventories were $23.3 billion down $2.8 billion compared to the second quarter of 2022.

At the end of the quarter merchandise inventories were $23 3 billion down.

Down two 8 billion compared to the second quarter of 2022.

In inventory turns were 4.4 times down from 4.5 times last.

And inventory turns were four four times down from four five times last year.

Turning to capital allocation. After investing in our business and paying our dividend, it is our intent to return excess cash to shareholders and the former share reperson.

Turning to capital allocation after investing in our business and paying our dividend. It is our intent to return excess cash to shareholders in the form of share repurchases.

During the second quarter, we invested approximately $800 million back into our business and the form of capital expenditure.

During the second quarter, we invested approximately $800 million back into our business in the form of capital expenditures.

And during the quarter, we paid approximately $2.1 billion in dividends to our shareholders. And we returned approximately $2 billion to shareholders in the form of share reperson.

And during the quarter, we paid approximately $2 $1 billion in dividends to our shareholders and we returned approximately $2 billion to shareholders in the form of share repurchases.

I'm computed on the average of beginning and ending long term debt and equity for the trailing 12 months

Computed on the average of beginning and ending long term debt and equity for the trailing 12 months return on invested capital was approximately 41, 5%.

Turn in the invested capital was approximately 41.5%. Down from 45.6% in the second quarter of fiscal 2022.

Down from 45, 6% in the second quarter of fiscal 2022.

Now I'll comment on our guidance for fiscal 2023. Today we are re—

Now I'll comment on our guidance for fiscal 2023.

Today, we are reaffirming our guidance for 2023.

We expect fiscal 2023 sales and comp sales to decline between 2 and 5%.

We expect fiscal 2023 sales and comp sales to decline between 2% and 5%.

We are targeting an operating margin between 14.3 and 14% for the year.

We are targeting an operating margin between $14, three and 14% for the year.

Our effective tax rate is targeted at approximately 24.5.

Our effective tax rate is targeted at approximately 24, 5%.

We expect interest expense of approximately $1.8 billion.

We expect interest expense of approximately $1 8 billion.

And we are anticipating between a 7 and 13% decline in diluted earnings for share compared to fiscal 2022.

And we are anticipating between seven and 13% decline in diluted earnings per share compared to fiscal 2022.

In addition, we continue to focus on driving productivity in the business.

In addition, we continue to focus on driving productivity in the business and feel confident that we will realize the previously announced $500 million in annualized cost savings in 2024.

and feel confident that we will realize the previously announced $500 million in annualized cost savings in 2024.

We also remain focused on meeting the needs of our customers with our leading product authority and home improvement, strong in stock levels and knowledgeable associates.

We also remain focused on meeting the needs of our customers with our leading product authority in home improvement.

Strong in stock levels and knowledgeable associates, we will continue to prudently invest to strengthen our competitive position and leverage our scale and low cost position.

We will continue to prudently invest to strengthen our competitive position and leverage our scale and low cost position to outperform our market and deliver shareholder value.

Outperform our market and deliver shareholder value.

Thank you for your participation in today's call and Christine, we're now ready for questions.

Thank you for your participation in today's call and Christine we are now ready for questions.

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One moment, please while we poll for questions.

Yes.

Thank you. Our first question comes from a line of Christopher Horvers with JP Morgan. Please proceed with your question.

Thank you. Our first question comes from the line of Christopher <unk> with Jpmorgan. Please proceed with your question.

Thanks, good morning everybody. So I think the big question is, you know,

Thanks, Good morning, everybody. So I think the big question is.

and for the industry have we seen the bottom you did a down four and a half the first quarter you need to the down to in second quarter July what was flat so how are you thinking about the trends going forward was there anything in the second quarter that we shouldn't extrapolate on a go for bay that bases whether that was weather shift there was there's something about July that you know benefited that month in particular

And for the industry have we seen the bottom you did a down four and a half in the first quarter into the down to in the second quarter July was flat. So how are you thinking about the trends going forward was there anything in the second quarter that we shouldn't extrapolate on a go forward basis, whether that was weather.

<unk> or was there something about July that benefited that month in particular.

Good morning Chris. It's Ted. The quick answer is, yes, July really was a weather shift. We had a particularly wet and cold June . And with that weather shift, the months of the second quarter were all so much about that same minus 2%. But to answer your question from a more macro perspective on where we see the industry and the demand.

Good morning, Chris It's Ted the quick answer is yes July really was the weather shift we had a particularly wet and cold in June .

And without weather shifts.

Months of the second quarter were all sequentially about that the same minus 2%.

To answer your question.

From a more macro perspective on where we see the industry and the demand.

You know, just start by saying, you know, as you all know, we looked at 2023 as a year of moderation. After the explosive growth, we had the prior few years. And as we called out consumers, we'd be shifting their spending from...

I'll just start by saying as you all know we looked at 2023 is a year of moderation attribute explosive growth we had the prior few years and as we called out consumers would be shifting their spending.

Goods.

To services.

And while that shift is happening, the overall economy and the consumer in particular have remained incredibly resilient.

And while that shift is happening the overall economy and the consumer in particular have remained incredibly resilient.

As we all know, the economy continues to grow with another great GDP print for the second quarter in fears of a recession, or at least a severe recession, have largely subsided. And the consumers generally healthy. There's PCE spending, continues to grow, albeit at a slower rate. And if you look at the home improvement customer,

As we all know that.

<unk> economy continues to grow the number another great GDP print for.

For the second quarter and fears of a recession or at least a severe recession have largely subsided and the consumers generally healthy.

Theres PCE spending continues to grow, albeit at a slower rate and if you look at the home improvement customer.

Our core customer, the homeowner, they've seen continued growth in home equity over the last several years. Strong jobs.

Our core customer the homeowner they've seen continued growth in home equity over the last several years strong job growth and increases in wages. So the core customer remains strong and if you look at home depot, you look at our operations, what we can specifically can.

increases in wages so that the core customer remains strong.

And if you look at Home Depot, you look at our operations, what we can specifically control, we feel great about where we are halfway through this year, because you saw the meaningful reduction in inventory. We think our inventory positions are better placed than they've been in the past few years. Our in-stock rates have continued to improve. Our value proposition remains strong. Nissan called out the wage investments are really paying off.

Troll, we feel great about where we are halfway through this year as you saw the meaningful.

Reduction in inventory, we think our inventory positions are better placed than they've been in the past few years. Our in stock rates have continued to improve our value proposition remains strong <unk> called out the wage investments are really paying off but given all those positives.

