Q2 2024 The Home Depot Inc Earnings Call

August 13, 2024

Speaker Change: Have you ever lifted a piece of furniture only to discover the carpet underneath looks brand new, while the rest of it looks, well, not brand new? That's when you realize you need new carpet. At The Home Depot, we have a wide selection of all the top brands. Best of all, installation is included. So all you need to do is choose something that matches your style. Start your carpet project today at The Home Depot. How doers get more done. Installation includes qualifying purchases. Exclusions apply for licenses through homedepot.com plus license numbers.

Unknown Executive: Brand new, while the rest of it looks, well, not brand new. That's when you realize you need new carpets.

Unknown Executive: At the Home Depot, we have a wide selection of all the top brands. Best of all, installation is included. So all you need to do is choose something that matches your style.

Unknown Executive: Start your carpet project today at The Home Depot. How do you get more done?

Unknown Executive: Installation included qualifying purchases, including supplies for licenses at HomeDepot.com, license number.

Unknown Executive: The Home Depot's Pro Extra Week kicks off August 12th, and we're celebrating members with savings on top products, in-store events, and exclusive offers. It's our way of saying thanks.

Speaker Change: The Home Depot's Pro-Extra Week kicks off August 12th. And we're celebrating members with savings on top products, in-store events, and exclusive offers. It's our way of saying thanks. Not a member? Visit homedepot.com slash pro-extra to join now.

Unknown Executive: Not a member, visit Home Depot.com slash Pro Extra to join now. Fast supply powers fast results. Meet more daily demands and keep more jobs on schedule.

Speaker Change: Fast supply powers fast results. Meet more daily demands and keep more jobs on schedule at start to finish supply from the Home Depot. We have exactly what you need in stock and ready for delivery precisely when you need it, any day.

Unknown Executive: Start to finish supply from the Home Depot. We have exactly what you need in stock and ready for delivery precisely when you need it.

Unknown Executive: Any day.

Unknown Executive: Greetings, and welcome to The Home Depot's second quarter, 2020, earnings conference call. At this time, all participants are in a listen-only mode.

Speaker Change: Greetings and welcome to the Home Depot second quarter 2024 earnings conference call. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.

Unknown Executive: A brief question and answer session will follow as a formal presentation. If anyone wants to require operators, sit and stir in the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

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

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

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

Speaker Change: It is now my pleasure to introduce your host, Isabel Janci. Please go ahead.

Isabel Janci: Thank you, Christine, and good morning, everyone. Welcome to Home Depot's second quarter, 2024, or earnings call. Joining us on our call today are Tech, Earth, Chair, President, and CEO, Anne Marie Campbell, Senior Executive Vice President, Billy Bastick, Executive Vice President of Merchandising, and Richard McVale, Executive Vice President of Merchandising.

Isabel Janci: Thank you, Christine, and good morning, everyone. Welcome to Home Depot's second quarter 2024 earnings call.

Speaker Change: Joining us on our call today are tech director, chair, president, and CEO.

Speaker Change: Anne-Marie Campbell, Senior Executive Vice President, Billy Bastek, Executive Vice President of Merchandising, and Richard McPhail, Executive Vice President and Chief Financial Officer.

Unknown Executive: Thank you, Mr. 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.

Speaker Change: 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.

Unknown Executive: If we are unable to get your question during the call, please call our Investor Relations department at 770-384-238-S. 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 projections. These risks and uncertainties include, but are not limited to factors identified in the release and in our filings with the Securities and Exchange Commission.

Speaker Change: If we are unable to get your question during the call, please call our Investor Relations Department at 770-384-2387.

Speaker Change: Before I turn the call over to Ted...

Speaker Change: Let me remind you that today's press release and the presentations made by our executives include forward-looking statements,

Speaker Change: as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.

Speaker Change: These risks and uncertainties include, but are not limited, to factors identified in the release and in our filings with the Securities and Exchange Commission.

Unknown Executive: Today's presentation will also include certain non-GAAP measures, including but not limited to adjusted income, adjusted operating margins, and adjusted diluted earnings per share.

Speaker Change: Today's presentation will also include certain non-GAAP measures, including but not limited to adjusted income, adjusted operating margins, and adjusted diluted earnings per share.

Unknown Executive: For reconciliation of these and other non-GAAP measures to our corresponding GAAP measures, please refer to our earnings press release and our website.

Ted: For a reconciliation of these and other non-GAAP measures to our corresponding GAAP measures, please refer to our earnings press release and our website. Now let me turn the call over to Ted.

Unknown Executive: Now, let me turn the call over to Ted. Thank you, Isabella.

Ted: Good morning, everyone. Sales for the second quarter were 43.2 billion dollars. Scholars, an increase of 0.6% from the same period last year. Our sales in the quarter include $1.3 billion from SRS. We call that we close on the SRS acquisition on June 18th, and we've included approximately six weeks of their performance in our consolidated results. Comp sales declined 3.3% from the same period last year, and our US stores had negative comps of 3.6%. Adjusted diluted earnings per share were $4.67 in the second quarter, compared to $4.68 in the second quarter last year. The team continues to navigate this unique environment while executing at a high level.

Ted: Thank you Isabel and good morning everyone. Sales for the second quarter were $43.2 billion, an increase of 0.6% from the same period last year.

Ted: Our sales in the quarter include $1.3 billion from SRS. Recall that we closed on the SRS acquisition on June 18th, and we've included approximately six weeks of their performance in our consolidated results.

Unknown Executive: Brand new, while the rest of it looks, well, not brand new. That's when you realize you need new carpets. At the Home Depot, we have a wide selection of all the top brands. Best of all, installation is included. So all you need to do is choose something that matches your style. Start your carpet project today at the Home Depot.

Ted: Comp sales declined 3.3% from the same period last year, and our U.S. stores had negative comps of 3.6%.

Unknown Executive: How do you get more done? Installation included qualifying purchases, including supplies for licenses at Home Depot.com, license number.

Ted: Adjusted diluted earnings per share were $4.67 in the second quarter, compared to $4.68 in the second quarter of last year. The team continues to navigate this unique environment while executing at a high level.

Ted: During the quarter, higher interest rates and greater macroeconomic uncertainty pressured consumer demand more broadly, resulting in weaker spend across home improvement projects. Additionally, we saw continued softness in spring projects, which were also impacted by the extreme weather changes throughout the quarter.

Ted: During the quarter, higher interest rates and greater macroeconomic uncertainty pressured consumer demand more broadly, resulting in weaker spend across home improvement projects.

Unknown Executive: Fast supply, powers fast results. Meet more daily demands and keep more jobs on schedule. Start to finish supply from the Home Depot. We have exactly what you need in stock and ready for delivery precisely when you need it.

Ted: Additionally, we saw continued softness in spring projects, which were also impacted by the extreme weather changes throughout the quarter.

Ted: When we look at the performance in the first six months of the year, as well as continued uncertainty around underlying consumer demand, we believe a more cautious sales outlook is warranted for the year. Richard will take you through the details in a moment, believing that now guiding to account sales decline of approximately 3% to 4% for fiscal 2024. Regardless of the current pressure in the environment, our team remains focused on serving our customers and ensuring we have the right products at the right values. And we remain focused on long-term share growth in the highly fragmented, approximately $1 trillion home improvement market.

Unknown Executive: Any day?

Unknown Executive: Greetings, and welcome to the Home Depot 2nd quarter, 2020, or earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow as a formal presentation. If anyone wants to require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Ted: Richard will take you through the details in a moment, but we are now guiding to a comp sales decline of approximately 3-4% for fiscal 2024.

Richard: Regardless of the current pressure in the environment, our team remains focused on serving our customers.

Isabel Janci: It is now my pleasure to introduce your host, Isabel Jansi. Please go ahead. Thank you, Christine, and good morning, everyone.

Richard: in ensuring we have the right products at the right values.

Unknown Executive: Welcome to Home Depot 2nd quarter, 2024, or earnings call.

Richard: and we remain focused on long-term share growth in the highly fragmented approximately 1 trillion dollar home improvement market.

Unknown Executive: Joining us on our call today are Tech, Earth, Chair, President, and CEO, Anne Marie Campbell, Senior Executive Vice President, Billy Bastick, Executive Vice President of Merchandising, and Richard McVale, Executive Vice President of Merchandising. Thank you, Mr. 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. If we are unable to get your question during the call, please call our investor relations department at 770-384-238-S.

Ted: Remember, we operate in one of the largest asset classes, which is estimated at approximately $45 trillion, representing the installed base of homes in the United States. Today, we have roughly 17% market share with tremendous growth potential.

Richard: Remember, we operate in one of the largest asset classes, which is estimated at approximately $45 trillion, representing the installed base of homes in the United States.

Richard: Today, we have roughly 17% market share with tremendous growth potential.

Ted: That is why we have been investing in executing on our strategy to create the best interconnected experience for a pro wallet share through a differentiated set of capabilities and build new stores.

Richard: That is why we have been investing and executing on our strategy to create the best interconnected experience for a pro wallet share through a differentiated set of capabilities and build new stores.

Ted: Now, we will take a few moments to comment on our acquisition of SRS Distribution. SRS has an exceptional team with a proven growth track record, and we are thrilled to welcome them into the Home Depot family. While our financials only reflect the portion of their first half performance for the first six month period matching our first half, they generated high single-digit top line growth while growing operating income largely in line with sales, compared to the previous year. We are incredibly excited about what we can achieve together by leveraging our combined assets, capabilities, and competitive advantages.

Richard: Now we'll take a few moments to comment on our acquisition of SRS distribution.

Richard: SRS has an exceptional team with a proven growth track record and we are thrilled to welcome them into the Home Depot family.

Unknown Executive: 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 Security's litigation reform act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to factors identified in the release and in our filings with the Securities and Exchange Commission.

Richard: While our financials only reflect a portion of their first half performance, for the first six-month period matching our first half, they generated high single-digit top-line growth while growing operating income largely in line with sales, compared to the previous year.

Richard: We are incredibly excited about what we can achieve together by leveraging our combined assets, capabilities, and competitive advantages.

Ted: We plan to drive incremental growth through several sales and cross-energy opportunities. We will make their more comprehensive product offering in roofing, pool, and landscape available to all our customers through our pro desk. And we will offer SRS customers a form of credit to their account, which will make purchases at Home Depot stores much more convenient. The fundamentals of the home improvement market remain strong. We have significant growth opportunities. in front of us. We are gaining share of all with our customers whether they are shopping in our stores, on our digital assets, or through our pro ecosystem.

Richard: We plan to drive incremental growth through several sales and cross-synergy opportunities.

Unknown Executive: Today's presentation will also include certain non-gap measures, including but not limited to adjusted income, adjusted operating margins, and adjusted deluded earnings for share. For reconciliation of these and other non-gap measures to our corresponding gap measures, please refer to our earnings press release and our website.

Richard: We'll make their more comprehensive product offering in roofing, pool, and landscape available to all our customers through our ProDesk.

Speaker Change: And we'll offer SRS customers a form of credit tied to their account, which will make purchases at Home Depot stores much more convenient.

Speaker Change: The fundamentals of the home improvement market remain strong, and we have significant growth opportunities in front of us.

Unknown Executive: Now, let me turn the call over to Ted. Thank you, Isabella.

Ted: Good morning, everyone. Sales for the second quarter were 43.2 billion dollars, dollars, an increase of 0.6 percent from the same period last year. Our sales in the quarter include $1.3 billion from SRS. We call that we close on the SRS acquisition on June 18th, and we've included approximately six weeks of their performance, and our consolidated results. Comp sales declined 3.3 percent from the same period last year, and our US stores had negative comps of 3.6 percent.

Speaker Change: We are gaining share of wallet with our customers, whether they are shopping in our stores, on our digital assets, or through our pro ecosystem.

Ted: Our merchants, store net teens, supplier partners, and supply chain teams are always ready to serve in any environment.

Speaker Change: Our merchants, store and MET teams, supplier partners, and supply chain teams are always ready to serve in any environment.

Ted: They did an outstanding job delivering value and service to our customers throughout the quarter, and I'd like to close by thanking them for their dedication and hard work.

Speaker Change: They did an outstanding job delivering value and service to our customers throughout the quarter And I'd like to close by thanking them for their dedication and hard work

Anne Marie Campbell: With that, let me turn the call over to Anne. Thanks, Ted, and good morning, everyone. As you heard from Ted, despite the environment, our associates continue to be engaged and ready to serve our customers. We know that delivering the best shopping experience for any purchase occasion is critical to our success. That is why we continue to invest in our associates, our in-store capabilities, our fulfillment channels, and the customer experience. Over the past year, we have talked about the tools that help us create this differentiated experience. Specifically, our focus on in stock and on shelf availability or OSA with our site kick and computer vision applications.

Speaker Change: With that, let me turn the call over to Anne.

Anne: Thanks Ted and good morning everyone. As you heard from Ted, despite the environment, our associates continue to be engaged and ready to serve our customers.

Ted: Adjusted deluded earnings per share were $4.67 in the second quarter, compared to $4.68 in the second quarter last year. The team continues to navigate this unique environment while executing at a high level. During the quarter, higher interest rates and greater macroeconomic uncertainty, pressured consumer demand more broadly, resulting in weaker spend across home improvement projects. Additionally, we saw continued softness in spring projects, which were also impacted by the extreme weather changes throughout the quarter. When we look at the performance in the first six months of the year, as well as continued uncertainty around underlying consumer demand, we believe in more cautious sales outlook is warranted for the year.

Anne: We know that delivering the best shopping experience for any purchase occasion is critical to our success.

Anne: That is why we continue to invest in our associates, our in-store capabilities, our fulfillment channels, and the customer experience.

Anne: Over the past year, we have talked about the tools that help us create this differentiated experience.

Anne: Specifically, our focus on in-stock and on-shelf availability, or OSA, with our Sidekick and computer vision applications.

Anne Marie Campbell: Today, our in stock and OSA are at best-in-class levels and provide a foundation for a fast in-and-out convenient experience that many of our customers desire, especially our pro customers. We have also enhanced the tools our associates use for our in-store pros and specialty selling. Within the MyView tool, which has many in-store applications, we have given our associates better visibility to our customer's activity with the Home Depot. For example, for our in-store pros, we can see sales trends, specific buying patterns, and expiring perks, equipping our associates with insights to better partner, share wallet, and deliver value for our customers.

Anne: Today, our in-stock and OSA are at best in-class levels and provides the foundation for a fast in-and-out convenient experience that many of our customers desire, especially our pro-customers.

Richard: Richard will take you to the details in a moment, brilliant, now guiding, to account sales decline of approximately 3 to 4 percent for fiscal 2024. Regardless of the current pressure in the environment, our team remains focused on serving our customers and ensuring we have the right products at the right values. And we remain focused on long-term share growth in the highly-fragmented, approximately $1 trillion home improvement market. Remember, we operate in one of the largest asset classes, which is estimated at approximately $45 trillion, representing the installed base of homes in the United States.

Anne: We have also enhanced the tools our associates use for our in-store pros and specialty selling.

Anne: Within the MyView tool, which has many in-store applications, we have given our associates better visibility to our customers' activity with the Home Depot.

Anne: For example, for our in-store pros, we can see sales trends, specific buying patterns, and expiring perks, equipping our associates with insights to better partner, grow share of wallet, and deliver value for our customers.

Richard: Today, we have roughly 17 percent market share with tremendous growth potential. That is why we have been investing and executing on our strategy to create the best interconnected experience for a pro-wallet share through a differentiated set of capabilities and built-new stores.

