Q4 2023 The Home Depot Inc Earnings Call

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Operator: and How Doers get more done. Greetings and welcome to the Home Depot fourth quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode.

Okay.

Speaker Change: Greetings and welcome to the home Depot fourth quarter 2023 earnings Conference call.

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

Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Isabel Janci. Please go ahead.

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

Speaker Change: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

Speaker Change: As a reminder, this conference is being recorded.

Speaker Change: It is now my pleasure to introduce your host Isabel <unk>. Please go ahead.

Isabel Janci: Thank you, Christine. And good morning, everyone. Welcome to Home Depot's fourth quarter and fiscal year 2023 earnings call. Joining us on our call today are Ted Decker, Chair, President, and CEO; Ann Marie Campbell, Senior Executive Vice President; Billy Bastic, Executive Vice President of Merchandising; and Richard McPhail, Executive Vice President and Chief Financial Officer. Following our prepared remarks, the call will be open for questions. Questions will be limited to analysts and investors. And, as a reminder, please limit yourself to one question with one follow-up.

Isabel: Thank you Christine and good morning, everyone welcome to home Depot's fourth quarter and fiscal year 2023 earnings call joining us on our call today are Ted Decker Chair President and CEO.

Isabel: Ann Marie Campbell, Senior Executive Vice President and <unk> Executive Vice President of merchandising and Richard Mcphail, Executive Vice President and Chief Financial Officer.

Isabel: Following our prepared remarks, the call will be opened for questions Quest.

Isabel: Questions will be limited to analysts and investors and as a reminder, please limit yourself to one question with one follow up.

Isabel Janci: If we are unable to get to your question during the call, please call our Investor Relations Department at 770-384-2333. Before I turn the call over to Ted, let me remind you that today's press release and the presentations made by our executives include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and priorities. These risks and uncertainties include but are not limited to the factors identified in the release and in our filings with the Securities and Exchange Commission. Today's presentations will also include certain non-GAAP measures. Reconciliation of these measures is provided on our website. Now, let me turn the call over to Ted.

Isabel: We are unable to get to your question during the call. Please call our Investor Relations Department at 700 703842387.

Isabel: Before I turn the call over to Ted Let me remind you that today's press release and the presentations made by our executives include forward looking statements as defined in the private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual result.

Edward P. Decker: <unk> to differ materially from our expectations and projections.

These risks and uncertainties include but are not limited to the factors identified in the release.

Edward P. Decker: And in our filings with the Securities and Exchange Commission.

Edward P. Decker: Today's presentations will also include certain non-GAAP measures reconciliation of these measures is provided on our website.

Edward P. Decker: Now, let me turn the call over to Ted.

Edward P. Decker: Thank you, Isabel, and good morning, everyone. As you'll hear from the team shortly, the fourth quarter of fiscal 2023 is largely in line with our expectations. For fiscal 2023, sales were $152.7 billion, down 3% from the prior year. Comp sales declined 3.2% versus last year, and our U.S. stores had negative cons. 5. Looted earnings per share were $15.11, compared to $16.69 in the prior year.

Edward P. Decker: Isabella and good morning, everyone as you'll hear from the team shortly for fourth quarter of fiscal 2023 was largely in line with our expectations.

Edward P. Decker: For fiscal 2023 sales were $152 7 billion.

Edward P. Decker: Down 3% from the prior year comp sales declined three 2% versus last year and our U S stores had negative comps of three 5%.

Edward P. Decker: Diluted earnings per share were $15 11.

Edward P. Decker: Compared to $16 69 in the prior year.

Edward P. Decker: After three years of exceptional growth for our business, 2023 was a year of moderation, but it was also a year of opportunity. We focused on several operational improvements to strengthen the business.

Edward P. Decker: After three years of exceptional growth for our business 2023 was a year of moderation.

It was also a year of opportunity we focused on several operational improvements to strengthen the business. While also staying true to the growth opportunities detailed at our Investor Conference in June.

Edward P. Decker: As we reflect on 2023, we are better positioned in four key areas. We invested in our associates, the heartbeat of our company, and the stewards of customers. We effectively managed disinflation while maintaining a strong value proposition for our customers, the right side of their inventory position and increased the in stock and on shelf availability level, and we reduced fixed costs in the business that were introduced during the pandemic. As you know, at the beginning of 2023, we announced an approximately $1 billion investment in increased annualized compensation for frontline hourly associates. This allowed us to improve customer service. Drive Greater Efficiency and Productivity Across the Business and ImproveSafelyBroad.com. We also navigated a unique disinflationary environment. We did this by leveraging our best-in-class costs and Merchants to effectively manage costs, while also being our customer's advocate for value. We believe prices have essentially settled in the market.

Edward P. Decker: As we reflect on 2023, we are better positioned in four key areas we.

Edward P. Decker: We invested in our associates, the heartbeat of our company and the storage of customer service effectively manage this inflation, while maintaining a strong value proposition for our customers.

Edward P. Decker: Size of our inventory position and increased in stock on shelf availability levels.

Edward P. Decker: And we reduced fixed costs in the business that were introduced during the pandemic.

Edward P. Decker: As you know at the beginning of 2023, we announced an approximately $1 billion investment in increased annualized compensation for our frontline hourly associates.

Edward P. Decker: This allowed us to improve customer service.

Edward P. Decker: <unk> ourselves favorably in the market attract and retain the most qualified talent drive greater efficiency and productivity across the business and improve safely broadly.

Edward P. Decker: We also navigated a unique disinflationary environment.

Edward P. Decker: We did this by leveraging our best in class cost finance team and merchants to effectively manage cost movements, while also being our customers' advocate for value.

Edward P. Decker: And we believe prices have essentially settled in the marketplace.

Edward P. Decker: After several years of unprecedented sales growth, we entered 2023 with more inventory than we would have preferred. While the products we sell have low obsolescence, our teams work throughout the year to improve inventory productivity while delivering the highest in-stock and on-shelf availability rates since the pandemic. Today, we feel very good about our inventory position heading. Corp. Productivity and efficiency are hallmarks of the Home Depot, and as you heard at our investor conference in June, we announced our commitment to reduce fixed costs by approximately $500 million, fully realized in 2020.

Edward P. Decker: After several years of unprecedented sales growth, we entered 2023 with more inventory than we would've preferred while the products. We sell have low obsolescence. Our teams worked throughout the year to improve inventory productivity, while delivering the highest in stock on shelf availability rates since the pandemic.

Edward P. Decker: Today, we feel very good about our inventory position heading into 2024.

Edward P. Decker: Productivity and efficiency are hallmarks of the home depot and as you heard at our Investor Conference in June we announced our commitment to reduce fixed costs by approximately $500 million to be fully realized in 2024.

Edward P. Decker: We've now taken the necessary actions to achieve this cost-benefit, which Richard will detail in a moment. As we look forward to 2024, we remain focused on our strategic opportunities of creating the best interconnected experience, growing our pro wallet share through our unique ecosystem of capabilities, and building new. In December 2023, we made a strategic acquisition of construction resources, a leading distributor of design-oriented surfaces, appliances, and architectural specialty products, and pro-contractors focused on renovation, remodeling, and residential. This acquisition adds to our robust product offering of products and services. It allows our complex pros to easily shop across aesthetic product categories in a showroom setting, which is how they are accustomed to shopping for these types of products.

Edward P. Decker: We've now taken the necessary actions to achieve this cost benefit, which Richard will detail in a moment.

Edward P. Decker: As we look forward to 2024, we remain focused on our strategic opportunities of creating the best interconnected experience growing our pro wallet share through our unique ecosystem of capabilities and building new stores.

Edward P. Decker: In December 2023, we made a strategic acquisition of construction resources, a leading distributor design oriented surfaces appliances, and architectural specialty products for pro contractors focused on renovation remodeling and residential homebuilding.

Edward P. Decker: This acquisition adds to our robust product offering products and services.

Edward P. Decker: It allows our complex pros to easily shop across aesthetic product categories in a showroom setting which is how they are accustomed to shopping for these types of goods.

Edward P. Decker: We are excited to welcome construction resources into the Home Depot family. In 2024, we will continue learning and building out new capabilities for the Complex Pro. We are expanding our assortments, fulfillment options, and our outside sales, and we just recently began piloting trade credit offerings. In addition, we continue to work on new order management capabilities to better manage complex professional orders. For the Complex Pro Opportunity, this means that by the end of 2024, we will have 17 of our top pro markets, all equipped with new fulfillment offers. Localized Product Assortment, Inc., Expanded Salesforce, Enhanced Digital Capability, with trade credit and order management in pilot or development.

Speaker Change: We are excited to welcome construction resources into the home depot family.

Speaker Change: In 2024, we will continue learning and building out new capabilities for the complex pro we are expanding our assortments fulfillment options and our outside sales force and just recently began piloting trade credit auctions. In addition, we continue to work on new order management capabilities to better manage.

Speaker Change: Complex pro orders.

Speaker Change: For the complex pro opportunity. This means that by the end of 2024, we will have 17 of our top pro markets equipped with new fulfillment options localized product assortment and expanded sales force and enhanced digital capabilities with trade credit in order management in pile.

Speaker Change: For development.

Edward P. Decker: What I hope you take away today is how great we feel about our business and how well we are positioning the business for the future. We remain excited about the opportunity to grow our share of a fragmented $950 billion-plus market. Our associates and supplier partners have continually demonstrated agility and resilience, and I want to thank them for their hard work and dedication. Thank you for serving our customers. And with that, I'd like to turn the call over to Ted. Thanks, Ted. And good morning, everyone.

Speaker Change: But I hope you take away today is how great we feel about our business and how well we are positioning the business for the future. We remain excited about the opportunity to grow our share of a fragmented 950 billion dollar plus market.

Speaker Change: Our associates and supplier partners has continually demonstrated agility and resilience and I want to thank them for their hard work and dedication to serving our customers and communities.

Speaker Change: And with that I'd like to turn the call over to Ann.

Ann: Thanks, Ted and good morning, everyone.

Ann Marie Campbell: I couldn't be more pleased with our operational excellence and the investments we continue to make in the business. As you heard from Ted, we remain focused on three main strategic opportunities: creating the best interconnected experience, growing or pro water share through our unique ecosystem of capabilities, and building new stores. As we continue to create the best interconnected experience and remove friction from our customer shopping journey, one of our biggest areas of opportunity is in our post-sale experience.