But given all those positives and that we were pleased in the second quarter, uncertainties, you know, remain pressed, we don't know how quickly or further the share shift in PC will occur, and we're spending in home improvement in particular, we'll ultimately settle.

<unk>.

And that we were pleased in the second quarter uncertainties remain Chris we don't know how quickly or further the share shift and PUC will occur and we're spending and home improvement in particular will ultimately settle and we don't know.

And we don't know how the monetary policy actions, which are specifically intended to dampen consumer demand with that impact, will ultimately have on consumer sentiment in the overall economy.

Now the monetary policy actions, which are specifically intended to dampen consumer demand what that impact will ultimately have on consumer sentiment in the overall economy.

And as I said while we did see the sequential improvement in our comp sales, a lot of that was a seasonal recovery in the second quarter and as I said specifically in July , as well as the impact of lumber is beginning to abate.

And as I said, while we did see the sequential improvement in our comp sales a lot of that was a seasonal recovery in the second quarter and as I said, specifically in July as well as the impact of lumber is beginning to abate and as Billy called out we do continue to see pressure in certain.

And as Billy called out, we do continue to see pressure in certain big ticket discretionary categories. So, while there's a lot of positives in the macro and with the consumer, we still see enough uncertainty really largely driven by this PCE shift and where that ultimately lands.

Big ticket discretionary categories, so while theres a lot of positives in the macro and with the consumer we still see enough uncertainty really largely driven by this TCE shift and where that ultimately lands.

that we, well again, we feel good. We just thought there was too much uncertainty to take, for example, revot.

Well again, we feel good we just thought there was too much uncertainty to.

Take for example, revise our guidance.

from earlier in the year. But having said all of that, long answer, when we do get through this period of moderation, we remain incredibly bullish on the sector. We couldn't feel better about the macro for housing and home improvement in our prospects and ability to keep taking share in this huge and still largely fragmented market.

From earlier in the year, but having said all of that long answer.

When we do get through this period of moderation, we remain incredibly bullish on the sector, we couldnt feel better about about the macro for for housing and home improvement and our prospects and ability to keep taking share in this huge and still largely fragmented market.

Thank you for that my follow up question is is on the ticket side. I mean, you are if you run stacks or CAGR on your average ticket. It did deteriorate in the second quarter relative to the first so can you talk about the drivers of that and how much of that is this shift to smaller ticket projects.

is on the ticket side. I mean, you are, if you run Factor Caggers on your average ticket, it did deteriorate in the second quarter relative to the first. So can you talk about the drivers of that? And how much of that is this shift the smaller ticket, projects accelerating?

Accelerating because youre going to start to lap through that ticket pressure in the fourth quarter or so.

You're gonna start to lap through that ticket pressure in the fourth quarter.

So is what you're seeing now and a ticket above that, that shift from large to small like celery, and so we can't just, you know, assume that we sort of annualize that out in the fourth quarter.

What youre seeing now indicative of that that shift from large to small is accelerating so we cant just assume that we sort of annualize that out in the fourth quarter.

Well, Chris, this is Richard first, just with respect to stacks and progression. You know, what we're encouraged by is we're seeing as cost pressures in our industry sort of a bait. We're seeing ticket and transactions actually begin to converge. And we think that that's actually a healthy signal in the business. So I think that's the most macro comment that we could make about ticket progression.

Well, Chris This is Richard first just with respect to stacks and progression.

We're encouraged by as we are seeing.

As cost pressures in our industry sort of abate.

We're seeing ticket and transactions actually begin to.

Converge and we think that Thats actually a healthy signal in the business. So I think thats. The most macro comment that we could make about ticket progression.

with respect to large versus small project.

With respect to large versus small projects.

Certainly our customers and our contractors.

Certainly our customers and our contractors tell us that there is some <unk>.

Tell us that there is some stance of deferral. When it comes to large projects, customers are opting for more likely to opt for smaller versus larger and that may have some.

Stance of deferral when it comes to large projects customers are opting for more likely to opt for smaller versus larger and that may have some impact on ticket, but we're also seeing the impacts of.

impact on ticket, but we're also seeing the impacts of

what we call softness in certain...

What we call softness in certain.

large ticket discretionary item purchases like patio and appliances. So there's a lot going on there, but I think that the, maybe the most important dynamic is just kind of that nice recovery and transactions as both ticket and transactions begin to conversion or loss.

Large ticket discretionary item purchases like patio.

And appliances, so theres a lot going on there, but I think that maybe.

Maybe the most important dynamic is just kind of that nice recovery in transactions as both ticket and transactions began to <unk>.

Conversion normalize.

Understood Thanks very much.

Yeah.

Our next question comes from the line of Michael Asser with UBS. Please proceed with your questions.

Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.

Good morning. Thank you so much for taking my question. Given this trend of small transactions coming in and maybe even replacing large transactions, is it more likely that you can take the low end of your guidance off the table of a down-five comp for the year outside of some macroeconomic shock at this point?

Good morning. Thank you so much for taking my question.

This trend of small transaction coming coming.

Coming in and maybe even replacing large transactions.

Is it more likely that you can take the low end of your guidance off the table of a down five comp for the year outside of some macroeconomic shock at this point.

Well Michael.

I don't want to go through the answer. I just went through with Chris, but that's pretty much the way it out, laid out the view. I mean, again, we feel really good about the second quarter. Clearly, we like the sequential improvement. And as Richard said, the normalization and settling, if you will.

I don't want to go through the answer I, just went through with Chris but.

That that's hurting and Wes I'm pretty much selected out laid out the view I mean again, we feel really good about about the second quarter clearly, we like the sequential improvement and as Richard said, the the normalization in settling if you will of a much healthier balance.

of of a much healthier balance of ticket and transactions but there's still just a lot of uncertainty is you know the fed gonna raise we get a budget deal passed and if there's so many things out there

Ticket and transactions, but there's still just a lot of uncertainty is the fed going to raise or even get a budget deal pass.

So many things out there swirling.

that we just updated or reaffirmed in June .

We just updated or reaffirmed in in June .

that you know, we're just more comfortable standing pat right.

<unk>.

We're just more comfortable standing Pat right now.

And you know, the other thing just to...

And.

The other thing just to.

Two.

At least know that we're watching is our share of PCE. We've watched this since our sales spiked in 2020 as not a perfect measurement, but certainly a way to think contextually about what we saw during the three years of unprecedented growth.

At least know that we're watching is our share of PCE. We've watched this since our sales spiked in 2020 as.

