Q4 2024 The Home Depot Inc Earnings Call

In store and online and don't forget to complete the project with first of all and large format tiles.

Outgrow it.

Yes.

Unknown Executive: When it comes to getting job supplies fast, nothing beats the Home Depot. We're always thinking of new ways to get things done quicker.

When it comes to getting jobs supplies fast.

Nothing beats the home depot, we're always thinking of new ways to get things done.

Quicker, whether you're buying online for a quick in store pickup using image search to find exactly what you need rapidly locating product with store mode or getting supplies delivered same day.

Unknown Executive: Whether you're buying online for a quick in-store pickup, using image search to find exactly what you need, rapidly locating products with store mode, or getting supplies delivered same day, we Greetings and welcome to the Home Depot fourth quarter 2024 earnings conference call.

Okay.

Speaker Change: Greetings and welcome to the home Depot fourth quarter 2024 earnings Conference call.

Operator: At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

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

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

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

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

Isabel Janci: It is now my pleasure to introduce your host, Isabel Janci, please go ahead. Thank you, Christine, and good morning, everyone. Welcome to Home Depot's fourth quarter and fiscal year 2024 earnings call.

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

Isabel Janney: Thank you Christine and good morning, everyone welcome to home Depot's fourth quarter and fiscal year 2024 earnings call joining.

Isabel Janci: Joining us on our call today are Ted Decker, Chair, President, and CEO, Anne-Marie Campbell, Senior Executive Vice President, Billy Bastek, Executive Vice President of Merchandising, and Richard McPhail, Executive Vice President and Chief Financial Officer. Following our prepared remarks, the call will be open for questions. Questions will be limited to analysts and investors. And as a reminder, please limit yourself to one question with one follow-up. If we are unable to get to your question during the call, please call Investor Relations at 770-384-2387.

Speaker Change: Joining us on our call today are Ted Decker Chair, President and CEO Ann Marie Campbell Senior Executive Vice President.

Speaker Change: The Bassi executive Vice President of merchandising and Richard Mcphail, Executive Vice President and Chief Financial Officer.

Speaker Change: Following our prepared remarks, the call will be open for questions.

Speaker Change: <unk> will be limited to analysts and investors.

And as a reminder, please limit yourself to one question with one follow up.

Speaker Change: And if we are unable to get to your question during the call. Please call Investor Relations at 7703842387.

Isabel Janci: 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 the factors identified in the release and in our most recent annual report on Form 10-K and our other filings with the Securities and Exchange Committee. Today's presentation will also include certain non-GAAP measures, including but not limited to adjusted operating margin, adjusted diluted earnings per share, and return on invested capital.

Speaker Change: Before I turn the call over to Ted Let me remind you that todays press release and the presentations made by our executives include forward looking statements as defined in the private Securities Litigation Reform Act of 1995.

Speaker Change: 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 the factors identified in the release and in our most recent annual report on Form 10-K, and our other filings with the Securities and Exchange Commission.

Speaker Change: Today's presentation will also include certain non-GAAP measures, including but not limited to adjusted operating margin adjusted diluted earnings per share and return on invested capital Great reconciliation of these and other non-GAAP measures to the corresponding GAAP measures. Please refer to our earnings press release.

Isabel Janci: For a reconciliation of these and other non-GAP measures to the corresponding GAP measures, please refer to our earnings press release and our website.

Speaker Change: And our website now let me turn the call over to Ted. Thank you Isabella and good morning, everyone sales for fiscal 2020 for $159 5 billion.

Ted Decker: Now, let me turn the call over to Ted. Thank you, Isabel. And good morning, everyone. Sales for fiscal 2024 were $159.5 billion. an increase of 4.5% from the same period last. Comp sales declined 1.8% from the same period last year, and our U.S. stores had negative comps of 1.8%. Adjusted diluted earnings per share were $15.24. compared to $15.25 in the prior year. In the fourth quarter, comp sales increased 0.8% from last year, and comps in our U.S. stores were up 1.3%. Adjusted Diluted Earnings Per Share with $3.30 compared to $2.86 in the prior year. In the quarter we saw broad-based engagement across our geography.

Speaker Change: An increase of four 5% from the same period last year.