Ann: I couldnt be more pleased with our operational excellence and the investments we continue to make in the business.

Ann: As you heard from Ted we remain focused on three main strategic opportunities of creating the best interconnected experience growing or pro wallet share through our unique ecosystem all capabilities and building new stores.

Ann: As we continue to create the best interconnected experience and remove friction from more customers shopping journey, one of our biggest areas of opportunity is within post sale experience.

Ann Marie Campbell: For the majority of our customers, this process has largely been unchanged for the last 44 years, and we have opportunities to improve this experience. In 2023, we made significant progress taking friction out of our online order management process. Today, we have enhanced our systems to better allow our customers to both modify orders and self-service online returns. In 2024, we will focus on building more robust capabilities to support an interconnected self-service returns process where customers will have the ability to start a return online and complete that return via mail or in-store. We have just begun all of this work in earnest and are very excited about the friction we will remove through this process while realizing significant productivity benefits over the long term.

Ann: The majority of our customers. This process has largely been unchanged for the last 44 years and we have opportunities to improve this experience.

Ann: In 2023, we made significant progress taken friction out of or online order management process. Today, we have enhanced our systems to better allow our customers to boat modify orders and self service online returns.

Ann: In 2024 real a focus on building more robust capabilities to support an interconnected self service returns process, where customers will have the ability to start to return online and complete that returned via mail or in store.

Ann: We have just began all of this work in earnest and are very excited about the friction and we will move through this process, while realizing significant productivity benefits over the long term.

Ann Marie Campbell: Through these enhancements and new capabilities in our returns process, we gain efficiency by reducing transaction time and improving on-shelf availability, enabling better inventory management. We also improve customer service by allowing the customer to start and complete their return however they want. As you have heard us say many times, we are focused on making our interconnected experience better and more convenient, no matter how our customers choose to engage with us. As we mentioned at our investor conference in June, we plan to open approximately 80 new stores over the next five years. Our current network of over 2,300 stores throughout North America makes The Home Depot the most convenient physical destination for customers to shop for their home improvement products.

Ann: Through these enhancements and new capabilities in our returns process, we gain efficiencies by reducing transaction time and improving on shelf availability, enabling better inventory management.

Ann: We also improved customer service by allowing the customer to start and complete their return however, they want.

Ann: As you've heard US say many times, we are focused on making our interconnected experience better and more convenient no matter, how or customers choose to engage with us.

Ann: As we mentioned at our Investor Conference in June we plan to open approximately 80, new stores over the next five years.

Ann: Our current network of over 2300 stores throughout North America makes the home depot, the most convenient physical destination for customers to shop for their home improvement products, we have a premier real estate.

Ann Marie Campbell: We have a premier real estate footprint that provides convenience for the customer that we believe is nearly impossible to replicate. And we will continue to build out this footprint in a very strategic way by investing in new stores, in areas that have experienced significant population growth, or where it makes sense to relieve some pressure on existing high-volume stores. In fiscal 2023, we opened 13 new stores, eight in the U.S. and five in Mexico. In the U.S., our eight new stores were roughly split between stores relieving pressure from higher-volume existing stores and stores where we identified voids in new high-growth areas. As an example, we're already seeing great results from many of these new stores and are particularly pleased with our Mapuna Puna store in Honolulu, which allows us to better serve the Honolulu market.

Ann: Footprint that provides convenience for the customer that we believe is nearly impossible to replicate.

Ann: And we will continue to build out this footprint in a very strategic way by investing in new stores in areas that have experienced significant population growth or where it makes sense to relieve some pressure on existing high volume stores.

Ann: And physical 2023, we opened 13, new stores eight in the U S and five in Mexico.

Ann: In the U S. Our eight new stores were roughly split between stores, we'll leave it pressure from higher volume existing stores and stores, where we identified voids in new high growth areas.

Ann: As an example, we're already seeing great results from many of these new stores and are particularly pleased with all of them are Pune Poona store in Honolulu, which allows us to better serve the Honolulu market.

Ann Marie Campbell: For fiscal 2024, we plan to open approximately 12 new stores. Beyond our focus on removing friction and growing through new stores, we have a lot of initiatives in 2024 geared at growing our share of wallet with the pro. My new organization will be focused on better enabling alignment so we can more seamlessly deliver on our unique value proposition for all pros. When we invest in new assets and capabilities to better serve the complex pro, this also improves the customer experience in our stores. For example, more drop site delivery orders fulfilled for more distribution centers means less congestion in our stores and less time dedicated to picking, packing, and staging orders for delivery.

Ann: Or fiscal 'twenty 'twenty four we plan to open approximately 12 new stores.

Ann: Beyond all focus on removing friction and grow into new stores, we have a lot of initiatives in 'twenty 'twenty four geared at growing our share of wallet with the pro.

Ann: <unk>, new organization will be focused on better enabling alignment. So we can more seamlessly deliver on our unique value proposition for all of pros.

Ann: When we invest in new assets and capabilities to better serve the complex pro this also improves our pro experience in our stores.

Ann: For example, more job site delivery orders fulfilled far more distribution centers means less congestion in our stores and less time dedicated to picking packing and stage and orders for delivery.

Ann Marie Campbell: This gives our in-store pro sales associates more time to dedicate to our pros. Additionally, the ability to fulfill large orders through our distribution network also means that we have more product in stock and available for sale for all those pros shopping in our stores. These improvements benefit our associates and all of our pros. Our investments in these strategic initiatives, as well as our investments in our associates, have set us up for success. Recall that at the beginning of the year, we announced a significant investment of approximately $1 billion in increased annualized compensation for frontline hourly associates.

Ann: This gift or in store pro sales associates more time to dedicate to our pros.

Ann: Additionally, the ability to fulfill large orders to our distribution network also means that we have more product in stock and available for sale, but all of those pro shop in our stores.

Ann: These improvements benefit our associates and all of <unk>.

Ann: Our investments in these strategic initiatives as well as the investments in our associates has set us up for success.

Ann: Recall that at the beginning of the year, we announced a significant investment of approximately $1 billion in increased annualized compensation for frontline hourly associates.

Billy Bastic: As a result of this investment, we saw what we intended to see, meaningful improvement in our attrition rates, particularly among our most tenured associates, which drove improved customer service, productivity, and safety. I'm excited to see all of our initiatives gain traction, and I want to thank our amazing associates for all that they do. With that, I'll turn the call over to Billy. Thank you, Anne, and good morning, everyone.

Ann: As a result of this investment we saw what we intended to see meaningful improvement in our attrition rates, particularly among our most tenured associates, which drove improved customer service productivity and safety.

Ann: I'm excited to see all of our initiatives gain traction and I want to thank our amazing associates for all that they do with that let me turn the call over to Billy Thank.

Bill Lennie: Thank you Anne and good morning, everyone.

Billy Bastic: I want to start by also thanking all of our associates and supplier partners for their ongoing commitment to serving our customers and commuters. As you heard from Ted, during the 4th quarter, our sales were largely in line with our expectations, however, we did have some unfavorable impacts from weather in January and core commodity deflation. Inc., The Bulletproof Executive 2013 All Rights Reserved. All Rights Reserved.

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

Bill Lennie: As you heard from Ted during the fourth quarter, our sales were largely in line with our expectations. However, we did have some unfavorable impacts of weather in January and core commodity deflation.

Bill Lennie: We saw a continuation of the trend that we've been observing throughout the year.

Bill Lennie: Softness in certain big ticket discretionary type purchases.

Billy Bastic: Softness Inc., Big Ticket, Discretionary, Our customers continue to take on smaller projects while still deferring large, Turning to our department comp performance for the fourth quarter, our building materials and outdoor garden departments posted positive comps. Inc., including appliances, plumbing, tools, paint, Indoor Gardens, and Arden.

Bill Lennie: Our customers continue to take on smaller projects, while still deferring larger projects.

Bill Lennie: Turning to our department comp performance for the fourth quarter of <unk>.

Bill Lennie: Building materials and outdoor garden departments posted positive comps and six of our remaining 12 merchandising departments posted comps above the company average.

Bill Lennie: Including appliances plumbing tools paint in.

Bill Lennie: Euro garden and hardware.

Billy Bastic: During the fourth quarter, our comp transactions decreased 2.1 percent. Comp Average Ticket decreased 1.3% However, we continue to see our customers trading up for new and innovative products. Inflation from core commodity categories negatively impacted our average ticket by 35 basis points during the fourth quarter. Driven by deflation in lumber and copper, During the fourth quarter, we continue to see, on average, a decline in lumber prices relative to a year ago. However, framing and panel lumber prices experienced the most stable pricing levels during the quarter in some time.

Bill Lennie: During the fourth quarter, our comp transactions decreased two 1% and comp average ticket decreased one 3%. However, we continue to see our customers trading up for new and innovative products.

Bill Lennie: Deflation from core commodity categories negatively impacted our average ticket by 35 basis points during the fourth quarter driven by deflation in lumber and copper wire.

Bill Lennie: During the fourth quarter, we continue to see an average decline in lumber prices relative to a year ago.

Bill Lennie: However, framing and panel lumber pricing experienced the most stable pricing levels during the quarter in some time.

Billy Bastic: As an example, framing lumber started the quarter at approximately $370 per 1,000 board feet compared to ending the quarter at approximately $395, representing a change of less than $7. Big-ticket comp transactions, for those over $1,000, were down 6.9% compared to the fourth quarter of last year. We continue to see softer engagement in big-ticket discretionary categories like flooring, countertops, and appliances. During the fourth quarter, our pro and DIY customers' performance was relatively in line with one another. While internal and external surveys suggest that backlogs are lower than they were a year ago, they have remained stable and elevated relative to historical norms. Turning to total company online sales, sales leveraging our digital platforms increased approximately 2% compared to the fourth quarter of last year.

Bill Lennie: As an example framing lumber started the quarter at approximately $370 per thousand board feet compared to ending the quarter at approximately $395, representing a change of less than 7%.

Bill Lennie: Big ticket comp transactions or those over $1000 were down six 9% compared to the fourth quarter of last year.

Bill Lennie: We continued to see softer engagement in big ticket discretionary categories like flooring countertops and cabinets.