Not a not a perfect measurement, but certainly a way to think contextually about what we saw during the three years of unprecedented growth.

As predicted, we've seen our share of PCAs as the said mentioned as we've seen share shift from goods into services. We have also seen our share of PCE.

As predicted we have seen our share of PC as as Ted mentioned as we've seen share shift from goods into services. We have also seen our share of PCE.

steadily revert back towards 2019 levels. When you think about the bottom end of our sales guidance.

Steadily revert back towards 2019 levels. When you think about the bottom end of our sales guidance.

That actually corresponds with the math that would say if our share of PCE reverted all the way back to 2019 levels that would imply the low end of the guide.

That actually corresponds with the math that would say if our share of PCE reverted all the way back to 2019 levels that would imply the low end of the guidance.

We don't see anything in our business today that tells us.

that that's their trajectory, but that is the math of our PCE shares.

That that trajectory, but that is the math of RPC share shifts.

And I'd also just repeat, Ted, we're not sure where that share ultimately settles. The home is so much more important from a financial perspective for, you'd say all homeowners than it was three years ago that perhaps there's an elevated level of home improvement spend in PCE versus prior years. We just don't know. But that low end of the range does correspond to the PCE shares.

And I'd also just repeat we're not sure where that share ultimately settles.

Home is so much more important from a financial perspective.

Sure.

You'd say all homeowners than it was three years ago that perhaps there is an elevated level.

Home improvement spending PCE versus prior years, we just don't know, but that low end of the range does correspond to the PCE share shift map.

Understood. My follow question is homeyboats operating expenses this year are being impacted by the billion dollar wage investment, but actually grossed over the last few years has been anything but normal?

Understood.

My follow up question is home Depot's operating expenses this year are being impacted by the $1 billion wage.

Wage investment, but any growth over the last few years has been anything but normal.

So the key debate here is, has the company entered a period where the cost of doing business has just gone up such that even if the cycle recovers in 2024, the company won't see a significant improvement in its profitability because so much will need to be reinvested back in operating expenses based on what's happening right now.

The key debate here is has the company in period, a period, where the cost of doing business has just gone up such that even if the cycle recovers in 2024.

The company won't see a significant improvement in its profitability because.

So much will need to be reinvested back in operating expenses based on what what's happening right now.

I wouldn't paint that picture of Michael, you know, clearly too early to talk about 2024, but...

I wouldn't paint that picture Michael.

Clearly too early to talk about 2024, but.

You know, we made a significant investment in wage, as Anne said, and we're in a much more comfortable position on a national minimum level and where we are in competitive markets.

We made a significant investment in wages and said and we're in a much more comfortable position.

On a national minimum level, and where we are in competitive markets.

So again, as Ann mentioned, we couldn't feel better about the returns on that invest.

So again as.

Mentioned we.

Can feel better about the returns on that investment we don't expect that we're going to need to make that outsize of an investment in the near term planning horizon.

We don't expect that we're gonna need to make that outsize of an investment in the near term planning horizon. Wage rates are still up, but we're seeing those come down annual increases that we track month to month. As I'm sure you do are moderating. So we don't see another big.

Wage rates are still up but we're seeing those come down annual increases that we track month to month.

As I'm sure you do are moderating so we don't see another big.

wage investment and then this business as it always does.

Wage investment and then this business as it always does we'll leverage with volume and those dynamics.

will leverage with volume in those dynamics.

of this P&L leveraging with modest comps, that investment thesis remains intact.

Of this P&L leveraging with modest comps.

<unk> investment thesis remains intact.

We've got you. It might just do to remind, you know, as we've laid out in the investor conference in a market normalized case with three to four percent top line growth in the normalized case, we expect margin expansion based on operating expense leverage that would lead to mid to high single digit EPS growth. So nothing's really structurally changed that much, but it is worth just pointing back to our comments in June .

We've got to you Michael.

It might just due to remind as we laid out in the Investor Conference and a market normalized case with 3% to 4% topline growth in the normalized case, we expect margin expansion based on operating expense leverage that would lead to mid to high single digit EPS growth. So nothing is really.

Structurally changed that much but it is worth just pointing back to our comments in June .

Understood. Thank you so much good luck.

Our next question comes from line of Zach, Bait and with Will Fargo. Please proceed with your questions.

Our next question comes from the line of Zach <unk> with Wells Fargo. Please proceed with your question.

Hey, good morning. Can you help us unpack the cadence of DIY versus Pro from Q1 to Q2? As last quarter saw at DIY out the form Pro for I think the first time in two years and without reversing out in Q2, curious how you think about the moving parts between the two and if we should expect the spread to widen or contract on for.

Hey, good morning can you help us unpack the cadence of DIY versus pro from Q1 to Q2 of last quarter saw DIY outperformed pro for I think the first time in two years and with that reversing out in Q2 curious how you think about the moving parts between the two and if we should expect the spread to.

Widening our contract going forward.

You know, Zach, I wouldn't read too much into that. There was so much noise in Q1 that I just say that was an outlier and the theme of the pro responding to the investments we're making and out.

Zack I wouldn't read too much into that there was so much noise in Q1.

That I'd, just say that was that was an outlier.

The theme of the pro responding to the investments, we're making in outperforming the consumer that we just saw.

you too is consistent with what we've seen but for an outlier.

Q2 is consistent with what we've seen but for an outlier very noisy Q1.

Gotcha. And Richard, you had talked about the 500 million in cost savings next year coming out of the base, but I believe there's also about 10 to 20 bits of productivity benefits this year. And I'm hoping you could speak to first of all the differences between the two and the buckets of savings and then whether that 10 to 20 bits for this year is in the base today or if it builds through the

Gotcha.

Richard you had talked about the $500 million in cost savings next year coming out of the base, but I believe there is also about 10 to 20 bps of productivity benefit this year and Im hoping you could speak to first of all the differences between the two and the buckets of savings and then whether that 10 to 20 bps for the.

This year it is in the base today or if it builds through the year.

Sure, Zach, thanks. Yes, that 10 to 20 is something we call out of the very beginning of the year when we talked about the progression of margin. And so, or rather the range of operating margin outcomes, that you can think of that.

Sure Zach Thanks, Yes that 10 to 20 is something we called out at the very beginning of the year when we and.

Actually Q, when we talked about the progression of margin.

And so.

Or rather the range of operating margin outcomes.

You can think of that as really productivity that we anticipate in ordinary course.

Really productivity that we anticipate in ordinary course.