Anne Marie Campbell: To drive conversion for specialty customers, we launched a new platform known as Pipeline Management that enables interconnected product selling for kitchen designs. With this tool, associates and store leaders will now be able to have a consolidated digital view of their pipeline and all activities related to a customer's journey. This allows associates to more easily manage multiple complex projects while more effectively communicating with your customers throughout their journey. Additionally, we continue to make progress on organic efforts around our different assets and capabilities to grow share of wallet with a complex project purchase occasion. We are pleased to announce that we now have key focal capabilities in 17 markets, including a broader product assortment, digital assets, sales force, and broader fulfillment options.

Anne: To drive conversion for specialty customers, we launched a new platform known as Pipeline Management that enables interconnected project selling for kitchen designs.

Richard: Now, I'll take a few moments to comment on our acquisition of SRS distribution. SRS has an exceptional team with a proven growth track record and we are thrilled to welcome them into the Home Depot family. While our financials only reflect a portion of their first half performance for the first six month period matching our first half, they generated high single-digit top-line growth while growing operating income largely in line with sales, compared to the previous year.

Anne: With this tool, associates and store leaders will now be able to have a consolidated digital view of their pipeline and all activities related to a customer's journey.

Anne: This allows associates to more easily manage multiple complex projects while more effectively communicating with our customers throughout their journey.

Richard: We are incredibly excited about what we can achieve together by leveraging our combined assets, capabilities, and competitive advantages. We plan to drive incremental growth through several sales and cross-energy opportunities. We'll make their more comprehensive product offering in roofing, pool, and landscape available to all our customers through our pro-desk, and we'll offer SRS customers a form of credit to their account, which will make purchases at Home Depot stores much more convenient.

Anne: Additionally, we continue to make progress on our organic efforts around our different assets and capabilities to grow share of wallet with a complex project purchase occasion.

Anne: We are pleased to announce that we now have key full capabilities in 17 markets, including a broader product assortment, digital assets, a sales force, and broader fulfillment options.

Anne Marie Campbell: Productions. Our trade credit pilot program is also on the way, and while it's still early days, we have seen the program resonate with our customers and the benefits of extended credit for larger scale projects that are states for a longer period of time. We are also making progress on our order management system as we continue to roll out enhancements to the end-to-end selling system. We are very excited about for continued success serving the complex project purchase occasion and are focused on delivering the best customer service to all of our customers. Our store readiness and execution is strong, and our associates are engaged.

Anne: Our Trade Credit Pilot Program is also underway, and while it's still early days, we've seen the program resonate with our customers and the benefits of extending credit for larger-scale projects that are staged over a longer period of time.

Unknown Executive: The fundamentals of the home improvement market remain strong. We have significant growth opportunities, in front of us. We are gaining share of all with our customers, whether they are shopping in our stores on our digital assets or through our pro ecosystem. Our merchants, store net teens, supplier partners, and supply chain teams are always ready to serve in any environment.

Anne: We are also making progress on our order management system as we continue to roll out enhancements to the end-to-end selling system.

Unknown Executive: They did an outstanding job delivering value and service to our customers throughout the quarter, and I'd like to close by thanking them for their dedication and hard work.

Anne: We are very excited about our continued success serving the complex project purchase occasion and are focused on delivering the best customer service to all our customers.

Anne Marie Campbell: With that, let me turn the call over to Anne. Thanks Ted and good morning everyone. As you heard from Ted, despite the environment, our associates continue to be engaged and ready to serve our customers.

Speaker Change: Our store readiness and execution is strong, and Orr Associates are engaged. I look forward to the many opportunities ahead of us, and I want to thank all Orr Associates for all they do to take care of our customers.

Anne Marie Campbell: I look forward to the many opportunities ahead of us, and I want to thank all our associates for all they do to take care of our customers.

Anne Marie Campbell: We know that delivering the best shopping experience for any purchase occasion is critical to our success. That is why we continue to invest in our associates, our in store capabilities, our fulfillment channels, and the customer experience. Over the past year, we have talked about the tools that help us create this differentiated experience. Specifically, our focus on in stock and on shelf availability or OSA with our site kick and computer vision applications.

Billy Bastek: With that, let me turn the call over to Billy. Thank you, Anne. Good morning, everyone.

Speaker Change: With that, let me turn the call over to Billy. Thank you, Anne, and good morning, everyone.

Billy Bastek: I want to start by also thanking all of our associates and supplier partners for their ongoing commitment to serving our customers and communities. As you heard from Ted during the second quarter, the higher interest rate environment and greater macroeconomic uncertainty pressured overall project demand. In addition, our sales reflect the software spring selling season, which was also impacted by extreme changes in the weather throughout the quarter. Turning to our merchandising department comp performance for the second quarter, our plumbing department posted a positive comp, while power, building materials, appliances, and paint were all above the company average.

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

Billy: As you heard from Ted, during the second quarter, the higher interest rate environment and greater macroeconomic uncertainty pressured overall project demand.

Billy: In addition, our sales reflect the softer spring selling season, which was also impacted by extreme changes in the weather throughout the quarter.

Anne Marie Campbell: Today, our in stock and OSA are at best in class levels and provides a foundation for a fast in and out convenient experience that many of our customers desire, especially our pro customers. We have also enhanced the tools our associates use for our in store pros and specialty selling. Within the MyView tool, which has many in store applications, we have given our associates better visibility to our customer's activity with the Home Depot.

Speaker Change: Turning to our merchandising department comp performance for the second quarter, our plumbing department posted a positive comp while power, building materials, appliances, and paint were all above the company average.

Billy Bastek: During the second quarter, our contouring actions decreased to 2.2 percent, and compared to ticket decreased to 1.3 percent. However, during the quarter, we continued to see our customers trading out for new and innovative products. Big ticket contouring actions are those over $1,000 for down 5.8 percent compared to the second quarter of last year. We continued to see software engagement in larger discretionary projects, or customers typically use financing to fund the project, such as kitchen and bathroom models. Pros outperform the DIY customer, but both were negative for the quarter. We saw positive growth with pros who engaged in our ProExtra program, deliveries to the job site, and our B2B website.

Speaker Change: During the second quarter, our comp transactions decreased 2.2% and comp average tickets decreased 1.3%.

Anne Marie Campbell: For example, for our in store pros, we can see sales trends, specific buying patterns, and expiring perks, equipping our associates with insights to better partner, will share wallet and deliver value for our customers. To drive conversion for specialty customers, we launched a new platform known as pipeline management that enables interconnected product selling for kitchen designs. With this tool, associates and store leaders will now be able to have a consolidated digital view of their pipeline and all activities related to a customer's journey.

Speaker Change: However, during the quarter, we continued to see our customers trading up for new and innovative products.

Speaker Change: Big-ticket comp transactions for those over $1,000 were down 5.8% compared to the second quarter of last year.

Speaker Change: We continue to see softer engagement in larger, discretionary projects where customers typically use financing to fund the project, such as kitchen and bath remodels.

Speaker Change: Prozell performed the DIY customer but both were negative for the quarter.

Speaker Change: We saw positive growth with pros who engaged in our ProExtra program, deliveries to the job site, and our B2B website.

Billy Bastek: Turning to total company online sales, sales leveraging our digital platforms increased to approximately 4 percent compared to the second quarter of last year. And for those customers that chose to transact with us online during the second quarter, nearly half of our online orders were fulfilled through our stores. In addition, during the second quarter, we expanded our partnership with Instacart to improve the interconnected shopping experience nationwide. While we are still in the early days of our expanded partnership, we are encouraged with the results we are seeing. During the second quarter, we leaned into products and projects that are resonating with our customers.

Speaker Change: Turning to Total Company Online Sales.

Speaker Change: Sales leveraging our digital platforms increased approximately 4% compared to the second quarter of last year. And for those customers that chose to transact with us online during the second quarter, nearly half of our online orders were fulfilled through our stores.

Anne Marie Campbell: This allows associates to more easily manage multiple complex projects while more effectively communicating with your customers throughout their journey. Additionally, we continue to make progress on organic efforts around or different assets and capabilities to grow share of wallet with a complex project purchase occasion. We are pleased to announce that we now have key focal capabilities in 17 markets, including a broader product assortment, digital assets, sales force, and broader fulfillment options. Our trade credit pilot program is also on the way, and while it's still early days, we have seen the program resonate with our customers and the benefits of extended credit for larger scale projects that are staged for a longer period of time. Our project is not for continued success, serving the complex project participation and are focused on delivering the best customer service to all or customers. Our store readiness and execution is strong and our associates are engaged.

Speaker Change: In addition, during the second quarter, we expanded our partnership with Instacart to improve the interconnected shopping experience nationwide.

Speaker Change: While we are still in the early days of our expanded partnership, we are encouraged with the results we are seeing.

Speaker Change: During the second quarter, we leaned into products and projects that are resonating with our customers.

Billy Bastek: We updated some line structures focused on innovation and continued to deliver a compelling value proposition while focusing on the customer. Experience. For example, we upgraded the durability of all life-proof vinyl plank while also introducing untrained colors, patterns, and lengths. This helped drive positive comps in the category for the quarter. In water heaters, we recently modified our line structure to better serve the pro-customer needs. We simplified our value proposition, adding new and better features, which drove increased engagement in the category. And in paint, we continue to see the benefits of the investments we are making around our products and our fulfillment options, including our in-store service and job site delivery capabilities with the pro-who paints, driving continued share gains in the quarter.

Speaker Change: We updated some line structures focused on innovation and continued to deliver a compelling value proposition while focusing on the customer experience.

Speaker Change: For example, we upgraded the durability of our life-proof vinyl plank while also introducing on-trend colors, patterns, and lengths. This helped drive positive comps in the category for the quarter.

Speaker Change: In water heaters, we recently modified our line structure to better serve the pro-customer needs. We simplified our value proposition, adding new and better features, which drove increased engagement in the category.

Speaker Change: And in paint, we continue to see the benefits of the investments we are making around our products and our fulfillment options, including our in-store service and job site delivery capabilities with the Pro Who Paints, driving continued share gains in the quarter.

Billy Bastek: And finally, we continue to see tremendous success in our outdoor power equipment categories, driving both positive units and dollar comps in the quarter. As we've mentioned before, we have built a strong competitive advantage with our extensive lineup of battery powered platforms that allows us to continue to grow share in these categories.

Speaker Change: And finally, we continue to see tremendous success in our outdoor power equipment categories, driving both positive unit and dollar comps in the quarter.

Speaker Change: As we've mentioned before, we have built a strong competitive advantage with our extensive lineup of battery-powered platforms that allows us to continue to grow share in these categories.

Anne Marie Campbell: I look forward to the many opportunities ahead of us and I want to thank all our associates for all they do to take care of our customers.

Billy Bastek: As we look ahead to the third quarter, our merchandising organization remains focused on being our customers' advocate for value. This means continuing to provide a broad assortment of best-in-class products that are in stock and available for our customers when they need it. We will also continue to lean into products that simplify the project, saving our customers time and money. That's why I'm so excited about the innovation we continue to bring to the market. This quarter, we are launching the first-to-market Smart Glass Door with Feather River. Feather River is a leader in the fiberglass door market and continues to bring innovation to our customers.

Speaker Change: As we look ahead to the third quarter, our merchandising organization remains focused on being our customers' advocate for value. This means continuing to provide a broad assortment of best-in-class products that are in stock and available for our customers when they need it.

Billy Bastek: With that, let me turn the call over to Billy. Thank you Anne, good morning everyone. I want to start by also thanking all of our associates and supplier partners for their ongoing commitment to serving our customers and communities.

Speaker Change: We will also continue to lean into products that simplify the project, saving our customers time and money. That's why I'm so excited about the innovation we continue to bring to the market.

Billy Bastek: As you heard from Ted during the second quarter, the higher interest rate environment in greater macroeconomic uncertainty pressured overall project demand. In addition, our sales reflect the software spring selling season which was also impacted by extreme changes in the weather throughout the quarter. Turning to our merchandising department comp performance for the second quarter, our plumbing department posted a positive comp while power, building materials, appliances, and paint were all above the company average.

Speaker Change: This quarter, we are launching the first-to-market smart glass door with Feather River.

Speaker Change: Feather River is a leader in the fiberglass door market and continues to bring innovation to our customers.

Billy Bastek: This new door technology allows customers to easily change the glass from privacy or frosted to clear with a push of a button and is compatible with our hub space ecosystem. This will be exclusive to the Home Depot and the big box retail channel. Additionally, we continue to lean in with our exclusive partner, Milwaukee, across the business and have seen great adoption of electrical hand tools. Our partnership is expanding with a broader assortment of made-in-the-USA tools. These tools provide a high degree of precision with lasting results for our customers and will continue to strengthen our position as the number one destination for the electrical trade in the Big Box retail channel.

Speaker Change: This new door technology allows customers to easily change the glass from privacy or frosted to clear with a push of a button and is compatible with our HubSpace ecosystem.

Speaker Change: This will be exclusive to the Home Depot and the Big Box Retail Channel.

Billy Bastek: During the second quarter, our contouring actions decreased to 2.2% and compared to ticket decreased to 1.3%. However, during the quarter, we continued to see our customers trading out for new and innovative products. Big ticket contouring actions are those over $1,000 for down 5.8% compared to the second quarter of last year. We continued to see software engagement in larger discretionary projects or customers typically use financing to fund the project such as kitchen and bathroom models.

Speaker Change: Additionally, we continue to lean in with our exclusive partner Milwaukee across the business and have seen great adoption of electrical hand tools.

Speaker Change: Our partnership is expanding with a broader assortment of made-in-the-USA tools.

Speaker Change: These tools provide a high degree of precision with lasting results for our pro customers and will continue to strengthen our position as the number one destination for the electrical trade in the big box retail channel.

Richard Mcphail: With that, I'd like to turn the call over to Richard. Thank you, Billy, and good morning, everyone. In the second quarter, total sales were $43.2 billion, an increase of approximately 0.6% from last year. Total sales include $1.3 billion from the recent acquisition of SRS, which represents approximately six weeks of sales in the quarter. During the second quarter, our total company, COPS, were negative 3.3% with COPS of negative 3.7% in May, negative 0.9% in June, and negative 4.9% in July. COPS in the US were negative 3.6% for the quarter, with COPS of negative 4.1% in May, negative 1.4% in June, and negative 5% in July.

Speaker Change: With that, I'd like to turn the call over to Richard. Thank you, Billy, and good morning, everyone.

Billy Bastek: Pros out perform the DIY customer but both were negative for the quarter. We saw positive growth with pros who engaged in our ProExtra program deliveries to the job site and our B2B website. Turning to total company online sales, sales leveraging our digital platforms increased to approximately 4% compared to the second quarter of last year. For those customers that chose to transact with us online during the second quarter, nearly half of our online orders were fulfilled through our stores.

Richard: In the second quarter, total sales were $43.2 billion, an increase of approximately 0.6% from last year.

Richard: Total sales include 1.3 billion dollars from the recent acquisition of SRS, which represents approximately six weeks of sales in the quarter.

Speaker Change: During the second quarter, our total company comps were negative 3.3 percent.

Speaker Change: with comps of negative 3.7% in May, negative 0.9% in June, and negative 4.9% in July.

Billy Bastek: In addition, during the second quarter, we expanded our partnership with Instacart to improve the interconnected shopping experience nationwide. While we are still in the early days of our expanded partnership, we are encouraged with the results we are seeing. During the second quarter, we leaned into products and projects that are resonating with our customers. We updated some line structures focused on innovation and continued to deliver a compelling value proposition while focusing on the customer experience.

Speaker Change: Comps in the U.S. were negative 3.6% for the quarter, with comps of negative 4.1% in May, negative 1.4% in June, and negative 5% in July.

Richard Mcphail: In the second quarter, our gross margin was approximately 33.4%, an increase of 40 basis points from the second quarter last year, primarily driven by benefits from lower transportation cost and shrink, partially offset by mix as a result of the SRS acquisition. During the second quarter, operating expense as a percent of sales increased approximately 65 basis points. To 18.3% compared to the second quarter of 2023, our operating expense performance was in line with our expectations.