Bill Lennie: During the fourth quarter, our pro and DIY customers performance was relatively in line with one another.

Bill Lennie: While internal and external survey suggests that pro backlogs are lower than they were a year ago. They have remained stable and elevated relative to historical norms.

Bill Lennie: Turning to total company online sales sales leveraging our digital platforms increased approximately 2% compared to the fourth quarter of last year.

Billy Bastic: We continue to enhance our digital customer experience with a number of new capabilities, including an enhanced browsing experience featuring the best sellers in a local market and New Product Discovery Zones, which highlight what's trending based on new and highly rated products. For those customers that transacted with us online during the fourth quarter, nearly half of their online orders were fulfilled through our store.

Bill Lennie: We continue to enhance our digital customer experience with a number of new capabilities, including an enhanced browsing experience featuring the best sellers in a local market and.

Bill Lennie: And new product discovery zones, which highlights what's trending based on new and highly rated products.

Bill Lennie: So those customers that transacted with us online during the fourth quarter nearly half of our online orders were fulfilled through our stores.

Billy Bastic: During the fourth quarter, we hosted our annual decorative holiday, gift center, and Black Friday events. We saw strong engagement across all these events, with our decorative holiday event posting record sales. As Ted mentioned, 2023 marked a year of significant progress for our inventory management and on-shelf availability while effectively navigating a disinflationary pricing environment and maintaining our position as the customer's advocate for value. Today, we are in a great position regarding our inventory levels. Our in-stocks are the best they've been in a number of years, and we are delivering a compelling assortment for our customers' home improvement needs. We're looking forward to the year ahead, particularly with the spring selling season right around the corner, and we have a great lineup of new and innovative products from live goods to outdoor power.

Bill Lennie: During the fourth quarter, we hosted our annual decorative holiday gift center and Black Friday events, we saw strong engagement across all of these events with our decorative holiday event posting a record sales year.

Bill Lennie: As Ted mentioned 2023 marked a year of significant progress for our inventory management and on shelf availability, while effectively navigating a disinflationary pricing environment and maintaining our position as the customers advocate for value.

Bill Lennie: To date, we are in a great position regarding our inventory levels are in stocks are the best they've been in a number of years and we are delivering a compelling assortment for our customers home improvement needs.

Bill Lennie: We're looking forward to the year ahead, particularly with the spring selling season right around the corner and we have a great lineup of new and innovative products live goods outdoor power equipment.

Billy Bastic: We're excited to expand our offering of pro outdoor tools with the launch of our new cordless battery-powered Milwaukee M18 backpack blower and straight shaft trimmer, broadening our assortment for the pro landscape. Our spring gift center event continues to lean into cordless technology with a wide variety of products from Ryobi, Milwaukee, Makita, and DeWalt, many of which are exclusive to The Home Depot and big box retail.

Bill Lennie: We're excited to expand our offering of pro outdoor tools with the launch of our new cordless battery powered Milwaukee.

Bill Lennie: <unk> backpack blower and straight chef tremor broadening our assortment for the pro landscape here.

Bill Lennie: And our spring gift center event continues to lean into cordless technology with a wide variety of products from <unk>, Milwaukee Makita and dwell many of which are exclusive to the home depot in the big box retail channel.

Billy Bastic: We're also excited about our live goods. Each year, our merchants partner with our national and regional growers to provide our customers with new and improved varieties to enhance the overall garden experience. We've made significant investments in partnership with our growers to bring new varieties to our customers that are more disease resistant, tolerant to different climates, and require less water. Investing in our relationships with our growers will allow us to continue to drive innovation to meet our customers' needs and improve their shopping experience while building loyalty to The Home Depot. As we look forward to spring, we're excited about continuing to provide a broad assortment of best-in-class products that are in stock and available for our customers when and how they need them. With that, I'd like to turn the call over to...

Bill Lennie: We're also excited about our live goods program.

Bill Lennie: Each year, our merchants partner with our national and regional growers to provide our customers with new and improved varieties to enhance the overall garden experience.

Bill Lennie: We've made significant investments in partnership with our growers to bring new varieties to our customers that are more disease resistant tolerant to different climates and require less watering.

Bill Lennie: Investing in our relationships with our growers will allow us to continue to drive innovation innovation to meet our customers needs and improve their shopping experience while building loyalty to the home depot.

Bill Lennie: As we look forward to spring, we're excited about continuing to provide a broad assortment of best in class products that are in stock and available for our customers when and how they need and with that I'd like to turn the call over to Richard.

Richard Mcphail: Thank you, Billy, and good morning, everyone. In the fourth quarter, total sales were $34.8 billion, a decrease of 2.9% from last year. During the fourth quarter, our total company comps were negative 3.5 percent, with comps of negative 2.5 percent in November, positive 1.1 percent in December, and negative 8.5 percent in January. Comps in the U.S. were negative 4% for the quarter, with comps of negative 2.7% in November, positive 0.6% in December, and negative 9.1 percent in January. In local currency, Mexico and Canada posted comps above the company average, with Mexico posting positive comments. It is important to note that adjusting for holiday shifts and weather-related impacts in January, monthly comps were relatively consistent across the quarter. For the year, our sales totaled $152.7 billion, a decrease of 3% versus fiscal 2022. For the year, total company comp sales decreased 3.2%, and U.S. comp sales decreased 3.5%.

Richard Mcphail: Thank you Billy and good morning, everyone.

Richard Mcphail: In the fourth quarter total sales were $34 8 billion.

Richard Mcphail: A decrease of two 9% from last year.

Richard Mcphail: During the fourth quarter, our total company comps were negative three 5%.

Richard Mcphail: With comps of negative two 5% in November positive one 1% in December and negative eight 5% in January.

Richard Mcphail: Comps in the U S were negative 4% for the quarter with comps of negative two 7% in November <unk>.

Richard Mcphail: Positive <unk>, 6% in December and negative nine 1% in January.

Richard Mcphail: In local currency, Mexico, and Canada posted comps above the company average with Mexico posting positive comps.

Richard Mcphail: It is important to note that adjusting for holiday shifts and weather related impacts in January monthly comps relatively consistent across the quarter.

Richard Mcphail: For the year, our sales totaled $152 7 billion.

Richard Mcphail: A decrease of 3% versus fiscal 2022.

Richard Mcphail: For the year total company comp sales decreased three 2% in U S comp sales decreased three 5%.

Richard Mcphail: In the fourth quarter, our gross margin was approximately 33.1%, a decrease of 20 basis points from last year. For the year, our gross margin was approximately 33.4%, a decrease of 15 basis points from last year, which was in line with our expectations. During the fourth quarter, operating expenses as a percentage of sales increased approximately 115 basis points.

Richard Mcphail: In the fourth quarter, our gross margin was approximately 33, 1% a decrease of 20 basis points from last year.

Richard Mcphail: For the year, our gross margin was approximately 33, 4%.

Richard Mcphail: Decrease of 15 basis points from last year, which was in line with our expectations.

Richard Mcphail: During the fourth quarter operating expenses as a percentage of sales increased approximately 115 basis points to 21, 2% compared to the fourth quarter of 2022.

Richard Mcphail: 21.2% compared to the fourth quarter of 2022. Our operating expense performance during the fourth quarter reflects our previously executed compensation increases for hourly associates, as well as de-leverage from our top-line results. For the year, operating expenses were approximately 19.2 percent of sales, representing an increase of approximately 90 basis points from fiscal 2020. Our operating margin for the fourth quarter was approximately 11.9%, and for the year it was approximately 14.2%. Interest and other expense for the fourth quarter increased by $50 million to $458 million.

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

Richard Mcphail: For the year operating expenses were approximately 19, 2% of sales representing an increase of approximately 90 basis points from fiscal 2022.

Richard Mcphail: Our operating margin for the fourth quarter was approximately 11, 9% and for the year was approximately 14, 2%.

Richard Mcphail: Interest and other expense for the fourth quarter increased by $50 million to $458 million.

Richard Mcphail: In the fourth quarter and for fiscal 2023, our effective tax rate was 24 percent. Our diluted earnings per share for the fourth quarter were $2.82, a decrease of 14.5% compared to the fourth quarter of 2022. Diluted earnings per share for fiscal 2023 were $15.11, a decrease of 9.5% compared to fiscal 2020.

Richard Mcphail: In the fourth quarter and for fiscal 2023, our effective tax rate was 24%.

Richard Mcphail: Our diluted earnings per share for the fourth quarter were $2 82.

Richard Mcphail: A decrease of 14, 5% compared to the fourth quarter of 2022.

Richard Mcphail: Diluted earnings per share for fiscal 2023 were $15 11.

Richard Mcphail: A decrease of nine 5% compared to fiscal 2022.

Richard Mcphail: At the end of the quarter, merchandise inventories were $21 billion, down $3.9 billion, or approximately 16%, versus last year. And inventory turns were 4.3 times, up from 4.2 times in the second period last year. Moving on to capital allocation, during the fourth quarter, we invested approximately $860 million back into our business in the form of capital expenditures. This brings total capital expenditures for fiscal 2023 to approximately $3.2 billion. During the year, we opened 13 new stores, bringing our store count to 2,335 at the end of fiscal 2023.

Richard Mcphail: At the end of the quarter merchandise inventories were $21 billion down $3 9 billion or approximately 16% versus last year and inventory turns were four three times up from four two times for the second period last year.

Richard Mcphail: Moving on to capital allocation during the fourth quarter, we invested approximately $860 million back into our business in the form of capital expenditures.

Richard Mcphail: This brings total capital expenditures for fiscal 2023 to approximately $3 2 billion.

Richard Mcphail: During the year, we opened 13, new stores, bringing our store count to.

Richard Mcphail: 2335 at the end of fiscal 2023.

Richard Mcphail: Retail selling square footage was approximately 242 million square feet, and total sales per retail square foot were approximately $605 in fiscal 2023. Additionally, we invested approximately $1.5 billion in three acquisitions during fiscal 2023, accelerating our strategic initiatives and providing us with better capabilities to serve our customers. During the year, we paid approximately $8.4 billion in dividends to our shareholders.

Richard Mcphail: Retail selling square footage was approximately 242 million square feet in total sales per retail square foot were.

Richard Mcphail: Approximately $605 in fiscal 2023.