It certainly offset expenses such as the wage investment, but it was part of our original guidance and consistent with revised guidance in Q1 and consistent with guidance today.

It's certainly offset expenses such as the wage investment, but it was part of our original guidance and consistent with revised guidance in Q1 and consistent with guidance today.

The 500 million cost out that we anticipate for 2024 is

The 500 million cost out that we anticipate for 2024.

Is separate.

And it really reflects our rationalization.

And it really reflects our the rationalization.

in most part of a cost structure that we had to build up as we saw.

In most part of our.

Our cost structure that we had to build up as we saw.

Product volume.

Skyrocket in 2020 and 2021. So we built a cost structure that isn't necessary.

Skyrocket in 202020 in 2021, so we built a cost structure that isn't necessary today.

in today's volumes and so we will Rationalize some of that cost structure a good example would be a warehouse that we took a lease on to To hold products during 2020 2021 we are looking at Real estate footprint and some of that may well be rationalized Those are the and and

In today's volumes and so we will.

Rationalize some of that cost structure. A good example would be a warehouse that we took a lease on two to hold product during 2020 in 2021.

Looking at it.

Our real estate footprint and some of that may well be rationalized.

Those are the and with that comes cost savings.

That's the nature of the 500 million. Think about it as a permanent reduction in our fixed costs.

That's the nature of the $500 million think about it as a permanent reduction in our fixed cost base.

And all these are FGNA, right? Just to confirm. Now, there's probably some, there could be some geography in COGS and in operating expense, but we haven't settled on that yet. To your question, let me just make sure that we're clear. That initial 10 to 20 basis points of productivity is

And all of these our SG&A right just to confirm Theres probably some.

There could be some geography.

And Cogs and operating expense, but we havent settled on that yet.

To your question and let me just make sure that we're clear that initial 10 to 20 basis points of productivity is included in our operating margin guidance for 2023.

included in our operating margin guidance for 2023.

No part of the 500 million is included in 2023. That is assumed full year benefit annualized in 2024.

No part of the 500 million is included in 2023 that has assumed full.

<unk> full year benefit annualized in 2024.

Got it appreciate the time thanks Richard.

Got it.

Our next question comes from line of Scott, Chikarelli, with Truist. Please receive your question. Good morning, guys. You talked about relative strength in the smaller project spending, but in environment with negative pro sales and smaller pro backlogs, how are you guys benchmarking your efforts to gain traction in the large and complex pro business you spend a lot of time talking about?

Our next question comes from the line of Scot Ciccarelli with Trust. Please proceed with your question.

Good morning, guys can you talk about relative strength in the smaller project spending, but an environment with negative pro sales and smaller pro backlogs.

Thanks, Mark and your efforts to gain traction in the large and complex pro business you'd spent a lot of time talking about.

Hey Scott, this is Hector Good Morning. As we mentioned in Investors Conference, what we are building as far as the ecosystem for the pro, it is hard and it will take some time. Now the good news is that it will also be very hard to replicate as you know. And today we're very encouraged by the signals that we are getting from our pro customers as they engage with different pieces of the ecosystem.

Hey, Scott this is Hector good morning.

We mentioned Investor's conference, we are building as far as the ecosystem for the pro and is hard and it will take some time.

Good news is that it will also be very hard to replicate as you know and today, we're very encouraged by the signals that we're getting from our pro customers and stay engaged with different pieces of the ecosystem.

We are in many markets today with the expanded ecosystem. There are pieces of the ecosystem that we don't have fully deploy. I think of

We are in many markets today, where the expanded ecosystem. There are pieces of the ecosystem that we don't have fully deploy think of an order management system or a trade credit, but we continue to.

a road management system or a tri-credit. But we continue to engage our performance with our pros, those pros continue to engage, not only in the supply chain assets that we have built.

Gauge our performance with our pros those pros continue to engage not only in the supplier supply chain assets that we have built.

and with our outside sales resources as we expanded that team but they're visiting our stores.

And with our outside sales resources as we expanded that team, but there are visiting our stores.

in a more frequent basis. So we continue to be very encouraged by what that cohort is performing and will continue to invest.

On a more frequent basis. So we continue to be very encouraged by what that cohort.

As for how it is.

Performing and will continue to invest in the efforts.

Okay, God, thank you, Hester. And then just as a second question, inventory was down quite a bit, even with a negative comp. Would you guys expect that to mark the bottom of your destocking process, or should we expect inventory level to continue to drop? Thanks.

Okay got it. Thank you and then just second question inventory was down quite a bit with even with the negative comp would you guys expect that to mark the bottom of your destocking process or should we expect inventory levels to continue to drop.

Well, we're pleased with the progress. We've made relative to our inventory position. And you know, you think about everything that's happened in the supply chain and lead time associated with that. It's helped. Listen, we still have.

Well, we're pleased with the progress we've made relative to our inventory position and you think about everything that's happened in the supply chain and lead times associated with that.

Listen, we still have work to do to improve productivity, but we feel good about our inventory and we have low <unk>.

to improve productivity, but we feel good about our inventory. And we have low obsolescence risk and super experienced merchant teams. So a lot of the dynamics in the supply chain helped us really.

So lessons risk in Super experienced merchant team. So a lot of the dynamics in the supply chain helped us really and at the same time I might add our in stocks are better than they've been since since before the pandemic. So we're really pleased about the inventory productivity, but at the same time.

And at the same time, my my dad are in stocks better than they've been.

since, you know, since before the pandemic. So we're really pleased about the inventory productivity, but at the same time.

our Instaqs, our ability to be in stock below 8 feet as they called out in our OSA. And so really pleased with both of those pieces.

Our in stocks our ability.

<unk> to be in stock below a thesis and called out our OSA and so really pleased with both of those pieces.

Got it thanks al.

Our next question comes from a line of Simmy and Guttman with Morgan Stanley . Please continue with your question.

Our next question comes from the line of Simeon Gutman with Morgan Stanley . Please proceed with your question.

Hey there, this is Jackie Sussman on Forth and Mean. Thanks so much for taking our question. You were speaking earlier on small projects or placing large projects. Can you drill into the backlogs a bit more, how much have they come off of peak, how far above normal levels are they? And is there any evidence you're seeing that consumers are fully pushing off or cancelling projects rather than just trading down? Thanks.

Hey, Scott This is Jackie Sullivan on for Simeon. Thanks, So much for taking our question.

Speaking earlier on small projects are placing large projects can you drill into the backlogs have been more how much have they come off peak, how far above normal levels are they and is there any evidence youre seeing that consumers are pushing off or canceling projects rather than just trading down. Thanks.