Speaker Change: In the second quarter, our gross margin was approximately 33.4%, an increase of 40 basis points from the second quarter last year.

Billy Bastek: Experience. For example, we upgraded the durability of all life-proof vinyl plank while also introducing untrained colors, patterns, and lengths. This helped drive positive comps in the category for the quarter. In Waterviews, we recently modified our line structure to better serve the pro-customer needs. We simplified our value proposition, adding new and better features which drove increased engagement in the category. And in paint, we continue to see the benefits of the investments we are making around our products and our fulfillment options, including our in-store service and job site delivery capabilities with the pro-who paints, driving continued share gains in the quarter.

Speaker Change: primarily driven by benefits from lower transportation costs and shrink.

Speaker Change: partially offset by mix as a result of the SRS acquisition.

Speaker Change: During the second quarter, operating expense as a percent of sales increased approximately 65 basis points.

Speaker Change: to 18.3% compared to the second quarter of 2023. Our operating expense performance was in line with our expectations.

Richard Mcphail: Beginning this quarter, in addition to our gap measures, we are providing the following non-gap measures: adjusted operating income, adjusted operating margin, and adjusted diluted earnings per share, which excludes non-cash amortization of our budget. Of acquired intangible assets, we believe these supplemental measures will help investors better understand and analyze our performance. Our operating margin for the second quarter was 15.1%, compared to 15.4% in the second quarter of 2023. In the quarter, free tax intangible asset amortization was $90 million, including $39 million related to SRS. Excluding the intangible asset amortization in the quarter, our adjusted operating margin for the second quarter was 15.3%, compared to 15.5% in the second quarter of 2023.

Speaker Change: Beginning this quarter, in addition to our GAP measures,

Speaker Change: We are providing the following non-GAAP measures.

Speaker Change: adjusted operating income, adjusted operating margin, and adjusted diluted earnings per share, which excludes non-cash amortization of acquired intangible assets.

Billy Bastek: Finally, we continue to see tremendous success in our outdoor power equipment categories, driving both positive units and dollar comps in the quarter. As we've mentioned before, we have built a strong competitive advantage with our extensive lineup of battery-powered platforms that allows us to continue to grow share in these categories.

Speaker Change: We believe these supplemental measures...

Speaker Change: will help investors better understand and analyze our performance.

Speaker Change: Our operating margin for the second quarter was 15.1% compared to 15.4%

Billy Bastek: As we look ahead to the third quarter, our merchandising organization remains focused on being our customers' advocates for value. This means continuing to provide a broad assortment of best-in-class products that are in stock and available for our customers when they need it. We will also continue to lean into products that simplify the project, saving our customers time and money. That's why I'm so excited about the innovation we continue to bring to the market.

Speaker Change: in the second quarter of 2023.

Speaker Change: In the quarter, free tax intangible asset amortization was $90 million, including $39 million related to SRS.

Speaker Change: Excluding the intangible asset amortization in the quarter.

Speaker Change: Our adjusted operating margin for the second quarter.

Billy Bastek: This quarter, we are launching the first-to-market smart glass door with Feather River. Feather River is a leader in the fiberglass door market and continues to bring innovation to our customers. This new door technology allows customers to easily change the glass from privacy or frosted to clear with a push of a button and is compatible with our hub space ecosystem. This will be exclusive to the Home Depot and the Big Box retail channel.

Speaker Change: was 15.3%.

Speaker Change: compared to 15.5% in the second quarter of 2023.

Richard Mcphail: Interest and other expense for the second quarter increased by $61 million to $489 million due primarily to higher debt balances than a year ago. In the second quarter, our effective tax rate was 24.5%, compared to 24.4% in the second quarter of fiscal 2023. Our deluded earnings per share for the second quarter were $4.60, a decrease of approximately 1% compared to the second quarter of 2023. Excluding intangible asset amortization, our adjusted diluted earnings per share for the second quarter were $4.67, essentially flat compared to the second quarter of 2023. During the second quarter, we opened three new stores, bringing our total store count to 2,340.

Speaker Change: Interest and other expense for the second quarter increased by $61 million.

Speaker Change: to $489 million due primarily to higher debt balances than a year ago.

Speaker Change: In the second quarter, our effective tax rate was 24.5%.

Billy Bastek: Additionally, we continue to lean in with our exclusive partner Milwaukee across the business and have seen great adoption of electrical hand tools. Our partnership is expanding with a broader assortment of made-in-the-USA tools. These tools provide a high degree of precision with lasting results for our customers and will continue to strengthen our position as the number one destination for the electrical trade in the Big Box retail channel.

Speaker Change: compared to 24.4% in the second quarter of fiscal 2023.

Speaker Change: Our diluted earnings per share for the second quarter were $4.60, a decrease of approximately 1% compared to the second quarter of 2023.

Speaker Change: Excluding intangible asset amortization.

Speaker Change: Our adjusted diluted earnings per share for the second quarter were $4.67.

Richard: With that, I'd like to turn the call over to Richard. Thank you, Billy, and good morning, everyone. In the second quarter, total sales were $43.2 billion and increase of approximately 0.6% from last year. Total sales include $1.3 billion from the recent acquisition of SRS, which represents approximately six weeks of sales in the quarter. During the second quarter, our total company COPS were negative 3.3% with COPS of negative 3.7% in May, negative 0.9% in June, and negative 4.9% in July.

Speaker Change: essentially flat compared to the second quarter of 2023.

Speaker Change: During the second quarter, we opened three new stores bringing our total store count to 2,340.

Richard Mcphail: Retail selling square footage was approximately 243 million square feet. At the end of the quarter, merchandise inventories were $23.1 billion, down approximately $200 million compared to the second quarter of 2023.

Speaker Change: Retail selling square footage was approximately 243 million square feet.

Speaker Change: At the end of the quarter, merchandise inventories were $23.1 billion, down approximately $200 million compared to the second quarter of 2023. And inventory turns were.

Richard Mcphail: In inventory turns were $720 million, back into our business in the form of capital expenditure.

Speaker Change: [inaudible]

Speaker Change: approximately 720 million dollars back into our business in the form of capital expenditures.

Richard Mcphail: Doctors. And during the quarter, we paid approximately $2.2 billion in dividends to our shareholders. Our disciplined approach to capital allocation remains unchanged. First and foremost, we will invest in the business and expect capital expenditures of approximately 2% of sales on an annual basis. After investing in the business, we plan to pay the dividend, and it is our intent to return any excess cash to shareholders in the form of share repurchases. Computed on the average of beginning and ending long term debt and equity for the trailing 12 months, return on an invested capital is approximately 31.9%, down from 41.5% in the second quarter of fiscal 2023.

Richard: COPS in the US were negative 3.6% for the quarter with COPS of negative 4.1% in May, negative 1.4% in June, and negative 5% in July. In the second quarter, our gross margin was approximately 33.4%, an increase of 40 basis points from the second quarter last year, primarily driven by benefits from lower transportation cost and shrink, partially offset by mix as a result of the SRS acquisition. During the second quarter, operating expense as a percent sales increased approximately 65 basis points to 18.3% compared to the second quarter of 2023. Our operating expense performance was in line with our expectations.

Speaker Change: And during the quarter, we paid approximately $2.2 billion in dividends to our shareholders.

Speaker Change: Our disciplined approach to capital allocation remains unchanged.

Speaker Change: First and foremost, we will invest in the business and expect capital expenditures of approximately 2% of sales on an annual basis.

Speaker Change: After investing in the business, we plan to pay the dividend and it is our intent to return any excess cash to shareholders in the form of share repurchases.

Speaker Change: computed on the average of beginning and ending long-term debt and equity for the trailing 12 months.

Speaker Change: Return on invested capital is approximately 31.9%, down from 41.5% in the second quarter of fiscal 2023.

Richard Mcphail: Now I will comment on our updated outlook for Fiscal 2024. As you heard from Ted, given the softer-than-expected performance in the first half of the year, and reflecting continued uncertainty around underlying consumer demand, we believe a more cautious outlook for the year is warranted. With the recent closing of the SRS acquisition, we are now including their results in our consolidated outlook for the year. For the period matching our first half, which includes periods prior to the acquisition and not fully reflected in our financial statements, SRS generated high single-digit percentage sales growth, with operating income growing largely in line with sales.

Speaker Change: Now I will comment on our updated outlook for fiscal 2024.

Richard: Beginning this quarter, in addition to our gap measures, we are providing the following non-gap measures, adjusted operating income, adjusted operating margin and adjusted deluded earnings per share, which excludes non-tash amortization of acquired intangible assets. We believe these supplemental measures will help investors better understand and analyze our performance. Our operating margin for the second quarter was 15.1%, compared to 15.4% in the second quarter of 2023. In the quarter, free tax intangible asset amortization was $90 million, including $39 million related to SRS.

Speaker Change: As you heard from Ted, given the softer than expected performance in the first half of the year and reflecting continued uncertainty around underlying consumer demand.

Speaker Change: We believe a more cautious outlook for the year is warranted.

Speaker Change: With the recent closing of the SRS acquisition, we are now including their results in our consolidated outlook for the year.

Speaker Change: for the period matching our first half, which includes periods prior to the acquisition.

Speaker Change: and not fully reflected in our financial statements.

Speaker Change: SRS generated high single-digit percentage sales growth.

Richard Mcphail: We believe that over the next several years, SRS on its own and through our combined pro efforts will help accelerate sales and earnings growth for our company. Updating our fiscal 2024 guidance for the factors we just discussed, we now expect total sales growth between 2.5% and 3.5%, including the SRS acquisition in the 53rd week. The 53rd week is projected to add approximately 2.3 billion dollars to total sales. SRS is expected to contribute approximately $6.4 billion in incremental sales. Comparable sales are expected to decline between negative 3 and negative 4% for the 52-week period. The high end of our range implies a consumer demand environment consistent with the first half of fiscal 2024.

Speaker Change: with operating income growing largely in line with sales.

Speaker Change: We believe that over the next several years, SRS, on its own and through our combined pro efforts, will help accelerate sales and earnings growth for our company.

Richard: Excluding the intangible asset amortization in the quarter, our adjusted operating margin for the second quarter was 15.3%, compared to 15.5% in the second quarter of 2023. Interest and other expense for the second quarter increased by $61 million to $489 million due primarily to higher debt balances than a year ago. In the second quarter, our effective tax rate was 24.5%, compared to 24.4% in the second quarter of fiscal 2023. Our deluded earnings per share for the second quarter were $4.60, a decrease of approximately 1% compared to the second quarter of 2023. Excluding intangible asset amortization, our adjusted deluded earnings per share for the second quarter were $4.67, essentially flat compared to the second quarter of 2023.

Speaker Change: Updating our fiscal 2024 guidance for the factors we just discussed.

Speaker Change: We now expect total sales growth between 2.5% and 3.5%.

Speaker Change: including the SRS acquisition and the 53rd week.

Speaker Change: The 53rd week is projected to add approximately 2.3 billion dollars to total sales.

Speaker Change: SRS is expected to contribute approximately $6.4 billion in incremental sales.

Speaker Change: Comparable sales are expected to decline.

Speaker Change: between negative 3 and negative 4 percent for the 52-week period.

Speaker Change: The high end of our range implies a consumer demand environment consistent with the first half of fiscal 2024.

Richard Mcphail: While comparable sales for the company are not currently on the trajectory for the low end of the range, a negative 4 comp implies incremental pressure on consumer demand beyond what we are seeing today. We expect to open approximately 12 new stores. Our gross margin is expected to be approximately 33.5%. We expect operating margin to be between 13.5% and 13.6%. And adjusted operating margin to be between 13.8% and 13.9%. Decker, Williams per share percent will decline between negative 2 percent and negative 4 percent compared to fiscal 2023, with the extra week contributing approximately 30 cents. We expect our adjusted diluted earnings per share percent to decline between negative 1 percent and negative 3 percent compared to fiscal 2023, with the extra week contributing approximately 30 cents.

Speaker Change: While comparable sales for the company are not currently on the trajectory for the low end of the range,

Speaker Change: A negative 4 comp implies incremental pressure on consumer demand beyond what we are seeing today.

Richard: During the second quarter, we opened three new stores bringing our total store count to 2,340. Retail selling square footage was approximately $243 million square feet. At the end of the quarter, merchandise inventories were $23.1 billion down approximately $200 million compared to the second quarter of 2023, and inventory turns were approximately $720 million back into our business in the form of capital expenditure. And during the quarter, we paid approximately $2.2 billion in dividends to our shareholders.

Speaker Change: We expect to open approximately 12 new stores.

Speaker Change: Our gross margin is expected to be approximately 33.5%.

Speaker Change: We expect operating margin to be between 13.5% and 13.6%.

Speaker Change: and adjusted operating margin to be between 13.8% and 13.9%.

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

Speaker Change: We expect net interest expense of approximately 2.2 billion dollars.

Speaker Change: Our diluted earnings per share percent will decline between negative 2% and negative 4% compared to fiscal 2023 with the extra week contributing approximately 30 cents.

Richard: Our disciplined approach to capital allocation remains unchanged. First and foremost, we will invest in the business and expect capital expenditures of approximately 2% of sales on an annual basis. After investing in the business, we plan to pay the dividend and it is our intent to return any excess cash to shareholders in the form of share repurchases. Computed on the average of beginning and ending long-term debt and equity for the trailing 12 months, return on an invested capital is approximately 31.9% down from 41.5% in the second quarter of fiscal 2023.

Speaker Change: We expect our adjusted diluted earnings per share percent to decline between negative 1% and negative 3% compared to fiscal 2023, with the extra week contributing approximately $0.30.

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

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

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

Speaker Change: As we look forward, we will continue to invest to strengthen our position with our customers.

Speaker Change: leverage our scale and low-cost position.

Richard: Now I will comment on our updated outlook for fiscal 2024. As you heard from Ted, given the softer than expected performance in the first half of the year, and reflecting continued uncertainty around underlying consumer demand, we believe a more cautious outlook for the year is warranted. With the recent closing of the SRS acquisition, we are now including their results in our consolidated outlook for the year. For the period matching our first half, which includes periods prior to the acquisition and not fully reflected in our financial statements, SRS generated high single-digit percentage sales growth with operating income growing largely in line with sales.

Speaker Change: to drive growth faster than the market and deliver shareholder value.

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

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

Unknown Executive: Thank you.

Unknown Executive: 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. 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 pull for questions.

Christine: 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.

Speaker Change: A confirmation tone will indicate your line is in the question queue. 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.

Unknown Executive: Thank you.

Scott Chikarelli: Our first question comes from the line of Scott Chikarelli with Turoist. Please proceed with your question.

Speaker Change: Thank you. Our first question comes from the line of Scott Ciccarelli with Truist. Please proceed with your question. Good morning, everyone.

Ted: Good morning, everyone. So it sounds like you got to seeing a bit more of a shift towards what's called broader consumer weakness from what previously seemed to be hesitancy around finance projects. Can you provide a couple of examples just so we can understand the incremental hesitancy on consumer spending patterns? Well, I think it's just in broader projects, Scott. As we said in the prior couple of few quarters, the consumer remains engaged. Our consumer in particular remains quite healthy. Again, these are consumers who have seen their home values go up 50% in the last four years.

Richard: We believe that over the next several years, SRS on its own and through our combined pro efforts will help accelerate sales and earnings growth for our company. Updating our fiscal 2024 guidance for the factors we just discussed, we now expect total sales growth between 2.5% and 3.5% including the SRS acquisition in the 53rd week. The 53rd week is projected to add approximately $2.3 billion to total sales. SRS is expected to contribute approximately $6.4 billion in incremental sales.

Scott Ciccarelli: So, it sounds like you guys are seeing a bit more of a shift towards what's called broader consumer weakness from what previously seemed to be hesitancy around finance projects. Can you provide a couple of examples just so we can better understand, you know, kind of the incremental hesitancy on consumer spending patterns?