Richard Mcphail: Additionally, we invested approximately $1 $5 billion on three acquisitions during fiscal 2023.

Richard Mcphail: Accelerating our strategic initiatives initiatives, and providing us with better capabilities to serve our customers.

Richard Mcphail: During the year, we paid approximately $8 $4 billion of dividends to our shareholders.

Richard Mcphail: Today, we announced our Board of Directors increased our quarterly dividend by 7.7 percent to $2.25 per share, which equates to an annual dividend of $9 per share. And finally, during fiscal 2023, we returned approximately $8 billion to our shareholders in the form of share repurchases, including $1.5 billion in the fourth quarter. Computed on the average of beginning and ending long-term debt and equity for the trailing 12 months, Return on Invested Capital was 36.7%, compared to 44.6% at the end of the fourth quarter of fiscal 2020.

Richard Mcphail: Today, we announced our board of directors increased our quarterly dividend by seven 7% to $2 25 per share, which equates to an annual dividend of $9 per share.

Richard Mcphail: And finally during fiscal 2023, we turn we returned approximately $8 billion to our shareholders in the form of share repurchases, including $1 5 billion in the fourth quarter.

Richard Mcphail: Computed on the average of beginning and ending long term debt and equity for the trailing 12 months.

Richard Mcphail: Return on invested capital was 36, 7%.

Richard Mcphail: Compared to 44, 6% at the end of the fourth quarter of fiscal 2022.

Richard Mcphail: Now I'll comment on our outlook for 2024. First, let me point out that fiscal 2024 will include a 53rd week, so the fourth quarter of fiscal 2024 will consist of 14 weeks. We will continue to report comps on a 52-week basis, but we will base our overall guidance on 53 weeks. As you heard from Ted, we feel great about the actions we took in 2023 to position us well heading into 2024. And while there are signs that the economy is on the way towards normalization, the home improvement market still faces headwinds as we look ahead to fiscal 2024.

Speaker Change: Now I'll comment on our outlook for 2024.

Speaker Change: First let me point out that fiscal 2024 will include a 50 <unk> week. So the fourth quarter of fiscal 2024 will consist of 14 weeks.

Speaker Change: We will continue to report comps on a 52 week basis.

But we will base, our overall guidance on 53 weeks.

Speaker Change: As you heard from Ted we feel great about the actions we took in 2023 to position us well heading into 2024.

Speaker Change: And while there are signs that the economy is on the way towards normalization.

Speaker Change: Im improvement markets still faces headwinds as we look ahead to fiscal 2024.

Richard Mcphail: We considered several factors that informed our outlook for fiscal 2020. On the positive side, we faced a number of pressures in fiscal 2023 that are unlikely to repeat in fiscal 2024. In 2023, we saw four increases in the Fed funds rate, a sharp decline in existing home sales, and approximately 110 basis points of comp pressure from lumber deflation. However, we still expect pressures on our business in fiscal 2024. Personal consumption growth, as measured by PCE, is expected to decelerate compared to 2023.

Speaker Change: We considered several factors that informed our outlook for fiscal 2024.

Speaker Change: On the positive side, we faced a number of pressures in fiscal 2023 that are unlikely to repeat in fiscal 2024.

Speaker Change: In 2023, we saw four increases in the fed funds rate.

Speaker Change: Sharp decline in existing home sales and approximately 110 basis points of comp pressure from lumber deflation.

Speaker Change: However, we still expect pressures to our business in fiscal 2024.

Speaker Change: Personal consumption growth as measured by PCE is expected to decelerate compared to 2023.

Richard Mcphail: Our share of PCE also remains slightly elevated relative to 2019 and has been on a glide path towards 2019 levels. However, higher interest rates at the beginning of 2024 relative to last year will likely continue to pressure demand for larger projects. And the effects of pull-forward of demand during the pandemic, as well as some project deferral, could impact demand into 2025. As we consider these influences on home improvement demand, we are planning for a year of continued moderation, but with slightly less pressure to comp sales than what we faced in fiscal 2022. Our fiscal 2024 outlook is for total sales growth to outpace sales comp, with sales growth of approximately positive one percent and comp sales of approximately negative 1% compared to fiscal 2023. Total sales growth will benefit from a 53rd week, as well as from the acquisitions we made, and the new stores we opened in fiscal 2023 and the stores we plan to open in fiscal 2025. We expect the 53rd week will contribute approximately $2.3 billion in sales.

Speaker Change: Our share of PC also remains slightly elevated relative to 2019 and has been on a glide path towards 2019 levels.

Speaker Change: Higher interest rates at the beginning of 2024 relative to last year will likely continue to pressure demand for larger projects.

Speaker Change: And the effects from pull forward of demand during the pandemic as well as some project deferral could impact demand into 2024.

Speaker Change: As we consider these influences on home improvement demand, we are planning for a year of continued moderation, but with slightly less pressure to comp sales than what we faced in fiscal 2023.

Speaker Change: Our fiscal 2024 outlook is for total sales growth to outpace sales comp.

Speaker Change: With sales growth of approximately positive 1%.

Speaker Change: Comp sales of approximately negative 1%.

Compared to fiscal 2023.

Speaker Change: Total sales growth will benefit from a 50 <unk> week as well as from the acquisitions, we made and the new stores, we opened in fiscal 2023 and the stores we plan to open in fiscal 2024.

Speaker Change: We expect the 50 <unk> week will contribute approximately $2 $3 billion in sales.

Richard Mcphail: Our gross margin is expected to be approximately 33.9 percent, an increase of approximately 50 basis points compared to fiscal 2023. This primarily reflects a lower product and transportation cost environment relative to fiscal 2023, as well as benefits from a portion of the approximately $500 million in reduced fixed costs that we will realize in fiscal 2024. Further, we expect an operating margin of approximately 14.1 percent. This reflects de-leverage from sales and pressure from targeted incentive compensation as we are overlapping lower incentive compensation paid than planned in 2023. This will be partially offset by the benefits from the approximately $500 million in fixed costs that we will realize in fiscal 2024 in both cost of goods sold and operating expenses. Our effective tax rate is targeted at approximately $24.5 billion.

Speaker Change: Our gross margin is expected to be approximately 33, 9%.

Speaker Change: An increase of approximately 50 basis points compared to fiscal 2023.

Speaker Change: This primary this primarily reflects lower product and transportation cost environment relative to fiscal 2023, as well as benefits from a portion of the approximately $500 million and reduced fixed costs that we will realize in fiscal <unk>.

Speaker Change: 2024.

Speaker Change: Further we expect operating margin of approximately 14, 1%.

Speaker Change: This reflects deleverage from sales and pressure from targeted incentive compensation as we are overlapping lowered incentive compensation paid than planned in 2023.

Speaker Change: This will be partially offset by the benefits from the approximately $500 million and fixed costs that we will realize in fiscal 2024 in both cost of goods sold and operating expenses.

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

Richard Mcphail: We expect net interest expense of approximately 1.8 billion dollars. Our diluted earnings per share percent growth is targeted to be approximately 1% compared to fiscal 2023, with the extra week contributing approximately $0.30. We plan to continue investing in our business, with capital expenditures of approximately 2% of sales on an annual basis. After investing in our business and paying our dividend, it is our intent to return excess cash to shareholders in the form of share repurchase. We believe we have positioned ourselves to meet the needs of our customers in any environment.

Speaker Change: We expect net interest expense of approximately $1 8 billion.

Speaker Change: Our diluted earnings per share percent growth is targeted to be approximately 1% compared to fiscal 2023 with the extra week contributed.

Speaker Change: Tribute Ting approximately 30.

Speaker Change: We plan to continue investing in our business with capital expenditures of approximately 2% of sales on an annual basis.

Speaker Change: 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.

We believe we have positioned ourselves to meet the needs of our customers in any environment.

Operator: The investments we've made in our business have enabled agility in our operating model. As we look forward, we will continue to invest to strengthen our position with our customers, leverage our scale and low-cost position to drive growth faster than the market, and deliver shareholder value. Thank you for your participation in today's call, and Christine, we are now ready for questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Speaker Change: The investments we've made in our business have enabled agility in our operating model as.

Speaker Change: As we look forward, we will continue to invest to strengthen our position with our customers leverage our scale and low cost position to drive growth faster than the market and deliver shareholder value.

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

Christine: Thank you we will now be conducting a question and answer session.

Christine: I would like to ask a question. Please press star one on your telephone keypad.

Christine: Confirmation tone will indicate your line is no question queue you.

Operator: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question. Hey, good morning, everyone.

Christine: You May press Star two if you would like to remove your question from the queue.

Christine: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Christine: One moment, please while we poll for questions.

Christine: Thank you. Our first question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question number one.

Simeon Ari Gutman: Hey, good morning, everyone.

Simeon Ari Gutman: Can you, my first question is, how much of this minus one comp view is an industry view plus or minus share gain, I'm assuming plus, versus if you look at current purchasing trends, and Richard, you noted some of the, let's say, some of the less headwinds that you noted that you expect to face in 2020. Sure. Yes, Simeon, in short, we expect the macro pressures we called out to point towards low single-digit negative growth from improvement demand and then for us to outperform the market. And that's how we got to the negative one. Guys. And the second part of your question, Simeon?

Simeon Ari Gutman: Can you my first question is how much of this minus one comp view.

As an industry view, plus or minus share gain I'm, assuming plus versus if you look at current purchasing trends and Richard you noted some of the let's say some of the less headwinds that you noted that you expect to face in 2023.

Simeon Ari Gutman: Sure.

Richard Mcphail: Yes, <unk> and.

Richard Mcphail: Short, we expect that the macro pressures we called out.

Richard Mcphail: Two point towards low single digit negative growth from improvement demand and then for us to outperform.

Richard Mcphail: The market.

Richard Mcphail: And that's how we got to the negative one comp guide.

Speaker Change: And your second the second part of your question Simeon.

Simeon Ari Gutman: Um, I guess that was the whole point of it. It was how much of it is a macro view versus, you know, like a forecast for housing plus market share versus, You have less headwinds that you noted in the current year, plus you're combining that with how consumers behave. Well, it's all taken as a whole. There are several cross currents here. Again, we face macro headwinds, albeit to a lesser degree than we faced in 2023. And so again, just to quickly tick through them, PCE is expected to decelerate. We still have a slightly higher market share; we have a slightly elevated share of PCE versus twenty nineteen, and we know that that is a gradual trend that has gradually receded since twenty twenty one.