Well, I'll start on that one. And if we rely on publicly published surveys, the one that we watch is the National Association of Home Builders Index.

Well I'll start on that one.

We rely on publicly.

Published surveys.

The one that we watch is the National Association of Homebuilders Index.

We have seen backlogs decline sequentially, but yet they are well above the historical average. And so, you know, you'd really say the professional customer has been over subscribed for so many years.

We have seen backlogs declined sequentially, but yet they are well above the historical average and so.

Hi.

You'd really saved professional.

Professional customers been oversubscribed for so many years that they still may have a full book of business, just not maybe oversubscribed and maybe taking phone calls again, but they are very healthy.

that they still may have a full book of business just not maybe over subscribed and maybe taking phone calls again, but they are very healthy. Again, if you think about the historical average and you can look this, but historical average being a score of a 50, the index is still at a 61. So...

Again, if you think about the historical average and you can you can look at this.

The historical average being a score of 50. The index is still of a 61, so down from peak, but higher than average.

In addition to the publicly available indexes, obviously we have millions of pros and the field sales force that Hector mentioned. So anecdotally, we're getting loads of feedback from our customer base. They're still busy.

In addition to the publicly available indexes, obviously, we have millions of pros and the field sales force that Hector mentioned, so anecdotally, we're getting loads of feedback from our customer base.

Theres still busy and engaged with those backlogs, but it's their commentary to our sales force, but they are smaller so that's where we get the color on that dynamic.

with those backlogs, but it's their commentary to our sales force that they're smaller. So that's where we get the color on.

that's helpful color. And just one quick follow-up, strength is the only real cause on the gross margin line. Can you talk about how that trended in the quarter did it get worse or any better, and are there any actions that you're taking to kind of mitigate that impact going forward?

Got it that's helpful color and just one quick follow up shrink with the only real cod on the gross margin line.

How that trended in the quarter can it get worse or any better and are there any actions that you're taking to kind of mitigate that impact going forward.

From a financial perspective, shrink has been a consistent pressure over the last several quarters in even the last few years.

From a from a financial perspective shrink has been a consistent pressure over the last several quarters and even the last few years.

And it's something we're tackling every day and maybe

And it's something we're tackling everyday and Megan.

So we are certainly in the battle in retail as we kind of think about shrink.

We are certainly in the battle in retail as we kind of think about shrink.

But we've always continued to lean into initiatives that we have seen that can have impact to mitigate overall.

But we've always continued to lean into initiatives that we have seen that can have impact to mitigate overall and I know it's early as we think about the inform act by the inform App is one of the key components as we think about organized retail crime that I think will help give us a little bit more visibility in.

And I know it's early as we think about the inform app, but the inform app is one of the key components as we think about organized retail crime that I think will help give us a little bit more visibility in some of the things that are happening out there. But...

Some of the things that are happening out there, but certainly it's been largely in line with what we've seen in the last several quarters.

Certainly, it's been largely in line with what we've seen in the last several quarters. We certainly have key initiatives to help mitigate that. And we need our kind of government partners to help on their end as well to help us in retail to really mitigate what we've seen out there.

We certainly have key initiatives to help mitigate that and we need or kind of government partners to help on their end as well to help us in retail to really mitigate what we've seen out there.

Got it thanks, so much.

Okay.

Our next question comes from a line of Stephen DeCone with City. Please proceed with your questions.

Our next question comes from the line of Stephen to Cowen with Citi. Please proceed with your question.

Great good morning. Thanks very much for taking my question. I hope you could comment a bit more about the homeowner engagement that you talked about. Sounds like it was a bit of a sequential improvement. You know, was that largely weather driven or are you actually seeing some elasticity of demand as inflation eases and some categories?

Great. Good morning, Thanks, very much for taking my question I was hoping you could comment a bit more about the homeowner engagement that you talked about it sounds like it was a bit of a sequential improvement.

Was that largely weather driven or are you actually seeing some elasticity of demand as inflation eases in some categories.

yeah thanks Steven no i think you know we we articulated earlier about the weather patterns were actually talked in Q1 about the impact at the west at the west is our best performing

Yeah. Thanks, Steven No I think we articulated earlier about the weather patterns would actually talked in Q1 about the impact that the west had the west was our best performing.

region, the best performing division for Q2. So we saw a lot of that engagement back into those spring categories. We pushed a little bit around from June to July with some of the weather and the heat as you saw more in A season fans. So a much more normalized balance to the quarter. Outside it is some shifting of some of those smaller.

Region Best performing division for four Q2, so we saw a lot of that engagement back into those spring categories, we pushed a little bit around from June to July .

Through July with some of the weather and the heat as you saw.

More in Acs and fan so.

A much more normalized balance to the quarter outside of just some shifting of some of those smaller seasonally.

Okay, great. And then just a clarification on second half expectations. You know, is there any difference in how you're thinking about the business in the third quarter versus the fourth quarter comps? And then maybe a more near term question. It's July benefited a bit from whether how has August to date trended? Is it fair to say you're kind of back within that full your guidance range?

Okay, Great and then just a clarification on second half expectations is there any difference in how youre thinking about the business in the third quarter versus the fourth quarter comps and then maybe a more near term question. If July benefited a bit from weather. How has August to date trended is it fair to say you are kind of back.

Within that full year guidance range.

Right.

So the first two weeks of the third quarter have been a little better than our first half comp. But we have 24 weeks left in the year. So we think the guidance ranges approach.

So.

The first two weeks of the third quarter.

<unk> been a little better than our first half comp.

But we have 24 weeks 24 weeks left in the year. So we think the guidance range is appropriate.

Okay, and then just third quarter versus fourth quarter. Should we just kind of look at the one year comparisons? You know, we're not going to provide quarterly guidance. And again, you know, we've got 24 weeks left in the year. So we think the range is appropriate.

Okay, and then just third quarter versus fourth quarter should we just kind of look at the one year one year comparisons.

We're not going to provide quarterly guidance and again, we've got 24 weeks left in the year. So we.

We think the range is appropriate.

Okay. Thanks best of luck in the back half. Thank you.

Our next question comes from a line of Chuck Graham with Gordon Hasket. Please proceed with your question. Thanks very much, Greg Horder. You know, you committed to investing a billion in wages this year, but as comps and transactions have remained negative in the flexibility that you have with the transaction-based labor model, is there the potential for that full amount not to be realized or were you reinvested in other parts of the business?