Speaker Change: Well, I think it's just in broader Projects Scott as we said in in the prior couple few quarters

Speaker Change: The consumer remains engaged. Our consumer in particular remains quite healthy. Again, these are consumers

Speaker Change: who have seen their home values go up 50% in the last four years. Their home equity has increased almost 70% since the...

Ted: Their home equity has increased almost 70% since the right before the pandemic. So that translates to over $13 trillion. Equity values have been strong, jobs are strong, earnings are strong. But we saw engagement the last several quarters in smaller projects. What we saw this most recent quarter is further pressure in larger projects. And we see that in building materials and lumber categories that are very specifically tied to construction in a larger project. And that was really the change that we saw as the quarter progressed. Bill, in other words, it's not necessarily broadening out, but it's increased pressure on what's called a project-oriented purchases.

Richard: Comparable sales are expected to decline between negative 3 and negative 4% for the 52 week period. The high end of our range implies a consumer demand environment consistent with the first half of fiscal 2024. While comparable sales for the company are not currently on the trajectory for the low end of the range, a negative 4% comp implies incremental pressure on consumer demand beyond what we are seeing today. We expect to open approximately 12 new stores.

Speaker Change: right before the pandemic, so that translates to over $13 trillion. Equity values have been strong, jobs are strong, earnings are strong.

Speaker Change: But we saw engagement the last several quarters in smaller projects.

Speaker Change: What we saw this most recent quarter is

Speaker Change: further pressure in larger projects. And we see that in, you know, building materials, in lumber, categories that are very specifically tied to construction.

Richard: Our gross margin is expected to be approximately 33.5%. We expect operating margin to be between 13.5% and 13.6% and adjusted operating margin to be between 13.8% and 13.9% 1% Our effective tax rate is targeted at approximately 24%. We expect net interest expense of approximately $2.2 billion. Our deluded earnings per share percent will decline between negative 2% and negative 4% compared to fiscal 2023 with the extra week contributing approximately 30 cents. We expect our adjusted deluded earnings per share percent to decline between negative 1% and negative 3%, compared to fiscal 2023 with the extra week contributing approximately 30 cents.

Speaker Change: in a larger project. And that was really the change that we saw as the quarter progressed.

Speaker Change: So in other words, it's not necessarily broadening out, but it's increased pressure on what's called project-oriented purchases.

Ted: Yeah, and you said it. I mean, the change that we believe happened over the course of the quarter. And so if you go back a bit to the environment that we've been working through this period of moderation, the first thing we saw was a shift in spending, PCE spending from goods back into services. And we're effectively through that transition that the relative share of spend is more or less equal to where it was before the pandemic. And then we had some certainly some pole forward in our segment. I'd say we're not completely through the pole forward, but largely.

Speaker Change: Yes, and you said it, I mean, that the...

Speaker Change: The change that we believe happened over the course of the quarter

Speaker Change: And so if you go back a bit to the environment that we've been working through this period of moderation

Speaker Change: The first thing we saw was a shift in spending, PCE spending.

Speaker Change: from goods back into services. And we're effectively, through that transition, the relative share of spend is more or less equal to where it was before the pandemic.

Speaker Change: And then we had certainly some pull forward in our segment.

Speaker Change: I'd say we're not completely through the pull forward, but largely I mean, we're now going on four years from the first spring of the pandemic when when people were buying lots of grills and patio furniture, etc. We're largely working our way through that.

Ted: I mean, we're now going on for years from the first spring of the pandemic. When people were buying lots of grills and patio furniture, et cetera, we're largely working our way through that. And then, and then the higher interest rate started to impact the housing market and housing turnover in particular, which is down, you know, some 40%. And I think last quarter, last month, we saw numbers that are on an annualized basis were approaching 40-year lows. That's also impacting customers' interest in financing larger projects. Everyone's expecting rates are going to fall. So we're deferring those projects.

Richard: We believe that we've positioned ourselves to meet the needs of our customers in any environment. 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.

Speaker Change: And then the higher interest rates started to impact.

Speaker Change: The housing market, in housing turnover in particular, which is down some 40%, and I think last quarter, last month, we saw numbers that on an annualized basis were approaching 40-year lows.

Unknown Executive: Thank you for your participation in today's call and Christine here now ready for questions. Thank you.

Speaker Change: That's also impacting customers' interest in financing larger projects. Everyone's expecting rates are going to fall, so we're deferring those projects.

Ted: But again, what more recently has happened is a broader concern with the macro economy. There's just a lot of noise with the political and geopolitical environment. Unemployment ticked up; inflation keeps eating away at disposable income. And I think people just took a pause as we progress through the quarter or more of a pause because of these macro uncertainties. Got it.

Speaker Change: But again, what more recently has happened is a broader concern with the macro economy. There's just a lot of noise with with political and geopolitical environment.

Unknown Executive: Thank you.

Speaker Change: unemployment ticked up, inflation keeps eating away at disposable income and I think people just took a pause as we progress through the quarter or more of a pause because of these macro uncertainties.

Scott Chikarelli: Our first question comes from the line of Scott Chikarelli with Turoist. Please proceed with your question.

Ted: Good morning, everyone. So it sounds like you got to seeing a bit more of a shift towards what's called broader consumer weakness from what previously seemed to be hesitancy around finance projects. Can you provide a couple of examples just so we can best understand the incremental hesitancy on consumer spending patterns? Well, I think it's just an in broader projects, Scott, as we said in in the prior couple few quarters. The consumer remains engaged.

Scott Chikarelli: Very helpful. Thanks, guys. Thank you.

Speaker Change: Got it. Very helpful. Thanks, guys.

Seth Sigman: Our next question comes from a line of sets. Sigmund with Barglays.

Speaker Change: Thank you.

Seth Sigman: Please receive with your question.

Speaker Change: Our next question comes from the line of Seth Sigman with Barclays. Please proceed with your question.

Seth Sigman: Hey, good morning, everyone. I wanted to ask about just performance across different channels. So core Home Depot retail. I think that's pretty clear. But Home Depot or HD Supply, you know, it seems like it's outperformed, but kind of hard to tell from our side. And then on SRS, if you can maybe just elaborate more on the trends you're seeing there. If you step back and think about, you know, hopefully an eventual recovery. You've built up this very diverse business over the last few years. I mean, how do you think about the timing of these different segments and how they come out of this?

Seth Sigman: Hey, good morning everyone. I wanted to ask about just performance across different channels. So Core, Home Depot, Retail, I think that's pretty clear, but Home Depot or HD Supply,

Ted: Our consumer in particular remains quite healthy. Again, these are consumers who have seen their home values go up 50% in the last four years. Their home equity has increased almost 70% since the right before the pandemic. So that translates to over $13 trillion. Equity values have been strong, jobs are strong, earnings are strong. But we saw engagement the last several quarters in smaller projects. What we saw this most recent quarter is further pressure in larger projects.

Speaker Change: It seems like it's outperformed, but kind of hard to tell from our side. And then on SRS,

Speaker Change: If you can maybe just elaborate more on the trends you're seeing there, as you step back and think about, you know, hopefully an eventual recovery, you've built up this very diverse business over the last few years. I mean, how do you think about the timing of these different segments and how they come out of this?

Seth Sigman: Thank you.

Ted: Sure. Well, we're we're we're very proud of all of all components of our business. We are executing at an exceptionally high level across the core and across the businesses that you call out. You know, while we don't split out, HD supply is part of our core. We are proud to say that we have had an HD supply has had an exceptional track record as of late, even penetrating through to generate positive sales growth in the second quarter. And so that's a real bright spot for the Home Depot SRS, as we told you when we acquired SRS. This is a growth company acquiring a growth.

Speaker Change: Sure, Seth. Well, I tell you, we're very proud of...

Seth Sigman: and all components of our business.

Speaker Change: We are executing at an exceptionally high level across the Corps and across the businesses that you call out. While we don't

Ted: And we see that in building materials in lumber categories that are very specifically tied to construction in a larger project. And that was really the change that we saw as the quarter progress. So, in other words, it's not necessarily broadening out, but it's increased pressure on what's called project oriented purchases. Yeah, and you said it, I mean, the change that we believe happened over the course of the quarter. And so if you go back a bit to the environment that we've been working through this period of moderation, the first thing we saw was a shift in spending, PCE spending from goods back into services.

Speaker Change: split out

Speaker Change: HD Supply is part of our core.

Speaker Change: We are proud to say that we have had

Speaker Change: and HG Supply has had an exceptional

Speaker Change: track record as of late, even penetrating through to generate positive sales growth in the second quarter.

Speaker Change: and so that's a real bright spot for the Home Depot.

Speaker Change: SRS, as we told you when we acquired SRS, this is a growth company acquiring a growth company.

Ted: Company. SRS has a track record of growing faster than their competition in all of their verticals, and has done so for the last 15 years. If you look at what SRS accomplished in the first six months of the year, again, we only own them for six weeks, so we only book six weeks of results, but they grew in the high single-digit percentages in the first half. They had healthy growth in the second quarter, and we expect them to, again, book single-digit growth in the entirety of the year 2024, even though we'll only add, we'll only own them for seven months.

Speaker Change: SRS has a track record of growing faster than their competition in all of their verticals and has done so for the last 15 years.

Speaker Change: If you look at what SRS accomplished in the first six months of the year, again we only own them for six weeks so we only book six weeks of results.

Ted: And we're effectively through that transition that the relative share of spend is more of less equal to where it was before the pandemic. And then we had some certainly some pull forward in our segment. I'd say we're not completely through the pull forward, but largely. I mean, we're now going on for years from the first spring of the pandemic. When people were buying lots of grills and patio furniture, et cetera, we're largely working our way through that.

Speaker Change: but they grew in the high single-digit percentages in the first half. They had healthy growth.

Speaker Change: in the second quarter, and we expect them to, again, book single-digit growth in the entirety of the year 2024, even though we'll only add, we'll only own them for seven months.

Ted: So, you know, these two business models, HD Supply and SRS, are great examples of market leaders who are accustomed to growing share and delivering the bottom line as well. Yeah, and I add to that, Seth, we're not going to break out operating segments, but, you know, in HD Supply's case, there's some appropriate comparatives, and SRS, there's very much publicly traded comparatives, and we feel really good about, you know, the MRO business, the roofing, the pool, and the landscape business against those comparables.

Speaker Change: So, you know, these two business models, HD Supply and SRS, are great examples of market leaders who are accustomed to growing share and delivering the bottom line as well.

Ted: And then and then the higher interest rate started to impact the housing market and housing turnover in particular, which is down, you know, some 40% and I think last quarter or last month, we saw numbers that are on annualized basis were approaching 40 year lows. That's also impacting customers interest in financing larger projects. Everyone's expecting rates are going to fall, so we're deferring those projects. But again, what more recently has happened is a broader concern with the macro economy.

Speaker Change: Yeah, and I'd add to that, Seth, we're not going to, you know, break out operating segments, but

Speaker Change: You know, in HD Supply's case, there's some appropriate comparatives, and SRS, there's very much publicly traded comparatives.

Seth Sigman: And we feel really good about the MRO business, the roofing, the pool, and the landscape business against those comparables.

Billy Bastek: Okay, that's super helpful. And then, if we just zoom back in on Core Home Depot, maybe just speak about your relative performance, if there are categories that you may be seeing some widening gap. You know, you called out a number of categories that seem to be under a lot of cyclical pressure, but we're cited as bright spots. You know, outdoor power equipment, you mentioned appliances above average. Obviously, that's been a tough category. I think you even mentioned vinyl plank having positive comps. So, maybe just speak to some of those categories and where you may be seeing that widening gap.

Speaker Change: Okay, that's super helpful. And then if we just zoom back in on core Home Depot

Speaker Change: Maybe just speak about your relative performance, if there are categories that.

Ted: There's just a lot of noise with with political and geopolitical environment. Unemployment ticked up inflation keeps eating away at at disposable income. And I think people just took a pause as we progress through the quarter or more of a pause because of these macro uncertainties. Got it.

Speaker Change: You may be seeing some widening gap, you know, you called out a number of categories that seem to be under a lot of cyclical pressure, but

Unknown Executive: Very helpful. Thanks, guys.

Speaker Change: were cited as bright spots. You know, outdoor power equipment, you mentioned appliances above average. Obviously that's been a tough category. I think you even mentioned vinyl plank having positive comps. So maybe just speak to some of those categories and where you may be seeing that widening gap. Thanks.

Unknown Executive: Thank you.

Billy Bastek: Thanks. Now, thanks, Seth. So, it's Billy. Listen, as I did mention in our prepared remarks, and we continue to talk about, you know, the finance projects we continue to see ongoing pressure. I don't think that's new news. Having said that, we called out a number of businesses that you just mentioned. You know, vinyl plank, we saw great performance in both sales and unit comps. Water heaters, as I mentioned, certainly paint. We're thrilled with the efforts we've had in paint with the pro that paints in our paint business in total. And again, power across our platforms as well.

Speaker Change: and many more. Thank you. Thank you.

Speaker Change: No, thanks Seth. So, it's Billy. Listen, as I did mention in our prepared remarks and we continue to talk about, you know, the finance projects, we continue to see

Seth Sigman: Our next question comes from a line of sets. Sigmund with Barglays. Please receive with your question.

Billy Bastek: Hey, good morning, everyone. I wanted to ask about just performance across different channels. So core Home Depot retail, I think that's pretty clear, but Home Depot or HD supply, you know, it seems like it's outperformed, but kind of hard to tell from our side. And then on SRS, if you can maybe just elaborate more on the trends you're seeing there. If you step back and think about, you know, hopefully an eventual recovery, you've built up this very diverse business over the last few years.

Speaker Change: ongoing pressure. I don't think that that's new news. Having said that, we called out a number of businesses. You just mentioned it, you know, Vinyl Plank. We saw great performance in both.

Speaker Change: Sales, and Unit Comps.

Speaker Change: water heaters as I mentioned, certainly paint. We're thrilled with the efforts we've had in paint with the pro that paints and our paint business in total.

Billy Bastek: So, you know, non-finance projects, while, you know, we did see some softness in some of the seasonal pieces that we alluded to in our prepared remarks, the continued ongoing pressure of just the uncertainty, you know, as it relates to interest rates, is going to continue to put pressure on those finance projects. But we're pleased with some of the other pieces I've mentioned. You know, larger ticket, one time purchase categories like riders as an example. We continue to see, you know, good engagement, you know, in businesses like that as well.

Billy Bastek: I mean, how do you think about the timing of these different segments and how they come out of this? Thank you. Sure. Well, I tell you, we're very proud of all of all components of our business. We are executing at an exceptionally high level across the core and across the businesses that you call out. You know, while we don't split out HD supply is part of our core. We are proud to say that we have had an HD supply has had an exceptional track record as of late, even penetrating through to generate positive sales growth in the second quarter.

Speaker Change: and again.

Speaker Change: we talked about power across our platforms as well. So, you know, non-finance projects, well, we did see some softness in some of the seasonal pieces that we alluded to in our prepared remarks.

Speaker Change: The continued ongoing pressure of just the uncertainty, you know, as it relates to interest rates is going to continue to put some pressure on those finance projects, but we're pleased with some of the other pieces I've mentioned. You know, larger ticket, one-time purchase categories like riders as an example, we continue to see, you know, good engagement, you know, in businesses like that as well.

Billy Bastek: Thanks, guys.

Speaker Change: Thanks guys.

Michael Lasser: Our next question comes from a line of Michael Lasser with UBS. Please proceed with your question. Good morning. Thank you so much for taking my question.

Speaker Change: [inaudible]

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

Michael Lasser: What do you think the key level for the 30-year fixed rate mortgage needs to fall to in order to drive home-deep-both business higher? And does that rate change, or that level change? If the decrease in rates is due to an erosion in the labor market rather than just a moderation in its place?