Speaker Change: I guess that was the whole part of it was how much of it is a macro view versus.

Speaker Change: Like like a forecast for housing plus market share versus <unk>.

Speaker Change: You have less headwinds that you noted in the current year plus you are combining that with how the consumers behaving.

Speaker Change: Well, it's it's all taken.

Speaker Change: As a whole there are several crosscurrents here again, we face macro hedge.

Speaker Change: <unk> headwinds, albeit at a lesser degree than we faced in 2023.

Speaker Change: And so again just to quickly tick through them.

Speaker Change: <unk> is expected to decelerate, which fell slightly as as a market. We have a slightly elevated share of PC versus 2019, we know that that a gradual that is gradually receded.

Speaker Change: Since 2021, the interest rate environment.

Richard Mcphail: The interest rate environment is still one where while we see our customers have the means to spend, they are taking more of a deferral stance with respect to large project demand. And we believe there was some pull-forward of certain certain spend during the period of twenty twenty to twenty twenty two that we're working out. Housing, you know, it's it's a little hard to tease out.

Speaker Change: Still one where while we see our customers have the means to spend they are taking more of a deferral stance with respect to large project demand and we believe there was some pull forward of certain certain spend during the period of 2020 to 2022 that we're working out.

Speaker Change: Housing, it's a little hard to tease out obviously home values have held in there we now see home prices, having appreciated by over 46% since 2019 turnovers dropped sharply over the last two years and Thats, a headwind, possibly offset by some level of improve in place.

Richard Mcphail: Obviously, home values have held in there. We now see home prices having appreciated by over forty six percent since twenty nineteen turnovers dropped sharply over the last two years. And that's a headwind possibly offset by some level of improvement in the place. So we're essentially neutral on housing in the short term, and so all of those have an impact on our market. And then, as you said, we expect to gain share in any macro environment through our growth initiatives of Pro, the interconnected experience, and new stores. And that takes us to our negative 1% comp outlook. Fair enough. And then, as a follow-up, can we ask about the shape of the year?

Speaker Change: We're essentially neutral on housing in the short term.

Speaker Change: And so that's the all of those have an impact on our market and then as you said we expect to.

Speaker Change: Gained share in any macro environment.

Speaker Change: Through our growth initiatives of probe the interconnected experience in new stores and that takes us to our negative 1% comp outlook.

Speaker Change: Fair enough and then a follow up can we ask about the shape of the year.

Simeon Ari Gutman: You lapped the lumber deflation in the first part of the year, maybe some weather, so that should be better, but the second half is, in theory, post-interest rate cuts, maybe durables get a little bit better. So how should we think about it? Yeah, so Simeon, lumber was actually a function more of a comparison to 2022 in 2023. If you compare the lumber charts, just I'd encourage you to pull it

Speaker Change: You'd lap the lumber deflation in the first part of the year, maybe some weather.

Speaker Change: So that should be better, but the second half is in theory post interest rate cuts, maybe durables get a little bit better. So how should we think about it.

Speaker Change: Yes so.

Speaker Change: Lumber was actually a function more of a comparison to 2022 and 2023, if you compare the lumber charged just I'd encourage you to pull it up lumber prices were relatively steady across 2023, So we don't really see a material impact to.

Richard Mcphail: Lumber prices were relatively steady across 2023, so we don't really see a material impact to 2024. With respect to 24, first, we expect a normal, a normal seasonal curve for our business. So there's really no seasonal shift in how we think about the halves.

Speaker Change: 2024.

Speaker Change: With respect to 'twenty four first we expect a normal a normal seasonal curve.

Speaker Change: For our business, so theres really no seasonal.

Speaker Change: <unk> and how we think about the halves we.

Richard Mcphail: We anticipate the second half coming in slightly better than the first half, with both being negative, at least as implied in our guidance. It might help to recall the halves for 2023 relatively in line with one another. Thank you, and good luck.

Speaker Change: We anticipate the second half coming in slightly better than the first half with both.

Speaker Change: Being negative at least as implied in our guidance.

Speaker Change: <unk> helped to recall the halves for 2023 were relatively in line with one another.

Speaker Change: Okay. Thank you good luck.

Speaker Change: Thanks.

Simeon Ari Gutman: Our next question comes from the line of Zach Fadem with Wells Fargo. Please proceed with your question. Hey, good morning.

Speaker Change: Our next question comes from the line of Jack <unk> with Wells Fargo. Please proceed with your question.

Jack: Hey, good morning, so starting with the underlying comp commentary curious if you could share some thoughts on pro versus DIY trends, both for the industry as well as your <unk>.

Zachary Fadem: So starting with the underlying comp commentary, curious if you could share some thoughts on pro versus DIY trends, both for the industry as well as your share gain potential, and then any early thoughts on traffic versus tickets. If you look at pro versus consumer, Zach, I mean, for us, they were effectively the same. Q4. Overall, the industry, you know, don't see that being too terribly much different. I can say within our pro, in any customer segment that we have, the managed account customer, who's engaging in the ecosystem that we're building, was the highest performing customer segment in Q4 and throughout 2023. And we would expect that to continue into 2024. As well as to build out the capability. And then you called out the disinflationary price environment. I'm curious if you could parse that out between commodity deflation and promotional activity. And then, as you look at 24, could you walk through the signs that you're seeing to suggest that we have turned a corner on deflation? Yeah, this is Billy. Thanks for the question.

Jack: Share gain potential and then any early thoughts on traffic versus ticket.

Speaker Change: If you look at pro versus consumers coming for us they were.

Speaker Change: They were effectively the same.

Speaker Change: Q4.

Speaker Change: Overall industry.

Speaker Change: Don't see that being too terribly much different I can say within our pro in any customer segment that we have the managed account customer who is engaging in the ecosystem that we're building was the highest performing customer segment in Q4 and throughout.

Speaker Change: 2023, and we would expect that to continue into 2024 as well as we continue to build out the capabilities.

Speaker Change: Yeah.

Speaker Change: And then you called out the deflationary price environment I'm curious, if you could parse that out between commodity deflation and promotional activity and then as you looked at 24 could you walk through the signs that youre seeing to suggest that we have.

Speaker Change: Turning to corner on different days.

Speaker Change: Yes, Andre this is Billy thanks for the question on the commodity piece that is embedded in our in our forward looking.

Bill Lennie: Guidance that Richard articulated during his prepared remarks so.

Bill Lennie: And as it relates to the promotional cadence we haven't seen any difference if you go back pre pandemic too.

Billy Bastic: On the commodity piece, that is embedded in our forward-looking, Inc., MN, Silicon Valley, Banks of America, Hayworth, Glendale Slime, prior to the pandemic. So, you know, very consistent. We have a really are a Solid Marketplace as it relates to that. Look forward to it. Thanks for the time.

Bill Lennie: To the promotional activity we are in a very.

Bill Lennie: Normalized environment, we do feel that pricing has kind of settled as we mentioned earlier and so from a promotional standpoint cadence we don't see any differentiation and then like I said, what we lived through prior to the pandemic. So very consistent we have.

Bill Lennie: Really are in the <unk>.

Bill Lennie: Solid marketplace as it relates to that.

Bill Lennie: Look forward to 2024.

Speaker Change: Thanks for the time.

Speaker Change: Okay.

Christopher Horvers: Our next question comes from Chris Horvers with JPMorgan. Please proceed with your question. Thanks. Good morning, everybody. So I was curious, as you think about the sheriff's wallet, what did you learn over the holiday season? Are there any signs of life that you're seeing? You mentioned the outdoor garden. I'm assuming maybe that's Christmas trees and Christmas decor.

Speaker Change: Our next question comes from the line of Chris <unk> with J P. Morgan. Please proceed with your question.

Thanks, Good morning, everybody.

Chris: I was I was curious as you think about the share of wallet. What did you learn over the holiday season are there any signs of life that Youre seeing you mentioned outdoor garden I'm, assuming maybe that's Christmas trees.

Edward P. Decker: Is there any signs of life that may be, the smaller ticket soft line stuff is starting to show, where are more decor items starting to show some signs of life? Did you see anything in appliances or on the bigger ticket side? Now, hey, Chris, it's Ted.

Chris: Christmas decor is there any signs of life that maybe.

Chris: The smaller ticket soft line stuff is starting to show where more decor items starting to show some signs of life did you see anything in appliances around the bigger ticket side.

Chris: No.

Edward P. Decker: Hey, Chris It's Ted.

Edward P. Decker: We saw great signs of life. There's loads of life in the sector. I mean, we're working through some macro factors, as Richard articulated, but the consumer is healthy, and the consumer is engaged. They're just engaged at this point in smaller projects. And, you know, you called out a number of categories where we had terrific engagement. Q4. Our Deco Holiday program was just an exceptional performer.

Great signs of life, there is loads of life.

In this sector I mean, we're working through some macro factors.

Edward P. Decker: As Richard articulated, but the consumer is healthy and the consumer is engaged they're just engaged at this point and smaller projects and you called out a number of categories that we had terrific engagement in Q4, our Deco holiday program was just.

Edward P. Decker: An exceptional performer merchants there just keep taking that to the next level. We know we took a tremendous amount of share in deco holiday as the customer research responds to our offering our gift center lineup with the brands, we have and the values that billion team.

Edward P. Decker: The merchants there just keep taking that to the next level. We know we took a tremendous amount of share in Deco Holiday because of the customer response to our offering. Our gift center line up with the brands we have and the values that BillionDo has put into the marketplace had a tremendous response. Inc., DecoHoliday Inc., Live Goods Inc., Totes Inc., of totes in Q4 as people responded to our storage event, so we still have tremendous traffic. Secure Volume of Traffic and Engage. Again, it's just that bigger ticket.

Edward P. Decker: Put in the marketplace had a tremendous response.

Edward P. Decker: As you said Deco holiday and live goods did extremely well.

Edward P. Decker: Things like <unk> I mean, we saw sold record units of Totes in Q4 as people responded to our storage event. So we still have tremendous traffic just pure volume of traffic and engagement again, it's just bigger ticket, although as as an aside.