Our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.

Thanks, very much great quarter committed.

Committed to investing $1 billion in wages this year, but as comps and transactions have remained negative in the flexibility that you have with the.

The transaction based labor model is there.

The potential for that full amount not to be realized or would you reinvest it in other parts of the business.

Okay.

Well, from a financial perspective, of course, there's an assumption around how many hours would be utilized during the year. There's something that has to be multiplied against the wage. But I wouldn't say this is a material that you're not going to see a material change in our financial profile. And again, our guidance is the best guideline for you to look at with respect to our annual likely annual profile.

Well from a financial perspective.

Of course, there is an assumption around.

How many hours would be utilized during the year. There is something that has to be multiplied against the wage but I wouldn't say this is a material.

Youre not going to see a material change in our financial profile and again our guidance is the best.

Guidelines for you to look out with respect to our annual.

Likely annual performance.

Okay, great, thank you. And then for Anne, can you elaborate a little bit more on the

Okay, great. Thank you and then for <unk>, just can you elaborate a little bit more on the <unk>.

the computer vision technology, how quickly is that going to be rolled out across the chain and maybe elaborate on some of the benefits you think you could see in the near term?

Computer vision technology, and how quickly is that going to be rolled out across the chain and maybe elaborate on some of the benefits. You think you could see in the near term offshore. So first of all we started with <unk>.

Oh, sure. So first of all, we started with psychic application with direct associates.

<unk> application with direct associates to Pat down product on the overhead and so <unk> is a task to computer vision house that associate C, where the product is in the overhead so which is a complementary component to drive overall productivity. So we are certain.

to pack down products on the overhead. And so, Shy Kick is a task to compute a vision and health set associate, see where the product is in the overhead.

So work is a complementary component to drive overall productivity.

So we are certainly bullish. We have that in, or in region that's fully rolled out already. We have that in what we consider pilot stores across every single region. And we expect that to be rolled out later this year. We have seen some really, really good output.

Really bullish we have that in or.

In a region that's fully rolled out already we have that in what we consider a pilot stores across every single region and we expect that to be rolled out later. This year, we are seeing some really really good output.

finding products that takes a ton of time in our stores. So I've been around for a long time. My neck looking up in the overhead, so I'm to find product for customers. And we have thousands of associates that's doing that every day. So complementing, directing the task, and then finding exactly where the product is in the overhead drives a ton of productivity for us. And we expect it will not out later this year.

Finding product that takes a ton of time.

Our stores, so I've been around for a long time my neck looking up in the overhead side defined product for customers.

And we have thousands of associates, that's doing that everyday so complementing directing the task and then finding exactly where the product is in the <unk>.

<unk> drives a ton of productivity for us and we expect it will not out later this year.

Great. Thanks Youre.

Youre welcome.

Our next question comes from a line of Brian Nagel with Obinheimer. Please proceed with your question.

Our next question comes from the line of Brian Nagel with Oppenheimer. Please proceed with your question.

Hi, good morning.

Thanks for taking my question.

So, it's a risk of being maybe a bit repetitive. I just, with regard to inflation, I guess maybe now, disinflation. So, we're starting to see, I know you mentioned you prepared comments, the lumber price dynamic that we've seen improve you into, but the question I have is, you know, we're seeing, we're moving past maybe peak as inflation and getting more to stay at a disinflation. How are you seeing the overall business flex? Both from, I guess, what you're doing as well as how your consumers are reacting generally.

So with the risk of being maybe a bit repetitive I guess.

With regard to inflation I guess, maybe know disinflation.

Starting to see and I know you mentioned in your prepared comments.

Lumber price dynamic there, where you're seeing improved unit demand, but the question I have is we're seeing we're moving past maybe peak as inflation getting mortar stood disinflation.

Are you seeing the overall business flex here, both from a I guess from what you're doing as well as how your consumers reacting generally.

I mean, broadly on the inflation piece, well, we still expect that the overall year will have a net inflationary impact on our costs.

I mean broadly on on the inflation piece.

We still expect that the overall year.

Have a net inflationary.

Impact on on our costs and.

And retails.

But as we go into the second half, it is moderating. When you look at just the activity of cost, increase requests, I mean, they're negligible. I mean, they're a couple. And we were in the billions of dollars at one point of cost and in so net new requests.

But as we go into the second half it is moderating when you look at just the activity of cost increase requests.

There is negligible I mean, there are a couple.

And we were we were in the billions of dollars at one point of cost in and so net new requests.

for cost and certainly cost increases in the supply chain. That's all completely abated. As we go into the second half, when you think of product costs,

For cost and certainly cost increases in the supply chain, that's all completely abated.

As we go into the second half when you think of product cost transportation overall transportation costs and then.

transportation, the overall transportation costs, and then what would ultimately do in retail.

Ultimately do and retails.

Inflation has certainly abated. You know, commodity is certainly down meaningfully from the peak as well as year over year, as well as even shorter term. But beyond commodity, in the fact that we don't have increased inflation.

Inflation has certainly abated commodity is certainly down meaningfully from the peak as well as year over year as well as even shorter term, but beyond commodity in the fact that we.

We don't have increased inflation, we're not expecting a deflationary environment I think Richard you used the term settling where kind of settling into these these non commodity price levels.

We're not expecting a deflationary environment. I think Richard used the term settling. We're kind of settling into these non-commodity price levels and as the pro and consumer customer has...

And as the pro and consumer customer has.

gotten used to those over the last few years using the normalization in transactions as Richard.

Gotten used to those over the last few years youre seeing the normalization in transactions as Richard called out so.

We're encouraged that the cycle...

We were encouraged that.

The cycle of.

How inflation is essentially behind us, in which if I don't know if you believe you have anything else to pass.

Of inflation is essentially behind us and Richard I don't know if you or bill.

Bill if you have anything else to add to that.

I'd say, you know, we are encouraged by the improvement in transactions as we see the normalized pieces of Richard.

So I'd say, we are encouraged by the improvement in transactions as we see the normalized.

Pieces that Richard spoke about earlier, but we don't see a deflationary environment as we go forward.

That's very helpful. Then the second question I have, and I know it's going to be a bit nuanced, but just to understand how your consumers really react to your, so as you look at the West Coast, you know, you call that out, I think it's a kind of strength in the quarter, or as weather may be normalized a bit. But the question I have is, you know, as you're watching that consumer, you know, re-engage with home depot, mid-mortem normal, you know, weather conditions, is there anything there surprising, or is the consumer coming back like you would normally expect with a weather shift like we've seen?