Michael Lasser: Good morning. Thank you so much for taking my question. What do you think the key level for the 30-year fixed-rate mortgage needs to fall to in order to drive Home Depot's business higher?

Billy Bastek: And so that's a real bright spot for the Home Depot SRS as we told you when we when we acquired SRS, this is a growth company acquiring a growth, company. SRS has a track record of growing faster than their competition in all of their verticals and has done so for the last 15 years. If you look at what SRS accomplished in the first six months of the year, again, we only own them for six weeks, so we only book six weeks of results, but they grew in the high single-digit percentages in the first half.

Speaker Change: And does that rate change, or that level change, if the decrease in rates is due to an erosion in the labor market, rather than just a moderation in inflation?

Michael Lasser: Hey Michael, good morning. Full question there. Hard to pinpoint what that magical rate number is, you know, historically, and then, as you say, with some added pressure, all I can do is reference toward the end of last year when rates, you know, came off, you know, the highs over seven, and moderated down. I think even hit below six and a half there for a bit. You saw an immediate increase in housing activity, mortgage, mortgage applications, mortgage refi applications, and then, unfortunately, the rate spiked back up, I think almost to seven percent again. So, we're trending down again. I think you're pushing six and a half percent for qualified mortgage, and based on what we saw toward the end of last year, we would think you're approaching a level that people are going to engage.

Michael Lasser: Hey Michael, good morning.

Michael Lasser: Full question there, hard to pinpoint what what that magical rate number is you know in

Speaker Change: historically and then as you say with some some added pressure.

Speaker Change: All I can do is reference toward the end of last year when rates came off, you know, the highs over 7.

Billy Bastek: They had healthy growth in the second quarter, and we expect them to, again, book single-digit growth in the entirety of the year 2024, even though we'll only add, we'll only own them for seven months. So, you know, these two business models, H.D. Supply and SRS are great examples of market leaders who are accustomed to growing share and delivering the bottom line as well. Yeah, and I add to that, Seth, we're not going to, you know, break out operating segments, but, you know, in H.D.

Speaker Change: in moderated down, I think even hit below six and a half there for a bit, you saw an immediate increase in housing activity, mortgage applications.

Speaker Change: mortgage refi applications.

Speaker Change: And then, unfortunately, the rates spike back up, I think, almost to 7% again. So we're trending down again. I think you're approaching 6.5% for qualified mortgage.

Speaker Change: And based on what we saw toward the end of last year, we would think you're approaching a level.

Billy Bastek: Supply's case, there's some appropriate comparatives, and SRS, there's very much publicly traded comparatives, and we feel really good about, you know, the MRO business, the roofing, the pool, and the landscape business against those comparables. Okay, that's super helpful. And then, if we just zoom back in on Core Home Depot, you know, maybe just speak about your relative performance, if there are categories that you may be seeing some widening gap, you know, you called out a number of categories that seem to be under a lot of cyclical pressure, but we're cited as bright spots, you know, outdoor power equipment.

Michael Lasser: Caveat to that would be again, this broader, you know, economic geopolitical, even concerns that people still might pause a little bit until some of this gets sorted out, which would be understandable. But as rates head down, you know, toward sex, we would expect to see activity. The other thought or piece of this whole puzzle is the amount of folks, as you know, who are in mortgages as low as 3 percent, you know, plenty of mortgages under 5 percent. There's definitely a little bit of a golden handcuff dynamic going on with those rates, but again, as time goes on, you know, family dynamic changes, and for one or two years, you might, you know, stay in those golden handcuffs and enjoy the low rate, but family size increases, household formation, moves for employment, retirement, et cetera.

Speaker Change: that people are going to engage.

Speaker Change: A caveat to that would be, again, this broader...

Speaker Change: you know, economic, geopolitical, even.

Speaker Change: Concerns that people still might. [inaudible]

Speaker Change: pause a little bit until some of this gets sorted out, which would be understandable. But as rates head down, you know, towards six, we would expect to see activity.

Speaker Change: The other...

Speaker Change: Thought or piece of this whole puzzle is the amount of folks as you know who are in mortgages as low as 3%

Speaker Change: Plenty of mortgages under 5%. There's definitely a little bit of a golden handcuff dynamic going on with those rates. But again, as time goes on.

Billy Bastek: You mention appliances above average. Obviously, that's been a tough category. I think you even mentioned vinyl plank having positive comps, so maybe just speak to some of those categories and where you may be seeing that widening gap. Thanks. Now, thanks, Seth. So, it's Billy. Listen, as I did mention in our prepared remarks, and we continue to talk about, you know, the finance projects we continue to see ongoing pressure. I don't think that's new news.

Speaker Change: You know family dynamic changes and for one or two years you might you know stay in those those golden handcuffs and enjoy the low rate, but family size increases household formation

Michael Lasser: So, we would see a gradual unlocking of that, even if that adds to a little bit of a delay response to housing from a traditional, you know, rate cut environment.

Speaker Change: moves for employment, retirement, et cetera. So we would see a gradual unlocking of that, even if that adds to a little bit of a delay.

Billy Bastek: Having said that, we called out a number of businesses. You just mentioned it, you know, vinyl plank. We saw great performance in both sales and unit comps. Water heaters, as I mentioned, certainly paint. We're thrilled with the efforts we've had in paint with the pro that paints in our paint business in total. And again, power across our platforms as well. So, you know, non-finance projects, well, you know, we did see some softness in some of the seasonal pieces that we alluded to in our prepared remarks.

Speaker Change: response to housing from a traditional, you know, rate cut environment.

Michael Lasser: Okay. Thank you very much.

Michael Lasser: My follow-up question is the longer that this downturn persists. Does home people have an inclination to invest more in price or value as a way to grab market share that it could sustain on an eventual upturn? And maybe as a part of this, could you pull apart your growth, your updated growth margin guidance to reflect the underlying dynamics within core home people versus the influence of SRS on this line item? Thank you so much.

Speaker Change: Okay, thank you very much. My follow-up question is the longer that this downturn persists...

Speaker Change: Does Home Depot have an inclination to invest more in price?

Speaker Change: or value as a way to grab market share that it could sustain on an eventual upturn and maybe as a part of this could you

Billy Bastek: The continued ongoing pressure of just the uncertainty, you know, as it relates to interest rates, it's going to continue to put some pressure on those finance projects. But we're pleased with some of the other pieces I've mentioned, you know, larger ticket, one-time purchase categories like riders as an example. We continue to see, you know, good engagement, you know, in businesses like that as well. Thanks, guys.

Speaker Change: pull apart your updated gross margin guidance to reflect the underlying dynamics within core Home Depot versus the influence of SRS on this line item. Thank you so much.

Michael Lasser: Yeah, Michael, thanks.

Billy Bastek: I'll take the first part of that, and then I'll hand it to Richard on the second piece of that question. Does it relate to just the promotional activity? I mean, you know, listen, we're going to continue to drive innovation and create value for our consumers. We are in a very rational environment as it relates to the home improvement sector, while there's been some pressure in the category like appliances. We don't see the need, nor are we in the environment where we need to be more promotional. We're focused on driving innovation to value-creating opportunities for our customers to come into our stores every day.

Speaker Change: Yeah, Michael, thanks. I'll take the first part of that, and then I'll hand it to Richard on the second piece of that question. Does it relate to just the promotional activity? I mean,

Michael Lasser: Our next question comes from a line of Michael Lasser with UBS. Please proceed with your question. Good morning. Thank you so much for taking my question. What do you think the key level for the 30-year fixed rate mortgage needs to fall to in order to drive home-deep[inaudible] Rather than just a moderation in its place. Hey, Michael, good morning. Full question there. Hard to pinpoint what that magical rate number is, you know, historically, and then, as you say, with some added pressure, all I can do is reference toward the end of last year, when rates, you know, came off, you know, the highs over seven, in moderated down, I think even hit below six and a half there for a bit.

Speaker Change: Listen, we're going to continue to drive innovation and create value for our consumers.

Speaker Change: We are in a very rational environment as it relates to the home improvement sector while there's been some pressure in the category like appliances.

Richard: We don't see the need nor are in the environment where we need to be more promotional. We're focused on driving innovation and value, creating opportunities for our customers to come into our stores every day. We don't want to be in the promotional business.

Billy Bastek: We don't want to be in innovation and creating these opportunities and excitement in our stores around just those things. And we've seen great adoption. We've been able to bring value into the marketplace. Areas like our proprietary brands continue to perform very well, and we're very pleased with that and don't see a change in really the promotional cadence going forward now.

Richard: We feel very good about our position in creating these opportunities and excitement in our stores around just those things and we've seen great adoption. We've been able to bring value into the marketplace.

Richard: areas like our proprietary brands continue to perform very well and we're very pleased with that and don't see a change in really the promotional cadence going forward. Now I'll toss it to Richard Moore on the gross margin piece.

Richard Mcphail: I'll toss it to Richard Lewis Margin piece.

Richard Mcphail: Great.

Richard Mcphail: Let me actually broaden the question because I think it's important to give the broader context. If you're asking about Gross Margin, let's just talk about SRS for a moment. In last June's investor conference, we laid out a base case, and we said that there could be contributors to that base case that would push us to grow sales and earnings faster than that base case. So base case was 3 to 4 percent top line and mid to high single digit EPS growth. The acquisition of SRS is one of those accelerants that we pointed to in our accelerated case.

Richard: Great

Richard Moore: Let me let me actually broaden the question because I think it's important to give the broader context if you're asking about gross margin. Let's just talk about SRS for a moment.

Michael Lasser: You saw an immediate increase in housing activity, mortgage, mortgage applications, mortgage refi applications. And then, unfortunately, the rate spiked back up, I think almost to seven percent again. So we're trending down again, I think you're you're pushing six and a half percent for qualified mortgage. And based on what we saw toward the end of last year, we would think you're you're approaching a level that people are going to engage, caveat to that would be, again, this broader, you know, economic geopolitical, even concerns that people still might pause a little bit until some of the skits sorted out, which would be understandable.

Richard Moore: So, in last June's Investor Conference,

Richard Moore: We laid out a base case and we said that there could be contributors to that base case that would push us to grow sales and earnings faster than that base case.

Richard Moore: Right, so base case was 3-4% top line and mid to high single digit EPS growth.

Richard Moore: The acquisition of SRS is one of those accelerants.

Richard Moore: that we pointed to in our investor conference, pushing us towards the accelerated case.

Richard Mcphail: The objective of SRS is to grow our share with the probe to accelerate sales growth, to accelerate operating profit growth, and to accelerate EPS growth. So, from sales and operating profit perspective, as you can see, it's already contributing to our company immediately. From an EPS perspective, the acquisition of SRS will be cash EPS accretive in the first 12 months of ownership, as we said in March. It will be cash EPS accretive in the first 12 months of ownership, adjusting for the associated non-cash intangible amortization.

Michael Lasser: But as rates head down, you know, towards sex, we would expect to see activity. The other thought or piece of this whole puzzle is the amount of folks, as you know, who are in mortgages as low as 3 percent, you know, plenty of mortgages under 5 percent. There's definitely a little bit of a golden handcuff dynamic going on with those rates. But again, as time goes on, you know, family dynamic changes.

Richard Moore: The objective of SRS is to grow our share with the pro, to accelerate sales growth, to accelerate operating profit growth, and to accelerate EPS growth.

Richard Moore: So, from a sales and operating profit perspective, as you can see, it's already contributing to our company immediately.

Michael Lasser: And for one or two years, you might, you know, stay in those those golden handcuffs and enjoy the low rate. But family size increases, household formation, moves for employment, retirement, etc. So we would see a gradual unlocking of that, even if that adds to a little bit of a delay response to housing for from a traditional, you know, rate cut environment.

Richard Moore: From an EPS perspective,

Richard Moore: The acquisition of SRS will be cash EPS accretive in the first 12 months of ownership, as we said in March.

Richard Moore: It will be cash EPS accretive in the first 12 months of ownership adjusting for the associated non-cash intangible amortization.

Richard Mcphail: So let's talk about how SRS is reflected in our financials. Again, just as a reminder, we include six weeks of results in Q2 from SRS, and we will include about seven months of SRS in our full year. So just thinking about SRS, look, they have a different product mix than Home Depot, right? About two-thirds of their product is roofing, and then the remaining third is in pool and landscape. SRS carries similar margins on similar products as the Home Depot. Those products carry a lower gross margin rate than The Home Depot's company average. But their margin simply reflects a different mix than the Home Depot.

Richard Moore: So let's talk about how SRS is reflected in our financials. Again, just as a reminder, we include six weeks of results in Q2 from SRS.

Michael Lasser: Okay. Thank you very much. My follow-up question is the longer that this downturn persists. Does home people have an inclination to invest more in price or value as a way to grab market share that it could sustain on an eventual upturn? And maybe as a part of this, could you pull apart your growth, your updated growth margin guidance to reflect the underlying dynamics within core home people versus the influence of SRS on this line item?

Richard Moore: and we will include about seven months of SRS in our full year.

Richard Moore: So just thinking about SRS, look they have a different product mix than Home Depot, right? About two-thirds of their product is roofing and then the remaining third is in pool and landscape.

Richard Moore: SRS carries similar margins on similar products as the Home Depot.

Speaker Change: Those products carry a lower gross margin rate than the Home Depot's company average.

Speaker Change: but their their margin simply reflects a different mix.

Richard Mcphail: And so when we think about gross margin, SRS impacted the second quarter gross margin by about 35 basis points. And if you think about what that means for kind of an annualized figure, you're talking a kind of a reset of our margin profile of about 45 basis points in gross margin. So again, that'll be about 35 basis points for 2024. And then, if you look sort of an annualized figure, it's somewhere around 45 basis points. That's kind of a reset to reflect what is in effect a new mix of product at Home Depot.

Michael Lasser: Thank you so much. Yeah, Michael, thanks. I'll take the first part of that and then I'll hand it to Richard on the second piece of that question. Does it relate to just the promotional activity? I mean, you know, listen, we're we're going to continue to drive innovation and create value for our consumers. We are in a very rational environment as it relates to the home improvement sector while there's been some pressure in the category like appliances.

Alan Liebert: and Alan Liebert.

Alan Liebert: And so when we think about gross margin,

Alan Liebert: SRS impacted the second quarter gross margin by about 35 basis points.

Alan Liebert: and if you think about what that means for kind of an annualized figure you're talking a kind of a reset of our margin profile of about 45 basis points.

Michael Lasser: We don't see the need nor are in the environment where we need to be more promotional. We're focused on driving innovation to value creating opportunities for our customers to come into our stores every day. We don't want to be in the promotional business. We feel very good about our position and creating these opportunities and excitement in our stores around just those things and we've seen great adoption. We've been able to bring value into the marketplace.

Alan Liebert: in gross margin. So again, that'll be about 35 basis points for 2024. And then if you look at sort of an annualized figure, it's somewhere around 45 basis points. That's kind of a reset.

Alan Liebert: to reflect what is in effect a new mix of product at the Home Depot.

Richard Mcphail: So now let's talk about operating margin, and SRS is in type because it's important to look at gross margin in that context. context. So, when you add SRS to our mix, it adjusts our base operating margin profile, lowering it by about 30 basis points in Q2, and it lowers our base operating margin profile by just about 40 basis points for the full year of 2024. So, that's 40 for the full year of 2024. Again, if you annualize that number, then the adjustment to our base margin for SRS is about 60 basis points for an annual period.

Alan Liebert: So now let's talk about operating margin and SRS's impact, because it's important to look at gross margin in that context.