Christopher Horvers: Although, as an aside on bigger ticket items, appliances were one of our better relative performers. And I think a lot of that has to do with our service levels as we're integrating the Temco acquisition. Resources, JPMorgan.com, We think that's a big piece of the momentum behind our appliances, as well as the strength of our online shopping. And then, as a follow-up, can you talk about, you know, what drove the gross margin decline here in the fourth quarter? You mentioned the expansion here coming in 2024.

Edward P. Decker: On bigger ticket appliances was one of our better relative performers and I think a lot of that has to do with our service levels as we're integrating the <unk> acquisition and the percentage of our deliveries that they are now handling and the service level scores.

Edward P. Decker: On time and complete.

Edward P. Decker: Providing our customers we think that's a big piece of the momentum behind our appliance business as well as the strength of our online shopping experience.

Edward P. Decker: For major appliances.

Edward P. Decker: And then as a follow up can you talk about what drove the gross margin decline here in the fourth quarter as you mentioned the expansion here coming in in 2024.

Richard Mcphail: And then separately, just on the SG&A side, you did have a, I think, sizable legal gain in the first quarter of last year. Is that something that, you know, will have an effect on 2024 overall? Thank you. Sure. Hi Chris. It's Richard.

Edward P. Decker: And then separately just on the SG&A side you did have.

Edward P. Decker: I think sizable legal gain in the first quarter of last year is that something that.

Edward P. Decker: We will have an effect on 2024 overall thank you.

Edward P. Decker: Sure Hi, Chris its Richard So first on.

Richard Mcphail: So first on fourth quarter gross margin, I'd say our gross margin, first of all, is in line with our expectations for the year. For the full year and in the quarter, we saw some pull-forward of pressure from pricing actions ahead of cost decreases. The good news is you now see those at current levels, and Billy mentioned we're really at kind of a settled point right now in retail and in cost. As we begin to work through inventory levels, you now see the impact of those cost decreases that we took earlier in the year coming through in 2024, and that's the major driver behind the gross margin expansion that we've got. On the settlement that you called out, I appreciate the question. It's important to note that there is some geography noise in year-over-year comparisons driven by that settlement.

Richard Mcphail: Fourth quarter gross margin.

Richard Mcphail: I'd say, our gross margin first of all is in line with our expectations for the year for the full year and in the quarter. We saw some pull forward of pressure from pricing actions ahead of cost decreases.

Richard Mcphail: The good news is you now see those at current levels and Billy mentioned, we're really at kind of a settled point right now in retail and in cost as.

Richard Mcphail: As we begin to work through inventory layers, you now see the impact of those cost creases cost decreases that we took earlier in the year coming through in 2024 and that's the major.

Richard Mcphail: Driver behind the gross margin expansion that we've guided to.

On the on.

Richard Mcphail: The settlement that you called out.

Speaker Change: I appreciate the question it's important to note that.

Speaker Change: There is some geography noise in year over year comparisons driven by that settlement. So just.

Richard Mcphail: So, just for everyone's recollection, we had a significant settlement in Q1 of 2023 that was a benefit to operating expense. Now, as we said we would do, we fully offset that benefit with short-term costs in 2023 that set us up to lower our cost base going forward. Those short-term costs were mostly incurred in costs of goods sold, including some actions taken to optimize inventory levels.

Speaker Change: For everyone's recollection we.

Speaker Change: Had a significant settlement in Q1 of 2023 that was a benefit to operating expense now as we said we would do we fully offset that benefit.

Speaker Change: Short term costs in 2023 that set us up to lower our cost base going forward. Those short term costs were mostly incurred in cost of goods sold including some actions taken to optimize inventory levels.

Christopher Horvers: So that settlement geography and the costs that offset it create a more favorable comparison in cost of goods sold and a less favorable comparison in OPEX on a year-over-year basis, but obviously, the two offset each other in geography. Thanks so much. Have a great spring.

Speaker Change: That settlement geography, and the costs that offset it create a more favorable comparison and cost of goods sold and a less favorable comparison in opex on a year over year basis, but obviously, the two offset each other and it's a geography shift.

Speaker Change: Thanks, So much have a great spring.

Scot Ciccarelli: Our next question comes from the line of Scott Ciccarelli with Truist. Please proceed with your question. Good morning, guys. Thanks for your time.

Speaker Change: Our next question comes from the line of Scot Ciccarelli with Truest. Please proceed with your question.

Scot Ciccarelli: Good morning, guys. Thanks for the time within your comp guide can you help us understand how you guys are modeling any benefit or accretion from your complex pro build out just so we can better understand the thought process around it and just as a sidebar can you also tell us how big of a margin drag you expect the incentive comp swing to be in 'twenty four.

Scot Ciccarelli: Within your comp guide, can you help us understand how you guys are modeling any benefit or accretion from your Complex Pro build out just so we can better understand the thought process around it? And, just as a sidebar, can you also tell us how big of a margin drag you expect the incentive comp swing to be in 24? Thanks.

Richard Mcphail: On the complex pro, I mean, clearly, the improvements there and the expectation that the managed account engaging in those capabilities will be the strongest performing customer segment. That's embedded in the guidance of CompSales. Overall,

Scot Ciccarelli: On the on the complex pro I mean clearly.

Scot Ciccarelli: The improvements there and the expectation that.

Scot Ciccarelli: The managed account engaging in those capabilities will be the strongest performing customer segment, that's embedded in the guidance of comp sales.

Scot Ciccarelli: And overall sales.

Richard Mcphail: And on the drag from lower incentive bonuses in 2023, really the largest and most meaningful driver of de-leverage. As you know, our OPEX leverage or de-leverage is a function of sales growth. So the largest driver of that is simply sales de-leverage as operating cost inflation remains higher than sales growth. To a lesser extent, we see de-leverage from the incentive compensation year. Okay, can I have a follow-up on that? So just so I can understand that, yes, I understand that the magic accounts are kind of the fastest growing, but like, are you guys able to kind of disaggregate, let's call it the typical engagement you would have with those accounts versus the expanded capabilities you're providing in certain markets? Or is it just too, too difficult to kind of, you know, separate those?

Scot Ciccarelli: And on the drag from lower incentive bonus in 2020 through really the largest and most meaningful.

Scot Ciccarelli: Driver of deleverage as you know, our opex levers or deleveraged as a function of sales growth. So.

Scot Ciccarelli: The largest driver of that.

Scot Ciccarelli: <unk> simply sales deleverage as operating cost inflation remains higher than sales growth.

Scot Ciccarelli: To a lesser extent, we see deleverage from the.

Scot Ciccarelli: The incentive compensation year over year.

Scot Ciccarelli: Okay.

Follow up on that so just so I can understand that you have to understand the managed accounts are kind of the fastest growing but are you guys able to kind of disaggregate.

Scot Ciccarelli: Call. It the typical engagement you would have with those accounts versus the expanded capabilities you are providing in certain markets or is it just too difficult to kind of separate those.

Scot Ciccarelli: Oh no, we cannot, absolutely not. We disaggregate at every level you can imagine. I'm just not going to share all that.

Speaker Change: Oh, no we cannot absolutely.

Speaker Change: Disaggregated every level you can imagine we're just not going to share all that detail as you can imagine.

Edward P. Decker: Okay, fair enough. Thank you, guys. Our next question comes from the line of Chuck Grom with Gordon-Haskett.

Speaker Change: Okay fair enough. Thank you guys.

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

Chuck Grom: Please proceed with your question. Hey, thanks. Bigger picture, I'm curious what you guys are monitoring across regions or product categories to suggest that demand for the home improvement category from a unit volume perspective is starting to bottom here as we look out over the next couple of years. Well, you know, just to hit it on the most fine point here, really, the last three quarters, we've seen kind of the most stability. And, you know, we, I think three quarters ago, we saw a marked recovery in transactions and think about that as a proxy for units. But units followed similarly, and over the last three quarters, we've seen nice stability.

Chuck Grom: Hey, thanks.

Chuck Grom: Bigger picture curious what you guys are monitoring across regions or product categories. Just suggests that demand for the home improvement category from a unit volume perspective, starting to bottom here as we look out over the next couple of years.

Speaker Change: Well just to hit it on on the most.

Speaker Change: Five point here really the last three quarters, we've seen kind of the most stability and the.

Speaker Change: I would say three quarters ago, we saw a marked recovery in transactions and think about that as a proxy for units, but units followed similarly over the last three quarters, we've seen nice stability.

Richard Mcphail: And as we said before, we define a healthy home improvement market as one where ticket and transaction are both positive. What we have seen on the good side here is that ticket and transaction have begun to converge and, in fact, have sort of really much more tightly converged over the last three quarters. They were still both negative for the quarter, but that's really just reflective of the macro pressure that, you know, continues. From a geographic perspective, we aren't really necessarily able to tease out differences in recovery and transactions or units. It's more of a national dimension.

Speaker Change: And as we've said before.

Speaker Change: We define a healthy home improvement market is one where ticket and transaction are both positive.

Speaker Change: What we have seen on the good side here is that ticket and transaction have begun to converge and in fact ive sort of.

Speaker Change: Really much more tightly converged over the last three quarters.

Speaker Change: They were still both negative for the quarter, but that's really just reflective of the macro pressure.

Speaker Change: That continues.

Speaker Change: From a geographic perspective.

Speaker Change: We arent really necessarily able to tease out.

Speaker Change: Differences in.

Speaker Change: Recovery in traction transactions or units more of a national.

Chuck Grom: Okay, great. And then one for you, Richard, just how should we think about the sensitivity of operating margins in fiscal 24 to every point of comp? You know, hypothetically, if you guys are being a little bit conservative here on the down one, just trying to think about how the model could respond. Sure, I mean, the basics are, you can imagine, with no management intervention.

Speaker Change: National dynamic.

Okay, Great and then one for you Richard.

Richard Mcphail: How should we think about the sensitivity of operating margins.

Richard Mcphail: Fiscal 2004 to every point of comp.

Richard Mcphail: Pathetically, but you guys are being a little bit conservative here on the down one just trying to think about how the model could respond.

Richard Mcphail: Sure I mean, the basics are you can imagine.

Richard Mcphail: No.

Richard Mcphail: With with no management intervention.

Michael Lasser: The natural rule of leverage or deleverage is about 10 basis points per point of comp, up or down. Okay, great. Thank you. Good luck. Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question. Good morning.