That's very helpful. And then the second question I have it.

It can be a bit nuanced, but just to understand how your consumers really reacted here. So as you look at the West Coast you called out.

Strength in the quarter as weather, maybe normalized a bit but the question I have is as you walk from that consumer.

Re engage with home depot, a bit more normal weather conditions is there anything there surprising or is the consumer coming back like you would normally expect winter weather shift like we've seen.

Yeah, I'd say Brian that we, you know, we call it out in Q1 because of the impact that we saw and it played out precisely kind of how we thought in the West as I mentioned there was our best performing Division customers engage heavily in our seasonal businesses that were so pressured into Q1 and so it really did play out precisely how we thought

Yeah, I'd say, Brian that we we called it out in Q1 because of the impact that we saw and it played out precisely kind of how we thought in the west as I mentioned that was our best performing.

Division customers engaged heavily in our seasonal businesses that were so pressured into Q1 and so it really did play out precisely how we thought.

Okay.

Appreciate it thank you.

Thanks.

Our next question comes from a line of Michael Baker with DA Davidson. Please receive with your question.

Our next question comes from the line of Michael Baker with D. A Davidson. Please proceed with your question.

Okay, thanks to please if I could. One bigger picture. I think last quarter maybe was in the June analyst that you said that

Okay. Thanks, two please if I could.

One bigger picture.

I think last quarter, maybe it was in the.

The June Analyst day, you said that.

So at the housing market would be down mid to high single digits in 2023. That was sort of the industry baseline. There's been some indicators of housing being a little bit better. Is that still the way you were thinking about the industry right now? Down in that mid to high single digits.

You thought the housing market would be down mid to high single digits in 2023 that was sort of the industry baseline.

It's been some indicators of housing being a little bit better is that still the way you were thinking about the industry right now down in that mid to high single digit range.

Well, we said there's some economists who might call for that. We were uncertain, and that's really because when you look at supply and demand imbalances in the market, we've worked our way into a structural deficit of housing in North America.

We said there are some economists who might call for that.

We were uncertain and that's really because when you look at supply and demand imbalances in the market we've worked our way into a.

Structural deficit of housing in North America, and what's interesting to us is.

And what's interesting to us is you've actually seen sequential improvement month over month in home prices for the last four months.

You've actually seen sequential improvement month over month in home prices for the last four months.

So I think if you just look at observed data, home prices for the most part remains.

So.

I think if you just look at observed data <unk>.

Home prices have.

For the most part remained steady versus last year.

And so, better than many economist predictions at the beginning.

And so better than many economist predictions at the beginning of the year.

Okay, so but has your view changed at all or?

Okay, so, but as you're you're.

View changed at all or.

Too much uncertainty, we didn't ascribe any housing benefit.

We didn't describe any housing benefit to our...

Two hour.

guidance for 2023 and we think long-term those supports for home improvement demand are there. And we do think that that supply demanded balance.

<unk> for 2023, and we think long term.

Those supports for home improvement demand are there.

And we do think that supply demand imbalance is.

is an important part of that along with the aging of the housing stock. So again, we're bullish on the future of this market. Yeah, I think the big story with housing now, as it's playing out, is values have held up.

An important part of that along with the aging of the housing stock.

So again.

We're bullish on the future of this market I think the big the Big story with housing now as it's playing out as values have held up in case Shiller just came out with some data in Redfern just redfin just came out with some data.

In case Schiller just came out with some data and Redfin just came out with some data.

that that drop off in values has been erased and that we're now back to record highs of home values in the United States.

That.

That drop off in values has been erased that we're now back to record highs.

Home values in the United States.

<unk> improvement as Richard just said that.

as Richard just said, that the near term story in housing is that with so many people walked into the incredibly low mortgage rates, that there just isn't a lot of inventory available for sale. So transactions.

The near term story in housing is that with so many people walked into the incredibly low mortgage rates that there just isn't a lot of inventory available for sale. So transactions are at <unk>.

are at certainly near-term lows in terms of nominal number of houses that are turning over in a percentage of the housing stock. There's so many people who are below five, even at 3% mortgage rate. So values are holding, if not now, back increasing fundamental imbalance, again, of two to three to four million homes and the issue.

Certainly near term lows in terms of nominal number of houses that are turning over and a percentage of the housing stock. There's so many people are.

Below five even at 3% mortgage rate so values are holding if not now back increasing.

Fundamental imbalance again, two to three to 4 million homes.

And.

The issue is inventory.

<unk>.

And <unk>.

People are getting used to it. We understand new buyers have sort of digested the increase in mortgage rates to the 7-ish percent.

People are getting used to it we understand new buyers of sort of digested the increase in mortgage rates to the the seven ish percent.

But there's just not that much available to purchase.

Yeah, okay, make sense. Sorry, that was one question. The fall is this, if I could, you'd said, I hate to be so short-term focused, but August was better than the first half, calm.

Yes, Okay makes sense sorry that was that was one question. The follow up is this if I could you had said I hate to be so short term focused but August was better than the first half comps.

but any comment on August vs. the second quarter comes.

But any comment on August versus the second quarter comps okay.

You know, again, first two weeks of the quarter are a little better than our first half comp. We have 24 weeks left. And so we just, we point you back to our guidance.

Ken.

First two weeks of the quarter, a little better than our first half comp we have 24 weeks left.

So we just we'd point you back to our guidance.

Okay fair enough. Thank you.

Our next question comes from a line of Karen Short with Credit Sweat. Please proceed with your question.

Our next question comes from the line of Karen short with Credit Suisse. Please proceed with your question.

Hi, thanks very much. So two questions. The first is, when you think about the Dynamics Fund DIY versus the Pro in terms of the impact to your second half comp and then into 24, how are you thinking about DIY in terms of recovery? You know, I think it's pretty clear where you stand on the backlog with the Pro. But I think DIY is a big question in terms of how that customer will feel and is going to feel in the second half.

Hi, Thanks, very much so two questions. The first is <unk>.

When you think about the dynamics on DIY versus pro in terms of the impact to your second half comp and then into 'twenty. Four how are you thinking about DIY in terms of recovery.

Yeah.

It's pretty clear where you stand on the backlog with that the problems, but I think DIY is a question in terms of how that customer will fail.

We're going to feel it in the second half.

But it's, you know, we don't, I think at the end of the day it's all the same demand. And whether the pro is fulfilling that demand or not, you know, it's sort of all the same. So I wouldn't, you know, I actually would view it as saying, we feel good about where, where...