Michael Lasser: Areas like our proprietary brands continue to perform very well and we're very pleased with that and don't see a change in really the promotional cadence going forward now. I'll toss it to Richard and more on the ground. Margin Peace. Great. So let me actually broaden the question because I think it's important to give the broader context, if you're asking about gross margin, let's just talk about SRS for a moment. So in last June's investor conference, we laid out a base case, and we said that there could be contributors to that base case that would push us to grow sales and earnings faster than that base case, right?

Alan Liebert: So, if you, when you add SRS to our mix,

Alan Liebert: It adjusts our base operating margin profile, lowering it by about 30 basis points in Q2.

Alan Liebert: and it lowers our base operating margin profile by just about 40 basis points.

Michael Lasser: So base case was three to four percent top line and high single digit, look, mid to high single digit, EPS growth, the acquisition of SRS is one of those accelerants that we pointed to in our investor conference, pushing us towards the accelerated case. The objective of SRS is to grow our share with the probe to accelerate sales growth, to accelerate operating profit growth, and to accelerate EPS growth. So from a sales and operating profit perspective, as you can see, it's already contributing to our company immediately.

Alan Liebert: for the full year of 2024.

Alan Liebert: So that's 40 for the full year of 2024.

Alan Liebert: Again, if you annualize that number.

Alan Liebert: then the adjustment to our base margin from SRS is about 60 basis points.

Richard Mcphail: And those are gap numbers, and we can get into adjusted numbers if you like.

Alan Liebert: for an annual period.

Alan Liebert: And those are gap numbers.

Richard Mcphail: When we think about gross margin, again, for the quarter, we want to point out several exceptional performances across our operators. First of all, significant transportation benefit brought to us by our supply chain partners and our merchant partners, and significant benefit from a decrease in shrink year over year. We have now put several quarters of shrink benefit versus last year together in a row, and we can point directly at what drives that performance. It's a fantastic team that we continue to invest in, and the returns will know those investments are exceptional. That's a long way of saying, if you look at our gross margin performance year over year, and you back out the SRS mixed shift of 35 basis points, we were actually 75 basis points versus last year.

Alan Liebert: and we can get into adjusted numbers if you'd like.

Alan Liebert: When we think about gross margin, again for the quarter, we want to point out several exceptional performances across our operators. First of all

Speaker Change: Significant transportation benefit brought to us by our supply chain partners and our merchant partners.

Speaker Change: and...

Speaker Change: significant benefit from a decrease in shrink year-over-year.

Speaker Change: We have now put several quarters of shrink benefit versus last year together.

Speaker Change: in a row, and we can point directly at what drives that performance. It's a fantastic team that we continue to invest in, and the returns on those investments are exceptional.

Michael Lasser: From an EPS perspective, the acquisition of SRS will be cash EPS accretive in the first 12 months of ownership, as we said in March. It will be cash EPS accretive in the first 12 months of ownership, adjusting for the associated non-cash intangible amortization. So let's talk about how SRS is reflected in our financials. Again, just as a reminder, we include six weeks of results in Q2 from SRS, and we will include about seven months of SRS in our full year.

Speaker Change: That's a long way of saying if you look at our gross margin performance year over year and you back out the SRS mixed shift of 35 basis points we were actually 75 basis points versus last year.

Richard Mcphail: An exceptional performance in gross margin across the board by our entire team.

Speaker Change: an exceptional performance in gross margin across the board by our entire team.

Unknown Executive: Thank you very much; you good luck. Thank you.

Speaker Change: Thank you very much and good luck.

Simeon Gutman: Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question. Good morning, everyone.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Simeon Gutmann with Morgan Stanley. Please proceed with your question.

Michael Lasser: So just thinking about SRS, look, they have a different product mix than Home Depot, right, about two-thirds of their product is roofing, and then the remaining third is in pool and landscape. SRS carries similar margins on similar products as the Home Depot. Those products carry a lower gross margin rate than the Home Depot's company average. But their margin simply reflects a different mix than the Home Depot. And so when we think about gross margin, SRS impacted the second quarter gross margin by about 35 basis points.

Simeon Gutman: I have a question related to reversion. One way to look at it since 2019, if we look at transactions, they look like they're flat to down a little bit. To Ted's point earlier, most of that looks like it's given back on transactions. Ticket, though, is still up about 30-ish percent, 34. I think that's a function of the number of items, consumers reporting in the basket, and because there was inflation.

Simeon Gutmann: Good morning everyone. I have a question related to reversion. One way to look at it, since 2019, if we look at transactions, they look like they're flat to down a little bit.

Simeon Gutmann: So, to Ted's point earlier, most of that looks like it's given back on transactions. Ticket, though, is still up about 30-ish percent, 34.

Speaker Change: So, and I think that's a function of the number of items consumers were putting in the basket and because there was inflation. My question is, if we look at just the inflation piece...

Simeon Gutman: My question is, if we look at just the inflation piece, are there any signs of product prices, either deflating, disinflating, the non-commodity stuff, non-lumber, any signs of pricing changing in the channel? Thank you. No, Simeon, thanks for the question. Your math is sort of spot on there. The good news is, no, we're not seeing any broad step down in cost or retail. If you look at what we've laid out for AUR this year, we said that we'd have pressure of about 150 basis points of AUR. in the first half, that would moderate to 50 basis points in the second half.

Speaker Change: Are there any signs of product prices?

Speaker Change: either deflating, disinflating, the non-commodity stuff, non-lumber, any signs of pricing changing in the channel. Thank you.

Michael Lasser: And if you think about what that means for kind of an annualized figure, you're talking a kind of a reset of our margin profile of about 45 basis points in gross margin. So again, that will be about 35 basis points for 2024. And then if you look at sort of an annualized figure, it's somewhere around 45 basis points. That's kind of a reset to reflect what is in effect a new mix of product at Home Depot.

Speaker Change: No, Simeon, thanks for the question. Your math is sort of spot-on there.

Speaker Change: The good news is, no, we're not seeing any broad...

Speaker Change: step down in in cost or retails.

Speaker Change: If you look at what we've laid out for AUR this year, we said that we'd have pressure of about 150 basis points of AUR.

Michael Lasser: So now let's talk about operating margin and SRS impact because it's important to look at gross margin in that context, context. So when you add SRS to our mix, it adjusts our base operating margin profile, lowering it by about 30 basis points in Q2, and it lowers our base operating margin profile by just about 40 basis points for the full year of 2024. So that's 40 for the full year of 2024.

Speaker Change: in the first half, that would moderate to 50 basis points in the second half. That is all a function of lapping the

Simeon Gutman: That is all a function of lapping the cost in associated retail moves from last year. There really isn't a lot of net new activity on the cost or the retail front. In fact, you know, sort of cost out and in cost in activity. You know, we have a lot of very robust team that works with our merchants on this. It's all pretty, pretty neutral. Right now, we're not, not a ton of activity.

Speaker Change: cost and associated retail moves from last year.

Speaker Change: There really isn't a lot of net new activity on the cost

Speaker Change: or the retail front.

Speaker Change: in fact, you know, sort of...

Speaker Change: Cost out and in cost in activity, you know, we have a very robust

Speaker Change: team that works with our merchants on this.

Speaker Change: It's all pretty neutral right now, not a ton of activity, so as Billy said, we're not going to be promotional, we're an EDLP retailer that has to give value to our, particularly our pros, every day.

Simeon Gutman: So, as Billy said, we're not, we're not going to be promotional; we're an EDLP retailer that has to give value to our, particularly our pros, every day. The cost environment is neutral. The price environment is neutral. We're not seeing a lot of trade down in particular. We're not seeing an increase in OPP penetration. Things are pretty neutral to several last periods of activity. And what we're seeing on the AER is a matter of lapping. So, we're not, we're not seeing that, and we would expect the cost levels from where we are today to largely hold, as well as the retail levels.

Michael Lasser: Again, if you annualize that number, then the adjustment to our base margin for SRS is about 60 basis points for an annual period. And those are gap numbers, and we can get into adjusted numbers if you'd like. When we think about gross margin, again, for the quarter, we want to point out several exceptional performances across our operators. First of all, significant transportation benefit brought to us by our supply chain partners and our merchant partners, and significant benefit from a decrease in shrink year over year.

Billy: Thank you.

Billy: The cost environment is is neutral

Speaker Change: The price environment is neutral. We're not seeing.

Speaker Change: A lot of trade down in particular. We're not seeing an increase in OPP penetration. Things are pretty neutral to...

Speaker Change: several last periods of activity and what we're seeing on the AUR is a matter of lapping.

Speaker Change: So, we're not seeing that, and we would expect the cost levels from where we are today to largely hold, as well as the retail levels. Remember, there's...

Michael Lasser: We have now put several quarters of shrink benefit versus last year together in a row, and we can point directly at what drives that performance. It's a fantastic team that we continue to invest in, and the returns will know those investments are exceptional. That's a long way of saying if you look at our gross margin performance year over year, and you back out the SRS mix shift of 35 basis points, we were actually 75 basis points versus last year. An exceptional performance in gross margin across the board by our entire team.

Simeon Gutman: Remember, there's, you know, in the cost levels from our supplier base, it's not just a matter of, you know, input costs in terms of materials, which you understand with our cost. We have a very, very good view into that, but everyone over the last four years has seen a significant increase in labor costs, and we're still working through transportation costs. So, that's 30. You can say, you know, wow, that that's highly inflationary and that has to come back. Well, in fact, the cost structure, with labor being a big component, has increased similarly. And that's why we don't see the marketplace irrationally eroding those price levels.

Speaker Change: You know in the cost levels from our supplier base

Speaker Change: It's not just a matter of, you know, input costs in terms of materials, which you understand with our cost finance team, we have a very, very good view into that, but everyone over the last four years has seen significant increase

Speaker Change: in labor costs.

Speaker Change: and we're still working through transportation costs.

Speaker Change: So, that 30 you can say, you know, wow, that's highly inflationary and that has to come back. Well, in fact, the cost structure, labor being a big component, has increased similarly, and that's why we don't see the marketplace.

Unknown Executive: Thank you very much, you good luck.

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

Unknown Executive: Good morning, everyone. I have a question related to reversion. One way to look at it since 2019, if we look at transactions, they look like they're flat to down a little bit. So to Ted's point earlier, most of that looks like it's given back on transactions. Ticket, though, is still up about 30%, percent 34. So, and I think that's a function of the number of items, consumers reporting in the basket, and because there was inflation.

Speaker Change: irrationally eroding those price levels.

Richard Mcphail: Okay, follow up, trying to think about what the core business is doing in terms of decremental margins in the second half. I think some of Richard's comments before gave us some more clues, but it looks like the EBIT dollar guidance of the whole business dollars are roughly the same at the, that we have a midpoint now. We had a one single point before, so whatever we're losing from the core, it seems like we're picking back up an SRS, and it looks like the decremental is somewhere around 20 to 25%. Is that right? Is that the right run rate if this sort of negative comp or low negative comp environment persists?

Speaker Change: Okay.

Speaker Change: follow-up trying to think about what the core business is doing in terms of decremental margins in the second half. I think some of Richard's comments before gave us some more clues, but it looks like

Speaker Change: The EBIT dollar guidance of the whole business Dollars are roughly the same at that. We have a midpoint now. We had a one single point before So whatever we're losing from the core. It seems like we're picking back up in SRS

Unknown Executive: My question is if we look at just the inflation piece, are there any signs of product prices, either deflating, disinflating, the non-commodity stuff, non-lumber? Any signs of pricing changing in the channel? Thank you. No, Simeon, thanks for the question that your math is sort of spot on there. The good news is no, we're not seeing any broad step down in cost or retail. If you look at what we've laid out for AUR this year, we said that we'd have pressure of about 150 basis points of AUR.

Speaker Change: And it looks like the decrementals are somewhere around 20 to 25 percent. Is that right? Is that the right run rate if this sort of negative comp or low negative comp environment persists?

Unknown Executive: In the first half, that would moderate to 50 basis points in the second half. That is all a function of lapping the cost in associated retail moves from last year. There really isn't a lot of net new activity on the cost or the retail front. In fact, sort of cost out and in cost in activity. We have a very robust team that works with our merchants on this. It's all pretty neutral right now.

Richard Mcphail: So, what I would do is let's, why don't we talk about performance to date and how our guidance reflects the performance. Today, because we actually have, as I said, outperformed certain expectations in cost of goods sold, and the team has managed expenses in an exceptional manner. And so let me, let me walk through what that means for the guide. So you can recall, we began the year with a guide of a negative one comp with a 14.1% operating margin. In isolation, if we were to take, well, as we take comp from a negative one to a negative three, that is, call it 25 to 30 basis points of natural de-leverage that we would see in that reduction in top line expectation.

Speaker Change: So, what I've...

Speaker Change: What I would do is, why don't we talk about performance to date and how our guidance reflects the performance to date.

Speaker Change: because we actually...

Speaker Change: have, as I said, outperformed certain expectations and cost of goods sold.

Speaker Change: The team has managed expenses in an exceptional manner.

Speaker Change: and so let me let me walk through what that means for the guide.

Speaker Change: So you can recall, we began the year with a guide of a negative one comp.

Speaker Change: with a 14.1% operating margin.

Speaker Change: In isolation, if we were to take, well, as we take comp from a negative 1 to a negative 3,

Speaker Change: That is, call it 25 to 30 basis points of natural deleverage.

Unknown Executive: We're not a ton of activity. So as Billy said, we're not going to be promotional. We're an EDLP retailer that has to give value to particularly our pros every day. The cost environment is neutral. The price environment is neutral. We're not seeing a lot of trade down in particular. We're not seeing an increase in OPP penetration. We're not seeing the cost levels from where we are today to largely hold as well as the retail levels.

Speaker Change: that we would see in that reduction in top line expectation.

Richard Mcphail: However, we've had favorability here today. We know where it comes from, and that favorability enhances our earnings. And so, instead of taking our 14.1% operating margin, operating margin, and by the way, I'm excluding SRS in this discussion, so for simplification, if we were to set SRS to the side for a moment, naturally our 14.1 operating margin would drop to something like a 13.9 to a 13.8 at a negative three. Instead, at a negative three, again, with SRS to the side, we are now guiding operating margin of 14%. So we have held in essence that core 14% operating margin at a negative three comp.

Speaker Change: However, we've had favorability here today.

Speaker Change: We know where it comes from.

Speaker Change: and that favorability enhances our earnings.

Speaker Change: And so, instead of taking our 14.1% operating margin, and by the way, I'm excluding SRS in this discussion, so for simplification.

Speaker Change: If we were to set SRS to the side for a moment.

Speaker Change: Naturally, our 14.1 operating margin would drop to something like a 13.9 to a 13.8 at a negative 3.

Speaker Change: Instead, at a negative 3, again with SRS to the side, we are now guiding operating margin of 14%. So we have held, in essence,

Unknown Executive: Remember, in the cost levels from our supplier base, it's not just a matter of input costs in terms of materials which you understand with our cost. We have a very, very good view into that. But everyone over the last four years has seen significant increase in labor costs. And we're still working through transportation costs. So that's 30, you can say, you know, wow, that that's highly inflationary and that has to come back. Well, in fact, the cost structure with labor being a big component has increased similarly. And that's why we don't see the marketplace irrationally eroding those price levels.

Speaker Change: that core 14% operating margin at a negative 3 comp. That's because we are flowing through benefits that we have created through investments that we've made.

Richard Mcphail: That's because we are flowing through benefits that we have created through investments that we've made. Now, if we include SRS in this, obviously, as I said, there's about a 40 basis point mixed shift in our operating margin base. So that 14 becomes the 13.6 that we've guided alongside the negative three top into the range today. And just to tie it all up together, that 13.6 corresponds with our adjusted operating margin of 13.9%. So for the year, when we eliminate non-cash amortization expense on intangible assets, we expect to report an operating margin of 13.9% on a comp of negative three.

Speaker Change: Now, if we include SRS in this, obviously, as I said, there's about a 40 basis point mixed shift in our operating margin base, so that 14 becomes the 13.6.