Richard Mcphail: Natural rule of leverage or deleverage as about 10 basis points per point of comp up or down.

Speaker Change: Okay great.

Speaker Change: Good luck.

Speaker Change: Thank you.

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

Michael Lasser: Good morning. Thank you so much for taking my question.

Edward P. Decker: Thank you so much for taking my question. As we look back to the last couple of downturns in home improvement, there was a pretty robust recovery in the subsequent years after a few periods of negative comp. Are you seeing any evidence or signs that this recovery, whenever it happens, will be different? Hi Michael.

Michael Lasser: As we look back to the last couple of downturns in home improvement there was a pretty robust recovery in the subsequent years after a few periods of negative comp.

Michael Lasser: Are you seeing any evidence or signs that this recovery whenever it happens would be different.

Speaker Change: Hi, Michael.

Edward P. Decker: We don't see why it would be different. I mean, if anything, the underpinning of the market segment remains incredibly strong, and look at the macro. When you look at the influences that we watch most closely, home price appreciation up 45 odd percent, home equity is up closer to 70 percent, that equity level, which is, $10, $12 trillion increase. Inc. Thank you very much.

Michael Lasser: Don't we don't see why it would be different I mean, if anything the underpinning of this market segment remains incredibly strong when I step back.

Speaker Change: And look at the macro when you look at that.

Speaker Change: The influences that we watch most closely home price appreciation up 45 odd percent home equity is up closer to 70% that that equity level, which is.

Speaker Change: 10 to 12 trillion dollar increase since the pandemic has not been tapped in fact.

Edward P. Decker: Key Locks and Cash Out Refi's are at multiple-year lows right now as interest rates have gone up over the last two years, so you have tremendous potential in an untapped balance sheet and equity position in homes. We talked about the age of homes. Now, you know, well over 50% or over 40 years old, people are still working from home, more than they were certainly pre-pandemic. So usage in homes, the fundamental shortage of homes, You know, we're, I've seen anywhere between two and six million units short, and on a near term, even forecast for 2024, we'll build 200 odd thousand units less than demand.

Speaker Change: Q locks and cash out Refis are at multiple years low right now as interest rates went up over the last two years. So you have tremendous potential and an untapped balance sheet, an equity position in homes, we talked about the age of homes now well over 50.

Speaker Change: 3% or over 40 years old people are still working from home more more than they were certainly pre pandemic so usage in homes.

Speaker Change: The fundamental shortage of homes.

Speaker Change: I've seen anywhere between two and 6 million units short.

Speaker Change: On a near term even forecast for 2024 will build 200 odd thousand units less than demand. So youre not even beginning to make up for that shortage in the near term.

Edward P. Decker: So you're not even beginning to make up for that shortage in the near future. So you look at all those factors, millennials. Inc. The Bulletproof Executive 2013, Source of Customer Segment Spend in our space, they're at prime. Household Formation and Home Ownership Ages, so I look at all those and say, you know, huge opportunity, and we've mentioned this before, but the pandemic, in a sense, is a bit like a giant hurricane, right? I mean, we had tremendous demand and growth in the segment followed by a couple of periods of moderation, but as we watch every hurricane market after you go through that cycle, it is as strong a cycle So, with that backdrop of fundamental macros and the overall pandemic playing out over a 5-year period with an entire national storm, we have every reason to be extremely sacred. This is Sam Bog niin, Abraham College, CPR Centers, and this is Estelle Perez Doria, a mostenaire, and this is Paul Najard, Ph.D. D. researcher. In Summersville violence and climate policy project, Aaron Perlewa, a Ph.

Speaker Change: So you look at all those factors millennials, becoming.

Speaker Change: A year so they are becoming the single biggest.

Speaker Change: Source of customer segments spend in our space.

Speaker Change: Crime.

Speaker Change: Household formation and home ownership ages, so I look at all those and say.

Speaker Change: Huge opportunity.

Speaker Change: We've mentioned this before but the pandemic in a sense.

Speaker Change: Is a bit like a giant hurricane right I mean, we had tremendous.

Speaker Change: Demand and growth in the segment followed by a couple.

Speaker Change: Periods of moderation following that buildup, but as we watch every hurricane market. After you go through that cycle.

Speaker Change: It's as strong as ever so with that backdrop of fundamental macros and the overall pandemic playing out over a five year period like a giant national storm. We have every reason to be extremely.

Edward P. Decker: D. teacher, and this is Edward Ducker, the Director of MD, and Keike rupn. Aloha to the staff of the Global Health Unit at Gallaudet, as well as our teams that we are proud to be working with to participate in the Forensic Engineering Innovation and Misplaced Personal Data Project. We just want to thank everyone here for the work that you're doing. Store Associates and Store Leadership and Supply Chain just did such a great job level setting this business following that sort of pandemic storm. And we couldn't feel better about how we're positioned from an operational point of view. And we're sticking with all the strategic investments. Our eyes are still on the prize of the best interconnected shopping experience.

Optimistic about the future and that's why we've made the comments today.

Speaker Change: About how happy we are of what we accomplished management team here.

Speaker Change: Store associates and store leadership in supply chain, just did such a great job level setting this business following that sort of pandemic storm.

Speaker Change: And we Couldnt feel better about how we're positioned from an operational point of view and then we're sticking with all of the strategic investments. Our eyes are still on the prize of the best interconnected shopping experience building out the pro ecosystem for complex pros and then.

Michael Lasser: Building out the pro ecosystem for complex pros and then, you know, having such confidence in our model that we started a reasonably meaningful store build program. So we feel really, really good, Michael. Thanks for the question. That's very helpful, Ted. If I could just add one more question. It's about Richard's comment about the rule of thumb of ten basic points of margin expansion for every one point of comp. And understanding that this is theoretical, does that move in a linear fashion, meaning if you get back to the trajectory of mid-single-digit comps eventually, you would see a better than trend rate of margin expansion at the higher the growth rate? And there was also a comment that this rule of thumb would be outside of actions that would be taken. So, can you discuss what actions might be taken to bend that curve, you know, on the upside, over time? Thank you very much.

Speaker Change: Having such confidence in our model to start a reasonably meaningful store build program. So we feel really really good Michael thanks for the question.

Speaker Change: Yeah.

Speaker Change: That's very helpful. If I could just add one more question.

Speaker Change: On Richard's comment about the rule of thumb of 10 basis points of margin expansion for every one point of comp.

Michael Lasser: And understanding that this is theoretical does that does that move in a linear fashion, meaning if you get back to you.

Michael Lasser: The trajectory of mid single digit comp eventually that you would see.

The better than trend.

Michael Lasser: Read of margin expansion at the higher the growth rate and there was also a comment that that.

Michael Lasser: That rule of thumb would be outside of.

Michael Lasser: Actions that would be taken so can you discuss what actions might be taken to bend that curve.

Speaker Change: On the upside over time, thank you very much.

Richard Mcphail: Thanks, Michael. Well, first, I certainly want to center you back on the comments we made at the investor conference in June, where we call out a base case once we return to market normalization, a base case of 3 to 4 percent sales growth Inc., Flagrose Margin, an assumption of operating expense and operating margin leverage, and EPS growth of mid to high single-digit percentages. Within that, obviously, is sort of an implied leverage per comp point on our op-eds. I'm giving you what I would call a loose rule of thumb. It would apply, for the most part, to our sort of business model today. It certainly applied in the past, and I would expect it to apply loosely in the future.

Speaker Change: Thanks, Michael.

Speaker Change: First <unk>.

Speaker Change: Certainly want a center you back to the comments, we made at the Investor Conference in June.

Speaker Change: Where we call out a base case once we return to market normalization, a base case of 3% to 4% sales growth.

Speaker Change: Flat gross margin and assumption of operating expense and operating margin leverage and growth.

Speaker Change: And EPS growth of mid to high single digit percentages.

Speaker Change: Within that obviously is.

Speaker Change: Sort of an implied.

Speaker Change: Leverage per comp point on our Opex.

Speaker Change: Yeah.

Speaker Change: I'm I'm, giving you a what I would call a loose rule of thumb.

Speaker Change: It would apply for the most part.

Speaker Change: Two.

Speaker Change: Yes.

Two are our sort of business model today.

We applied in the past and I would expect it to apply loosely in the future.

Richard Mcphail: You know, embedded in that is a normal rate of productivity and efficiency that our teams deliver every single year. I mean, underneath all this guidance and our results for 2023, which we were so pleased with, is an enormous amount of work. On behalf of our team, we think about the efficiency and our Supply Chain, you think about the efficiencies that our merchants bring every year and product cost.

Embedded in that is a normal rate of productivity and efficiency that our teams deliver every single year I mean underneath.

Speaker Change: All of this all of this guidance and our our results for 2023, which we were so pleased pleased with.

Speaker Change: Is an enormous amount of work.

Speaker Change: On behalf of our team, we think about the efficiency in our supply chain do you think about the efficiencies that our merchants operating every year a product cost of particular note the productivity in our stores with some of the tools that are unleashing.

Richard Mcphail: Of particular note, the productivity in our stores with some of the tools that are unleashing the power of AI and putting that in the hands of our associates, those are standard fare for us. They feed into what I would call normal operating leverage for the Home Depot, and it's something that, you know, we've come to expect of ourselves. So that's a long way of saying we always intend to lever OPEX at a certain point. Point, George W. Bush, John Friedman, Anthony Piaggio, James Petersen, Faculty Member John Hervert, PDI Name Selected We always operate with a degree of financial flexibility in the P&L, although I would tell you that we did our very best and I think we accomplished our objective of reducing fixed costs. Towards the end of 23 that had built up during the pandemic, hence the $500 million in cost savings. Supply, and our guide. There are always levers.

Speaker Change: The power of AI and putting that in the hands of our associates.

Speaker Change: Our standard fare for us.

Speaker Change: Feed into what I would call normal operating leverage for the home depot, and it's something that we've come to expect of ourselves.

Speaker Change: So that's a long way of saying, we always intend to lever opex at a certain point of.

Speaker Change: Of sales growth and I would I would stick with the basic rule of thumb, maybe higher maybe slightly lower in some periods from time to time on the question about what actions there may be well, we always operate with a degree of financial flexibility in the P&L, Although I would tell you that we.

Speaker Change:

Speaker Change: Did our very best and I think we accomplished our objective of reducing fixed costs.