But it's we don't.

I think at the end of the day, it's all the same demand and whether the pro is fulfilling that demand or not.

It's sort of all the same so I wouldn't.

I actually would view it as saying we feel good about where.

Where.

our pro businesses, we feel good about the entirety of it really. We don't know where those trends will go, but again, we know our pros, stated backlogs are helpful.

Our pro businesses.

We feel good about the entirety of it really.

We don't know where those trends will will go but.

Again, we know our pro say their backlogs are healthy.

I would say this is the... And then the second question is... No, I was just going to say, you know, that the consumer, the nearest term view of consumer is...

I would say and then the second question is.

No I was just going to say you know that the consumer.

The nearest term view of consumer is.

Now the engagement in seasonals is led by the consumer.

The engagement and seasonal is led by the consumer certainly the garden business.

But also things like, you know, exterior painting and stain and when the weather improves

But also things like.

Exterior painting and stain and when the weather improved.

consumer responded and it was it was it was really steady

Consumer responded.

It was it was it was.

<unk> really steady.

destructive demand. So, you know, what we expect going going forward. I think you look at all those macro comments we mentioned earlier that you know our consumers a homeowner 80 odd percent of them on their homes tremendous equity value in that home, you know great job. It's great income and no, it's a very healthy

Constructive demand so what we expect going going forward I think you look at all those macro.

Comments, we mentioned earlier that our consumers a homeowner adi percent of them on their homes.

Tremendous equity value in that home great jobs, great income.

And.

A very healthy.

consumer segment in the overall economy. So seeing their engagement in Q2 is weather improved, seeing their engagement in something like Halloween, I mean, it's not an enormous business for us, but to say unbelievable engagement, Billy in that product category, which is 100% discretionary is a pretty decent tell tale of engagement.

Consumer segment.

In the overall economy, so seeing their engagement in Q2 as weather improved.

Their engagement in something like Halloween I mean, it started enormous business for us but.

And to say unbelievable engagement Billy in that product category, which is 100% discretionary is a pretty decent tell tale.

Of engagement in the sector.

Okay, that's really helpful. Thank you. And then my second question is Richard, you always discuss your ability to flex, you know, SGNA with respect to labor, but then also inventory rapidly based on the comp in order to maintain stability with operating margins. So I guess my question is, would the recent wage investments do you still have the same flexibility within the same timeline in general to, you know, without...

Okay. That's really helpful. Thank you and then my second question is Richard <unk>.

Discuss your ability to flex SG&A with respect to labor, but then also inventory rapidly based on the comp.

In order to maintain stability with operating margins. So I guess my question is with the recent wage investments.

You still have the same flexibility within the same timeline.

In general.

That rule of thumb in mind.

Absolutely. I mean, you'd say that the jumping off point would be post wage investment, but post wage investment We have the same degree of flexibility we are we have always had

Absolutely.

Say that the jumping off point would be post wage investment, but post wage investment we have the same degree of flexibility we have always had.

Okay. Thanks very much.

We have time for one more question.

Thank you, our final question comes from a line of Stephen Forbes with Guggenheim. Please continue with your questions.

Thank you. Our final question comes from the line of Steven Forbes with Guggenheim. Please proceed with your question.

Good morning, everyone. So just two quick follow-ups. The first on ticket, curious if you could expand on DIY ticket, burst pro ticket trends, as we think about sort of second half complexion. And then maybe if you could speak to what the full year comp implies in terms of ticket, if it's still positive, as you see it today.

Good morning, everyone.

Just two quick follow ups first on ticket.

Curious if you can expand.

On DIY ticket versus pro ticket trends as.

As we think about sort of second half complexion, and then maybe if you could just speak to what the full year comp implies in terms of ticket. If it is still positive as you see it today.

You know, we, I'll just, I'll answer the second part first and I'll turn to Billy. Again, we've got 24 weeks to go. We're not going to break out ticket and transactions within our guidance.

I'll just I'll answer the second part first and then I'll turn to Billy.

Yes.

Again, we've got 24 weeks to go we're not going to breakout ticket and transactions within our guidance other.

Other than just to repeat, we're encouraged by what we've seen with respect to settling of ticket and recovery and transactions.

Other than just to repeat we are encouraged by what we've seen with respect to settling of ticket and recovery in transactions Billy.

Yeah, and as we called out, just on the lumber piece alone, you know, we'll see that debate as we get to the back half of the air and it'll be much less of an impact than we saw in the first-

And as we called out just on the lumber piece alone, we will see that abate as we get to the back half of the year and it will be much less of an impact than we saw in the first half overall.

And then just lastly, as we think about the Dallas market, 350 basis points, you guys noted as a 2022 at the NL State presentation, any update on on how that market is trending year to date, 2023 versus the company average.

And then just lastly, as we can.

Think about the Dallas market, the 350 basis points you guys noted.

'twenty two.

At the analyst day presentation, any any update on on how that market is trending year to date 23 versus the company average.

Yeah, no Steve, in this sector again, we continue to be very encouraged by the results in Dallas and we have scaled a lot of the capabilities that we first implement in Dallas to all the markets.

Yes no.

Stephen This is Hector again, we continue to be very encouraged by the results in <unk> and.

And we have scaled a lot of the capabilities that we first implementing dollars to all the markets and.

And we're seeing very similar and encouraging results. So we see the customers engage, not just with the delivery sales, but also again, back in our stores and through our online digital platform. So continue to be very encouraged about the performance. For us, Dallas has been a success so far. And we'll continue to deploy capabilities to round out the ecosystem in Dallas. And again, in all the markets, as we test and learn, and deploy capabilities at scale.

And we're seeing very similar and encouraging results. So we see the customers engage not just with the delivery sales, but also again back in our stores and through our online digital platform. So continue to be very encouraged about the performance for us Dallas has been a success so far.

We'll continue to deploy capabilities to round out the ecosystem.

In other markets, so as we test and learn and deploy capabilities at scale.

Thank you.

Yeah.

There are no further questions at this time. I would like to turn the floor back over to Ms. Jansi for closing comments.

There are no further questions at this time I would like to turn the floor back over to MS. Jansen for closing comments.

Thank you, Christine, and thank you for joining us today, everyone. We look forward to speaking with you on our third quarter earnings call in November .

Thank you Christine and thank you for joining us today, everyone and we look forward to speaking with you on our third quarter earnings call in November .

Ladies and gentlemen, this does conclude today's telecom for you. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

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.

Yeah.

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