Speaker Change: that we've guided alongside the negative three top end of the range today.

Speaker Change: And just to tie it all up together, that 13.6 corresponds with our adjusted operating margin of 13.9%. So for the year...

Speaker Change: when we eliminate non-cash amortization expense on intangible assets.

Unknown Executive: Okay, follow up, trying to think about what the core business is doing in terms of decremental margins in the second half. I think some of Richard's comments before gave us some more clues. But it looks like the EBIT dollar guidance of the whole business dollars are roughly the same. We have a midpoint now, we had a one single point before. So whatever we're losing from the core, it seems like we're picking back up an SRS. And it looks like the decrementals are somewhere around 20 to 25 percent. Is that right? Is that the right run rate if this sort of negative comp or low negative comp environment persists?

Speaker Change: We expect to report operating margin of 13.9% on a count of negative 3.

Unknown Executive: Thank you.

Chuck Graham: Our next question comes from a line of Chuck Graham with Gordon Haskett. Please proceed with your question.

Speaker Change: Thank you.

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

Chuck Graham: Thanks.

Chuck Graham: Good morning. You just talked about SRS revenue growth in the high single-digit range here today, which is really strong in this environment. I'm curious; you know, what's driving that success? Were there some acquisitions made by SRS? Has it been all organic? And I guess how do we think about that growth rate as we move into 25?

Chuck Grom: Thanks. Good morning. You just talked about SRS revenue growth in the high single-digit range here today, which is really strong in this environment.

Chuck Grom: I'm curious, you know, what's driving that success? Were there some acquisitions made by SRS? Has it been all organic? And I guess, how do we think about that growth rate as we move into 2025?

Chuck Graham: Thanks, Chuck. Yes. They remain a robust, shared-taking grower. And that high single-digit is split between roughly equally split. Between Organic Growth and Lapping of Acquisitions. Okay, great.

Richard: So what I would do is let's why don't we talk about performance to date and how our guidance reflects the performance, today, because we actually have, as I said, outperformed certain expectations in cost of good soul, and the team has managed expenses in an exceptional manner. And so let me walk through what that means for the guide. So you can recall we began the year of the guide of a negative one comp with a 14.1 percent operating margin.

Speaker Change: Thanks Chuck. Yes, they remain a robust share-taking grower and that high single digit is split between, roughly equally split between

Speaker Change: organic growth and lapping of acquisitions.

Chuck Graham: And any thoughts on how that the pace of that will go into 25? Yeah, we would give, you know, any guidance into 25. But remember, you know, their mode of growth, which they have demonstrated since inception in the mid 2000s, is there a balanced grower between comping their existing branches, their open-based branches, opening Greenfield branches, and then some roll-up M&A, you know, geographical, customer list add-on. So that's the profile that they've grown for years, and that is exactly the profile that we will support going forward.

Speaker Change: Okay, great. And any thoughts on how the pace of that will go into 25? Yeah, we wouldn't give, you know, any guidance into 25, but remember, you know, their mode of growth, which they have demonstrated this.

Speaker Change: since inception in the mid-2000s.

Speaker Change: Is there a balanced grower between comping their...

Speaker Change: existing branches, their open base of branches.

Richard: In isolation, if we were to take, well, as we take comp from a negative one to a negative three, that is, call it 25 to 30 basis points of natural deleverage that we would see in that reduction in top line expectation. However, we've had favorability here today. We know where it comes from, and that favorability enhances our earnings. And so instead of taking our 14.1 percent operating margin, operating margin, and by the way, I'm excluding SRS in this discussion, so for simplification, if we were to set SRS to the side for a moment, naturally, our 14.1 operating margin would drop to something like a 13.9 to a 13.8 at a negative three.

Speaker Change: opening greenfield branches.

Speaker Change: and then some roll-up M&A, you know, geographical customer list add-ons. So that's the profile that they've grown for years and that is exactly the profile that we will support going forward.

Richard Mcphail: And just for clarity's sake, SRS is not in our comp base, and so they are not reflected in our comp sales guidance. They will become comp once we've done them for 12 months.

Speaker Change: And just for clarity's sake, SRS is not in our comp base, and so they are not reflected in our comp sales guidance.

Speaker Change: They will become comp once we've owned them for 12 months.

Richard Mcphail: Okay, that's awful. And then Richard, you've talked about the consumer deferring projects over the past few quarters, but as the prospects for lower rates begin to materialize, and we can start to see the line of sight for maybe a 6% mortgage rate, is it possible that the pace of the froze begins to ramp higher over the next couple of quarters? And at that case, what parts of your business do you think could be most exposed? But, you know, intuitively, it's probably the converse of what we've seen. You know, you think about the categories, and Billy, please chime in, but those things that are components of the large project, kitchen, bath, flooring, lighting are all under pressure, and our customers tell us it's because that large project is being deferred.

Speaker Change: Okay, that's helpful. And then Richard, you've talked about the consumer deferring projects over the past few quarters, but as the prospects for lower rates...

Richard Moore: begin to materialize and we can start to see the line of sight for maybe a six percent mortgage rate. Is it possible that the pace of deferrals begins to ramp higher over the next couple of quarters and if that's the case what parts of your business do you think could be most exposed?

Richard: Instead, at a negative three, again, with SRS to the side, we are now guiding operating margin of 14 percent. So we have held, in essence, that core 14 percent operating margin at a negative three comp. That's because we are flowing through benefits that we have created through investments that we've made. Now, if we include SRS in this, obviously, as I said, there's about a 40 basis point mixed shift in our operating margin base, so that 14 becomes the 13.6 that we've guided alongside the negative three top end of the range today. I got it. Makes sense.

Speaker Change: But, you know, intuitively it's probably the converse of what we've seen.

Speaker Change: You think about the categories, and Billy, please chime in, but those things that are components of a large project, kitchen, bath, flooring, lighting.

Speaker Change: are all under pressure, and our customers tell us it's because that large project is being deferred. We're certainly not going to try to call timing.

Richard Mcphail: We're certainly not going to try to call timing, but just to echo what Ted said, there is certainly a direct relationship between decreases in mortgage rates and the amount of activity that you at least see picking up in turnover. And so, I think the important point here is, as we've said for years, the long-term fundamentals of home improvement demand are strong. We have continued to invest through this period of moderation.

Billy: But just to echo what Ted said.

Billy: There is certainly a direct relationship between decreases in mortgage rates and the amount of activity that you at least see picking up in turnover.

Ted: And so I think the important point here is...

Ted: As we've said for years, the long-term fundamentals of home improvement demand are strong.

Richard: Thank you. And just to tie it all up together, that 13.6 corresponds with our adjusted operating margin of 13.9 percent. So for the year, when we eliminate non-cash amortization expense on intangible assets, we expect to report operating margin of 13.9 percent on a comp of negative three. Thank you.

Richard Mcphail: We, 2024 marks the highest amount of cat-backs that we've invested back in the business really in the last 15 years because we are bullish on the future. And timing is uncertain, but we're going to be ready for it.

Speaker Change: We have continued to invest through this period of moderation.

Speaker Change: We, 2024 marks the highest amount of CapEx that we've invested back in the business really in the last 15 years because we are bullish on the future. And timing is uncertain, but we're going to be ready for it.

Unknown Executive: Great. Thank you.

Brian Nagel: Our next question comes from a line of Brian Nagel with Oppenheimer. Please proceed with your question. Hi, good morning. Thanks for the mic questions. So, my first question, just to respect the pace of cost. So, the number you've given you prepared for me is there was a mark slowed down from June to July. Is there anything that's notable there? Is it just that growing the ways we talk about it? Yeah, Brian, thanks for the question. And, you know, to reiterate in our comments through minus 37, minus 0.9, and then a minus 49. While we did see some softness in July, as we alluded to in Ted's comments, there's no question that the extreme he took some sales in weather-related categories.

Speaker Change: Thank you.

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

Chuck Grom: Our next question comes from a line of Chuck Grom with Gordon Haskett. Please proceed with your question. Thanks. Good morning. You just talked about SRS revenue growth in the high single-digit range here today, which is really strong in this environment. I'm curious, you know, what's driving that success? Were there some acquisitions made by SRS? Has it been all organic? And I guess how do we think about that growth rate as we move into 25?

Chuck Grom: Thanks, Chuck. Yes. They remain a robust, shared-taking grower, and that high single-digit is split between roughly equally split, between organic growth and lapping of acquisitions. Okay, great. And any thoughts on how that the pace of that will go into 25? Yeah, we would give any guidance into 25, but remember their mode of growth, which they have demonstrated this since inception in the mid-2000s, is they're a balanced grower between comping their existing branches, their open-based branches, opening Greenfield branches, and then some roll-up M&A geographical, customer list add-on.

Brian Nagel: Hi, good morning. Thanks for taking my questions. So my first question, just with respect to the pace of...

Speaker Change: So the numbers you gave me, there was a large slowdown from June to July. Is there anything notable there or was it just that growing malaise we talked about?

Speaker Change: Brian, thanks for the question. And to reiterate in our comments, we're at minus 37, minus 0.9.

Ted: and then a minus 4.9. Well, we did see some softness in July, as we alluded to in Ted's comments.

Speaker Change: There's no question that the extreme heat took some sails in weather-related categories. Think ACs and fans, think air circulation, think watering, those typically come for us.

Brian Nagel: In case he's in fans, thank you for circulation; thank watering. Those typically come for us in the July timeframe. And we saw, as I think everyone on the call is aware, we saw a pull forward of that significantly back into June. So, it was really just a shift as we saw, you know, some of those categories move into the back half of June.

Speaker Change: in the July timeframe, and we saw, as I think everyone on the call is aware, we saw

Ted: a pull forward of that significantly back into June, so it was really just a shift.

Richard Mcphail: And I'll let Richard expand a little bit further. And Brian, you know, Bill, his comments were spot on. There were signs of maybe a little more general weakness. The major driver were those he related categories. There were some signs of more general weakness. That had an influence on our guidance range.

Richard Moore: As we saw, you know, some of those categories move into the back half of June and I'll let Richard expand a little bit further. And Brian, you know, Billy's comments were spot on.

Richard Moore: There were signs.

Richard Moore: of maybe a little more general weakness.

Richard Moore: You know, the major driver were those heat-related categories. There were some signs of more general weakness.

Richard Mcphail: But let's just let's talk about that range and kind of how we've started off the quarter. August has started off at a level consistent with what we would expect in a negative three com result for the year. And August comes are better than July. Right. And so, there are a lot of factors that went into our guidance. But again, August has started off at a level consistent with what we would expect in the negative three com case. That's that's very helpful. I presheld that.

Speaker Change #100: That had an influence on our guidance range.

Chuck Grom: So that's the profile that they've grown for years, and that is exactly the profile that we will support going forward. And just for clarity sake, SRS is not in our comp base, and so they are not reflected in our comp sales guidance. They will become comp once we've owned them for 12 months.

Speaker Change #101: but let's just let's talk about that range and kind of how we've started off the quarter.

Speaker Change #101: August has started off at a level consistent with what we would expect.

Speaker Change #101: in a negative three comp result for the year.

Speaker Change #101: and August comps are better than July right and so we there are a lot of factors that went into our guidance but again August has started off at a level consistent with what we'd expect in the negative three comp case.

Richard: Okay, that's awful. And then Richard, you've talked about the consumer deferring projects over the past few quarters, but as the prospects for lower rates begin to materialize, and we can start to see the line of sight for maybe a 6% mortgage rate, is it possible that the pace of the pearls begins to ramp higher over the next couple of quarters? And if that's a case, what parts of your business do you think could be most exposed?

Brian Nagel: And the second question I have, I guess the bigger picture, but we're talking a lot of an SRS. But the acquisition now is closed. You're working on the integration. This we're watching Home Depot, you know, is continue pushing to the professional market. I mean, should we be expecting you to be on the exploring other acquisition opportunities there? Well, Brian, as I said, SRS will continue their activity to fill in geographies and segments, et cetera. Look, we just made a fair, large acquisition that we feel great about in the early, early days of joint business planning and value creation.

Speaker Change #102: That's very helpful. I appreciate all that. The second question I have, I guess the bigger picture, but we're talking a lot about SRS. The acquisition now is closed. You're working on the integration. As we're watching Home Depot, you know, this continued push into the professional market, I mean, should we be expecting you to be exploring other acquisition opportunities there?

Richard: But intuitively, it's probably the converse of what we've seen. You think about the categories and Billy, please chime in, but those things that are components of the large project, kitchen, bath, flooring, lighting are all under pressure, and our customers tell us it's because that large project is being deferred. We're certainly not going to try to call timing, but just echo what Ted said, there is certainly a direct relationship between decreases in mortgage rates and the amount of activity that you at least see picking up in turnover.

Speaker Change #102: Well, Brian, as I said, SRS will continue their activity to fill in geographies.

Speaker Change #103: in segments, et cetera. Look, we just made a very large acquisition that we feel great about in early, early days of joint business planning and in.

Brian Nagel: You know, we've always talked about utilizing M&A for growth opportunities, whether it's segments or geographies or customer bases, and expect us to continue to do that, but do not expect us to do anything, you know, large, having just done this very significant transaction with SRS.

Speaker Change #103: We've always talked about utilizing M&A for growth opportunities, whether it's

Richard: And so, I think the important point here is, as we've said for years, the long-term fundamentals of home improvement demands are strong. We have continued to invest through this period of moderation. We, 2024 marks the highest amount of CapEx that we've invested back in the business really in the last 15 years, because we are at bullish on the future. And timing is uncertain, but we're going to be ready for it.

Speaker Change #103: segments or geographies or customer bases and expect us to continue to do that but do not expect us to do anything you know large having having just done this very significant transaction with SRS.

Unknown Executive: All right, thank you.

Brian Nagel: Thanks, thank you very much. Thank you.

Speaker Change #103: Thanks, Ted. Thank you very much.

Zach Faden: Our next question comes from line of Zach Faden with Wells Fargo. Please proceed with your question. Good morning. It sounds like the pro spread wide and versus DIY relative to Q1. Jerry, if there's any call out there. And then you mentioned positive prompts for pros engaging in your new ecosystem.

Ted: Thank you.

Speaker Change #104: Our next question comes from the line of Zach Fadum with Wells Fargo. Please proceed with your question.

Zach Fadum: Hey, good morning. It sounds like the pro spread widened versus DIY relative to Q1. Curious if there's any call out there.

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

Richard: Good morning. Thanks for the mic questions. So my first question, just to respect the pace of response. So the numbers you've given you prepared for this, there was a mark slowdown from June to July. Is there anything that's notable there? Is it just that growing the ways we talked about this? Yeah, Brian, thanks for the question. And you know, to reiterate in our comments through minus 37 minus 0.9 and then a minus 4.9.

Zach Fadum: And then you mentioned positive comps for pros engaging in your new ecosystem. I'm curious what percent of pros this now represents and how you'd expect this trajectory to trend now that SRS is under your belt.

Anne Marie Campbell: I'm sure you should what percent of pros this now represent and how you'd expect this trajectory to trend now that SRS is under your belt. Yeah, hi, Zach. It's Ann Marie, and pros certainly outperform due to your selfers in the quarter. And as we have mentioned, we continue to invest in the pro ecosystem to accelerate growth, and we can drive and grow the share of wallet.

Zach Fadum: Yeah, hi Zach, it's Anne-Marie and Pearl certainly outperformed Deutscher-Sulfurs in the quarter.

Zach Fadum: And as we have mentioned, we continue to invest in the pro ecosystem to accelerate growth and really drive and grow the share of wallet.

Chip Devine: I'll throw it over the chip, and you speak a little bit about the investments and what we've seen there. Yeah, thanks, Zach. As we mentioned in the past, we're investing in markets. And last year we had 14 markets we invested in. We'll be fully invested in 17 markets this year. And when we talk about investing in markets, it's a distribution supply chain capability play foundational capabilities that help us better serve the pro. And then, most importantly, our expansion of our outside sales team; we've seen positive growth in all of those markets since we've been investing.