Speaker Change: Towards the end of 'twenty three that had built up during the pandemic, hence the $500 million in cost savings implied in our guide.

Speaker Change: There are always levers we have to determine what environment. We're operating in before we decided what levers to pull.

Michael Lasser: We have to determine what environment we're operating in before we decide what levers to pull. And so, for now, we've provided what we would call our central case for 2024, but we're going to manage the business with the best interests of our long-term shareholders in mind. Thank you very much and good luck.

Speaker Change: And so for now we've provided what we would call our central case.

Speaker Change: For 2024, but we're going to manage the business.

Speaker Change: With the best interest of our long term shareholders in mind.

Thank you very much and good luck.

Seth I. Sigman: Our next question comes from the line of Seth Sigman with Barclays. Please proceed with your question. Hey, good morning, everyone.

Speaker Change: Our next question comes from the line of Seth Sigman with Barclays. Please proceed with your question Hey, Good morning, everyone. I wanted to follow up on macro and then margins just on the macro side you gave us a number of factors that are built in here I guess the real question is what are the conditions needed for comps to actually get back to positive.

Edward P. Decker: I wanted to follow up on macro and then margins. Just on the macro side, you gave us a number of the factors that are built in here. I guess the real question is, what are the conditions needed for comps to actually get back to positive?

Edward P. Decker: Is it as simple as fully digesting the two years of lower housing turnover, and that'll happen at some point this year? I guess, ultimately, can you return to growth without existing home sales improving? Oh, absolutely. As we've said for the longest time, home turnover is a base of home improvement demand, but it's been a pretty high percentage of turnover, and that equates to five or so million units. The reason we're calling out that as a factor in these last two years is the dramatic..., and there's definitely a understanding that there's an improvement in the play cycle if you don't move and you stay And arguably, that lag effect is a bit longer this time because of the interest rate environment.

Seth I. Sigman: Is it as simple as fully digesting the two years of lower housing turnover and that will happen at some point through this year I guess ultimately can you return to growth without existing home sales improving.

Speaker Change: Oh, absolutely I mean, as we've said for the longest time, maybe at home turnover.

Speaker Change: As a base of home improvement demand, but it's been pretty pretty steady. If you look at four five odd percent of housing stock is a multiyear.

Speaker Change: Percentage of turnover and that equates to five ish million units.

The reason, we're calling out that is a factor in these last two years is the dramatic decrease.

Speaker Change: And there is definitely.

Speaker Change: Understanding that there is an improvement in place cycle. If you don't move and you stay in your house, but theres, a lag effect and arguably that lag effect is a bit longer this time because of the interest rate environment and people are just being conservative when they kick off a larger home improvement project.

Speaker Change: A home that they're going to ultimately stay in for a longer period of time. So that's the dynamic.

Edward P. Decker: So, that's the dynamic of housing turnover. We think that plays out. We're literally at a 40-year low in turnover.

Speaker Change: Housing turnover, we think that plays out year to date, we're literally at a 40 year low in turnover don't see that going lower.

Edward P. Decker: I don't see that going lower, so you're going to cycle through that acute two-year pressure. And then, you know. Do we get back to growth? Absolutely. I'd say we have a neutral view on housing for 2024. We don't think there's incremental pressure, nor do we think that we're quite ready for a hockey stick recovery.

Speaker Change: So you're going to cycle through that that kind of a Q2 year pressure.

Speaker Change: And then.

Speaker Change: Do we do we get back to growth absolutely.

Speaker Change: <unk>.

Speaker Change: I'd say, we have a neutral look on housing.

For 2024, we don't think there is there is incremental pressure nor do we think that we're quite ready for a hockey stick recovery.

Edward P. Decker: Richard's been talking for some time about the Fed's stance of higher for longer. I think we now have an appreciation that longer is going to go through the first half of this year. So even a lowering cycle in the back half, you know, there's some timing effect to get mortgages, move home.

Speaker Change: Richard has been talking for some time and the fed's stance of higher for longer I think we know we have an appreciation that longer is going to go through the first half of this year, so even a lowering cycle in the back half there is some some timing effect to two.

Speaker Change: Mortgages move homes take take a HELOC loan out et cetera to get a bigger project going so that's why we're we're.

Edward P. Decker: Take a HELOC loan out, et cetera, to get a bigger project going. So that's why we are. I'm calling for a slighter moderation to continue into 2024, but as we said, the back half is marginally stronger. We think all the macros line up for a return to normalcy following that in with Inc. Inc. The Bulletproof Executive 2013. All rights reserved. All rights reserved.

Speaker Change: Kind of calling for a slight or moderation to continue into 'twenty four but as we said the back half is marginally stronger.

Speaker Change: And we think all the macros lineup for return to normality.

Speaker Change: Following that in with the.

Speaker Change: Capabilities that we're building, we're taking share today with.

Speaker Change: <unk>.

X percent of these capabilities complete super optimistic about how well we're hitting the ground running as we continue to build going into a stronger market and the share gain opportunity.

Seth I. Sigman: Okay. Thank you for that. Just one follow-up. Richard, you gave us a bunch of sensitivity numbers around the EBIT margins. I guess more specifically on SG&A for this year, I realize there's a number of moving pieces that come back, but can you give us a feel for what base underlying SG&A growth should look like this year? I think the headline guidance is around 4% growth, but maybe it's excluding incentive comp and some of the costs that you're lapping or the benefits that you're lapping, just so we can think about that I'll tell you the best way to look at this is that we are now, and our P&L provides you with an appropriate jumping off point for your models.

Speaker Change: Okay. Thank you for that just one follow up Richard you gave us a bunch of sensitivity numbers around the EBIT margins I guess more specifically on SG&A for this year I realize theres a number of moving pieces that come back, but can you give us a feel for what base underlying SG&A growth should look like this year I think the headline guidance is around 4%.

Richard Mcphail: Growth, but maybe what is it excluding incentive comp and some of the costs that you are lapping with the benefits that you're lapping just so we can think about that thanks.

Richard Mcphail: I'll tell you is the best way to look at this.

Richard Mcphail: Is.

That where we are now our P&L.

Richard Mcphail: Provides you with an appropriate jumping off point for your models. There is a lot of noise in operating expense you think about the geography of the settlement in Q1, you think about the geography of costs that we incurred when you think about the geography of the $500 million and cost out.

Seth I. Sigman: There's a lot of noise in operating expense. You think about the geography of the settlement in Q1, you think about the geography of the costs that we incurred, then you think about the geography of the $500 million in cost out, two-thirds of which will be realized in OPEX, one-third of which will be realized in cost of goods sold, and you just have a lot of noise. Again, the main driver of operating expense growth is going to be inflation on our base of operating expenses.

Richard Mcphail: Two thirds of which will be realized in opex, one third of which will be realized in cost of goods sold.

Just have a lot of noise again, the main driver of operating expense growth is going to be just that.

Richard Mcphail: Inflation on our base of operating expenses.

Richard Mcphail: And and we think that if you look at our our gross margin.

Richard Mcphail: and we think that if you look at our gross margin and our operating margin guide, these offer you the appropriate jumping off points for your model. Got it. All right. Thank you. Good luck.

Richard Mcphail: And our operating margin guide these offer you.

Richard Mcphail: The appropriate jumping off points for your modeling.

Speaker Change: Got it alright. Thank you good luck.

Operator: Christine, we have time for one more question. Thank you. Our final question comes from the line of Steven Forbes with Guggenheim. Please proceed with your question. Good morning, everyone. I'll keep it to one just to end the call here.

Speaker Change: We have time for one more question.

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

Steven Forbes: Good morning, everyone I'll keep it to one just to end the call here I wanted to follow up on the complex pro pad.

Steven Forbes: I wanted to follow up on Complex Pro, Ted. Appreciate the comments and your prepared remarks around trade credit being piloted. I'm curious if you can maybe expand on some early learnings around those newer features being launched as we think through what the sort of managed account customer can contribute to growth over the coming years here.

Steven Forbes: I appreciate the comments in your prepared remarks around around trade credit being piloted.

Steven Forbes: I'm curious if you can maybe expand on some early learnings around those newer features being launched as we think through what the sort of managed account customer can contribute to growth over the coming years here.

Edward P. Decker: Yeah, I'll kick that off. Thanks, Seth. First of all, we're in our early stages.

Speaker Change: I'll kick that off I think.

Speaker Change: That first of all we're in early stages and just as a reminder, as well HD supply.

Edward P. Decker: And just as a reminder, as well, HD Supply does trade credit today. So we're, you know, as we architect our program, there's a lot of learnings there. But what, for me, Chip is in the room, and Chip, you know, you have a lot of experience here with trade credit. And his experience is helping us also form some of the intricacies of how we think about it.

Speaker Change: It does trade credit today so.

Speaker Change: We architect our program there is a lot of unknowns, there, but what.

Speaker Change: To me typically in the room and chip.

Speaker Change: Have a lot of experience here with trade credited his experience is helping us all the form somewhat the intricacies of how we think about it so I'll turn it over to chip, yes. Thanks, Steven trade credit is definitely unnecessary capability that we're building really focused on that complex projects. So as we are.

Ann Marie Campbell: So I'll turn it over to Chip. Yeah, thanks, Stephen. Trade credit is definitely a necessary capability that we're building really focused on that complex project. So as we invest in our professionals and our capabilities to be able to service their larger jobs, trade credit is definitely necessary. So we're in the early days, as Anne mentioned, piloting a number of different customers but plan to grow and expand that over the next couple of quarters as we automate that into our selling system as well.

Chip: Invest in our approach and our capabilities to be able to service their larger jobs trade credit is definitely necessary. So we're in early days as Ann mentioned piloting a number of different customers, but plan to grow and expand that through the next couple of quarters as we automate that into our selling system as well.

Isabel Janci: Thank you. Ms. Janci, I would now like to turn the floor back over to you for closing comments. Thanks, Christine. And thank you everybody for joining us today. We look forward to speaking with you on our first quarterly call. 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.

Speaker Change: Yes.

Speaker Change: Thank you.

MS Jantzen: MS Jantzen I would now like to turn the floor back over to you for closing comments.

Jantzen: Thanks, Christine and thank you everybody for joining US today, we look forward to speaking with you on our first quarter call in May.

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.