Richard: While we did see some softness in July as we alluded to in Ted's comments, there's no question that the extreme he took some sales in weather-related categories, in case he's in fans, thank you, our circulation, thank watering, those typically come for us in the July time frame. And we saw, as I think everyone on the calls, where we saw a pull forward of that significantly back into June. So it was really just a shift, as we saw, you know, some of those categories move into the back half of June and I'll let Richard expand a little bit further.

Zach Fadum: I'll throw it over to Chip and he'll speak a little bit about the investments and what we're seeing there.

Chip: Yeah, thanks, Zach. As we've mentioned in the past, we're investing in markets. And last year, we had 14 markets we invested in, we'll be fully invested in 17 markets this year. And when we talk about investing in markets,

Chip: It's a distribution supply chain capability play, foundational capabilities that help us better serve the pro, and then most importantly, our expansion of our outside sales team. We've seen...

Chip Devine: And we see that quarter after quarter.

Chip: positive growth in all of those markets since we've been investing. And we see that quarter after quarter, so we're very, very pleased with our progress over the last year and a half as we've marched. And we continue to march into 25 with the same progress and expectation of expansion.

Richard Mcphail: So we're very, very pleased with our progress over the last year and a half as we've marched, and we continue to march into 25 with the same progress and expectation of expand. Gotcha.

Richard: And Brian, you know, Billy's comments were spot on. There were signs of maybe a little more general weakness. You know, the major driver were those he related categories. There were some signs more general weakness. That had an influence on our guidance range. But let's just, let's talk about that range and kind of how we've started off the quarter. August has started off at a level consistent with what we would expect in a negative three-comp result for the year.

Richard Mcphail: And then Richard, two quick ones: first on buybacks and how we should think about the timeline around the return. And then second on the long-term structural margins, you gave some good detail around the impact of SRS; curious how we should think about the new high watermark in recovery over time. SRS acquisition; we financed the acquisition with $10 billion in bond issuances and then some short-term commercial paper raising. We are currently at a 2.6 time debt to give it our ratio. Now we we like to see that ratio ratio around 2.0 times. It's our intent to deliver over time before we restart repurchases.

Chip: Gotcha. And then Richard, two quick ones. First on buybacks and how we should think about the timeline around the return.

Richard Moore: And then second, on the long-term structural margins, you gave some good detail around the impact of SRS. Curious how we should think about the new high-water mark in recovery over time.

Speaker Change #107: Well let's talk about share repurchases. So as we announced, as part of the SRS

Richard: And August comps are better than July, right? And so we there are a lot of factors that went into our guidance. But again, August has started off at a level consistent with what we would expect in the negative three-comp case. That's that's very helpful and presale bad.

Speaker Change #108: acquisition. We financed the acquisition with $10 billion in bond issuances and then some short-term commercial paper raising. We are currently at a 2.6 times debt to EBITDA ratio.

Ted: And the second question I have, I guess the bigger picture, but we were talking a lot about SRS. But the acquisition now is closed. You're working on the integration. This we're watching Home Depot, you know, is continuing pushing to their professional market. Should we be expecting you to be on the exploring other acquisition opportunities there? Well, Brian, as I said, SRS will continue their activity to fill in geographies and segments, et cetera.

Speaker Change #108: Now, we like to see that ratio around 2.0 times. It's our intent to de-lever over time before we restart repurchases.

Richard Mcphail: That's going to take us likely into the year 2026, you know, and we will obviously update our investors on how that looks over time. But that would be the kind of the current calculation sometime in 2026 we return. And then from a long term structural perspective, when we laid out our basin and accelerated case, we said in the base case, look, we anticipate in the base case that we will always generate some degree of operating leverage. And that will that will always remain true.

Speaker Change #108: That's going to take us likely into the year 2026.

Speaker Change #108: And we will obviously update our investors on...

Speaker Change #108: on how that looks over time, but that would be the kind of the current calculation sometime in 2026 we would return. And then from a long-term structural perspective...

Ted: Look, we just made a fair, large acquisition that we feel great about in early, early days of joint business planning and value creation. We've always talked about utilizing M&A for growth opportunities, whether it's segments or geographies or customer bases, and expect us to continue to do that, but do not expect us to do anything large, having just done this very significant transaction with SRS. Thanks. Thank you very much.

Speaker Change #108: When we laid out our base in an accelerated case, we said in the base case, look, we anticipate in the base case that we will always generate some degree of operating leverage.

Unknown Executive: Thank you.

Speaker Change #108: and that will always remain true. We're not going to talk about a high water mark and we will continue to update you on our views.

Richard Mcphail: We're not going to talk about a high watermark, and you know, we will continue to update you on our views. But for now, you know, we're executing with exceptional expense management, exceptional management, and cost of goods sold. And we are delivering; we're over delivering, really, on the profitability we would have expected at this top line rate. So we are happy that we're running the business as it should be run. And we believe in that in those base case in accelerated cases that we laid out in June. Got it.

Speaker Change #108: But for now, you know, we're executing with exceptional expense management, exceptional management and cost of goods sold, and we're delivering, we're over-delivering.

Speaker Change #108: really on the profitability we would have expected at this top-line rate. So, we are happy that we're running the business as it should be run, and we believe in those base cases and accelerated cases that we laid out in June.

Zach Faden: Our next question comes from line of Zach Faden with Wells Fargo. Please proceed with your question.

Zach Faden: Good morning. It sounds like the Pro spread wide and versus DIY relative to Q1. Terry, if there's any call out there, and then you mentioned positive prompts for pros engaging in your new ecosystem. I'm sure you should what percent of pros this now represent, and how you'd expect this trajectory to trend now that SRS is under your belt. Yeah, hi, Zach. It's Ann Marie, and pros certainly outperform do-it-your-selfers in the quarter.

Richard Mcphail: Thanks for the time. Christine, we have time for one more question.

Speaker Change #109: Got it. Thanks for the time.

Stephen Forbes: Thank you. Our final question comes from the line of Stephen Forbes with Guggenheim. Please proceed with your question. Thanks, everyone. Morning. Maybe just a quick follow-up on SRS. You mentioned the growth rate and broke it down 50/50 between comp. And I think you said lapping acquisition.

Christine: Christine, we have time for one more question.

Speaker Change #110: Thank you. Our final question comes from the line of Stephen Forbes with Guggenheim. Please proceed with your question.

Stephen Forbes: Thanks everyone. Good morning. Maybe just a quick follow-up on SRS. Teji, you mentioned the growth and broke it down 50-50 between comp and I think you said lapping acquisitions. So maybe just give us an update on where the branch count is today.

Stephen Forbes: So maybe just give us an update on where the branch count is today. And then how would you sort of summarize the capital spending needs of that business to fund both Greenfield and acquisition-related expansion as it included in the CapEx guidance. Thank you. Sure. The good news is on on their Greenfield operations. It's reasonably capital flight, you know, at least a more modest size facility than a Home Depot DC would be. Think of this as a branch operation. And, you know, high turning inventory and, you know, variable pay for the sales, for they tend to be break even in year one of operation.

Zach Faden: And as we have mentioned, we continue to invest in the pro ecosystem to accelerate growth, and we drive and grow the share of wallet. I'll throw it over the chip, and you speak a little bit about the investments and what we've seen there. Yeah, thanks, Zach. As we mentioned in the past, we're investing in markets. In the last year, we had 14 markets we invested in. We'll be fully invested in 17 markets this year, and when we talk about investing in markets, it's a distribution supply chain capability play, foundational capabilities that help us better serve the pro, and then most importantly, our expansion of our outside sales team.

Speaker Change #112: And then how would you sort of summarize the capital spending needs of that business to fund both Greenfield and acquisition related expansion as it included in the CapEx guidance, thank you.

Speaker Change #113: Sure, um...

Speaker Change #114: The good news is on their greenfield operations, it's reasonably capital light. They lease a more modest-sized facility than a Home Depot.

Speaker Change #114: DC would be, think of this as a branch operation, and high-turning inventory and variable pay for the sales force, so they tend to be break-even in year one of operation.

Zach Faden: We've seen positive growth in all of those markets since we've been investing, and we see that quarter after quarter. So we're very, very pleased with our progress over the last year and a half as we've marked, and we continue to march into 25 with the same progress and expectation of expand. Gotcha.

Richard Mcphail: Similarly, when they make in-fill acquisitions, they have a great process to get that acquisition up on their ERP system. They literally do it over the weekend. They acquire a company on a Friday. And when that company opens up on a Monday, they are on the core ERP system of SRS. And that lets them get the operating. Process and technology synergies very quickly, and they have a track record of doubling EBITDA of acquired companies in the first three years of ownership. So it's reasonably asset light. It's quickly profitable on a green field basis, and it's its multiples of earnings expansion on an acquired company.

Richard: And then Richard, two quick ones, first on buybacks and how we should think about the timeline around the return. And then second on the long term structural margins, you gave some good detail around the impact of SRS, curious how we should think about the new high watermark in recovery over time. Well, let's talk about Sherry Purchases so as we announced, as part of the SRS acquisition, we financed the acquisition with 10 billion in bond issuances and then some short term commercial paper raising.

Speaker Change #114: They have a great process to get that acquisition up on there.

Speaker Change #114: ERP system. They literally do it over the weekend. They acquire a company on a Friday, and when that company opens up on a Monday, they are on the core ERP system of SRS, and that lets them get the operating

Speaker Change #114: process in technology synergies very quickly, and they have a track record of doubling EBITDA of acquired companies.

Speaker Change #114: in the first three years of ownership. So it's reasonably asset light. It's quickly profitable on a greenfield basis and it's multiples of

Richard: We are currently at a 2.6 time debt to give it our ratio. Now, we we like to see that ratio ratio around 2.0 times. It's our intent to deliver over time before we restart repurchases. That's going to take us likely into the year 2026, you know, and we will obviously update our investors on on how that looks over time. But that would be the kind of the current calculation, sometime in 2026 we return.

Richard Mcphail: Since we've owned them, they've made; in fact, I think last Friday, they closed on a small pool deal. They have a couple more under LOI, so these are modest infill acquisitions that they do in the normal course of business. So we're really excited to watch them grow. And again, it's reasonably asset light on green field. In the multiples, they're paying, as you can imagine, on smaller regional companies, generally in single-digit EBITDA multiples. So nice, nice earnings profile on their acquisition case.

Speaker Change #114: earnings expansion on an acquired company.

Speaker Change #115: Since since we've owned them they've made in fact, I think last Friday they closed on a small pool deal They have a couple more under LOI. So these are these are modest

Speaker Change #115: infill acquisitions that they do in the normal course of business.

Speaker Change #115: So we're really excited to watch them grow, and again, it's reasonably asset light on Greenfield, and the multiples they're paying, as you can imagine, on smaller regional companies.

Richard: And then from a long term structural perspective, when we laid out our base in an accelerated case, we said in the base case, look, we anticipate in the base case that we will always generate some degree of operating leverage. And that will that will always remain true. We're not going to talk about a high watermark and, you know, we will continue to update you on our views. But for now, you know, we're executing with exceptional expense management, exceptional management and cost of goods sold.

Speaker Change #115: are generally in single-digit EBITDA multiples, so nice earnings profile on their acquisition case.

Richard Mcphail: Richard, maybe just a very quick follow-up as we think about sort of restating last year's numbers for intangible amortization. The full year amount of a for last year, we're looking at 15 basis points as a percentage sales or maybe correct me if I'm off there. Yeah, the total amortization expense last year was $186 million for Home Depot for the full year of 2023. Thank you. And Steve, on branches, they're at, they're at about 775. So when we announced in March, it was 760. You can see their growth profile. They've opened 20 plus branches just in the last few months, as these folks are super growth oriented.

Speaker Change #115: Richard, maybe just a very quick follow-up as we think about sort of restating last year's numbers for intangible amortization. The full year amount for last year, we're looking at 15 basis points as a percentage of sales, or maybe correct me if I'm off there.

Richard: And we are delivering we're over delivering really on the profitability we would have expected at this top line rate. So we are happy that we're running the business as it should be run. And we believe in that in those base case in accelerated cases that we laid out in June. Got it.

Speaker Change #116: The total amortization expense last year was $186 million.

Speaker Change #116: for Home Depot for the full year of 2023.

Unknown Executive: Thanks for the time. Christine, we have time for one more question.

Unknown Executive: Thank you.

Speaker Change #117: Thank you.

Speaker Change #117: and see their growth profile. They've opened 20 plus branches.

Stephen Forbes: Our final question comes from a line of Stephen Forbes with Guggenheim. Please proceed with your question. Thanks, everyone. Good morning. Maybe just a quick follow up on SRS. Ted, you mentioned the growth rate and broke it down 50 50 between comp. And I think you said lapping acquisition. So maybe just give us an update on where the branch count is today.

Speaker Change #118: just in the last few months, so these folks are super growth-oriented.

Richard Mcphail: Great to hear. Thank you.

Speaker Change #119: Great to hear. Thank you. Thank you.

Isabel Janci: Ms. Jansi, I will now turn the floor back over to you for closing comments. Thank you for seeing, and thank you everybody for joining us today. We look forward to speaking with you on our third quarter earnings in November.

Speaker Change #119: Thank you. Ms. Janci, I will now turn the floor back over to you for closing comments.

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

Ted: And then how would you sort of summarize the capital spending needs of that business to fund both Greenfield and acquisition related expansion as it included in the CapEx guidance. Thank you. Sure. The good news is on on their Greenfield operations. It's reasonably capital flight, you know, at least a more modest size facility than a Home Depot DC would be think of this is a branch operation. And, you know, high turning inventory and, you know, variable pay for the sales for so they tend to be break even in year one of operation.

Unknown Executive: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time.

Speaker Change #121: 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.

Unknown Executive: Thank you for your participation, and have a wonderful day.

Speaker Change #121: and many more. Thank you. Thank you.

Ted: Similarly, when they make in fill acquisitions, they have a great process to get that acquisition up on their ERP system. They literally do it over the weekend. They acquire a company on a Friday. And when that company opens up on a Monday, they are on the core ERP system of SRS. And that lets them get the operating, process and technology synergies very quickly. And they have a track record of doubling EBITDA of acquired companies in the first three years of ownership.

Speaker Change #121: and many more. Thank you. Thank you. Thank you. Thank you. Thank you.

Ted: So it's reasonably asset light. It's quickly profitable on a green field basis. And it's its multiples of earnings expansion on an acquired company. Since we've owned them, they've made, in fact, I think last Friday, they closed on a small pool deal. They have a couple more under LOI. So these are modest infill acquisitions that they do in the normal course of business. So we're really excited to watch them grow. And again, it's, it's reasonably asset light on green field in the multiples. They're paying as you can imagine on smaller regional companies or generally in single digit EBITDA multiples. So nice, nice earnings profile on their acquisition case.

Richard: Richard, maybe just a very quick follow up as we think about sort of restating last year's numbers for intangible amortization, the full year amount of a for last year, we're looking at 15 basis points as a percentage sales or maybe correct me if I'm off there. Yeah, the total amortization expense last year was $186 million for Home Depot for the full year of 2023. Thank you. And Steve on branches, they're at, they're at about 775. So when we announced in March, it was 760. You can see their growth profile. They've opened 20 plus branches just in the last few months as these folks are super growth oriented.

Stephen Forbes: Great to hear. Thank you.

Isabel Janci: Ms. Jansi, I will now turn the floor back over to you for closing comments. Thank you for seeing and thank you everybody for joining us today. We look forward to speaking with you on our third quarter earnings on November.

Unknown Executive: 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.

Q2 2024 The Home Depot Inc Earnings Call

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