Speaker Change: <unk> sales declined one 8% from the same period last year and our U S stores had negative comps of one 8%.

Speaker Change: Adjusted diluted earnings per share were $15.24 compared to $15.25 in the prior year.

Speaker Change: In the fourth quarter comp sales increased <unk>, 8% from last year and comps for our U S stores were up one 3% adjusted.

Speaker Change: Adjusted diluted earnings per share with $3 13, compared to $2.86 in the prior year.

Speaker Change: In the quarter, we saw broad based engagement across our geographies as 15 of our 19 U S regions delivered positive comps.

Ted Decker: 15 of our 19 U.S. regions delivered positive. In addition, both Canada and Mexico reported positive COVS in local. Our fourth quarter results exceeded our expectations, as we saw greater engagement in home improvement spend, despite ongoing pressure on large remodeling companies.

In addition, both Canada, and Mexico reported positive comps in local currency.

Our fourth quarter results exceeded our expectations as we saw greater engagement and home improvement spend despite ongoing pressure on large remodeling projects.

Ted Decker: Throughout the year, we remain steadfast in our investments across our strategic initiatives. Despite uncertain macroeconomic conditions in a higher interest rate environment, it impacted home improvement demand. Our strategic priorities remain creating the best interconnected shopping experience, growing our pro wallet share through a unique ecosystem of capabilities, and building new We are always improving our interconnected shop. We know that our customers want faster delivery than ever before. Recall that last quarter I shared the progress we made with our investments in our downstream supply chain. Including an expanded assortment in our DFCs to allow for faster delivery speeds across more products.

Speaker Change: Throughout the year, we remain steadfast in our investments across our strategic initiatives, despite uncertain macroeconomic conditions and a higher interest rate environment impacted home improvement demand.

Speaker Change: Our strategic priorities remain creating the best interconnected shopping experience growing our pro wallet share through a unique ecosystem of capabilities and building new stores.

We are always improving our interconnected shopping experience, we know that our customers want faster delivery than ever before.

Speaker Change: Recall that last quarter I shared the progress we've made with our investments in our downstream supply chain, including an expanded assortment in our dfc is to allow for faster delivery speeds across more products.

Ted Decker: We also began leveraging our stores to offer more delivery options.

Speaker Change: We also began leveraging our stores to offer more delivery options are delivery speeds are now the fastest they've ever been and customers are increasing their spend Billy will take you through these results in a moment.

Ted Decker: Delivery speeds are now the fastest they've ever been, and customers are increasing their Billy will take you through these results in a moment. Growing our share of wallet with our pro customers is a key part of our growth strategy. Continued investing in our store experience, fulfillment options, and sales.

Speaker Change: Growing our share of wallet with our pro customers is a key part of our growth strategy.

Speaker Change: Continued investing in our store experience fulfillment options and sales teams. These investments are delivering incremental sales growth and Andrew will discuss this in detail shortly.

Ted Decker: These investments are delivering incremental sales growth, and Anne will discuss this in detail shortly.

Ted Decker: In June, we completed the acquisition of SRS, and while we've only owned them for 7 months, we could not be happier with them. The capabilities that SRS brings are both additive and complementary to our strategic efforts. As expected, for fiscal 2024, SRS contributed $6.4 billion in sales for the seven months we Since we acquired them in June, they have opened over 20 Greenfield locations. Completed four tuck-in acquisitions. We're also focusing on many cross-sell opportunities with SRAP. As an example, we've talked about the Opportunity Quote Center, our platform that provides real-time quote pricing and different fulfillment options for larger job losses.

Speaker Change: In June we completed the acquisition of Srs and while we've only owned them for seven months, we could not be happier with the business the capabilities that our Srs springs are both additive and complementary to our strategic efforts as expected for fiscal 2024 Srs contributed six four.

Speaker Change: And sales for the seven months, we owned them.

And since we acquired them in June.

Speaker Change: And over 20, Greenfield locations and completed four tuck in acquisitions.

We're also focusing on many cross sell opportunities with Srs as an example, we've talked about the opportunity to quote center. Our platform that provides real time quote pricing and different fulfillment options for larger job lot quantities.

Ted Decker: SRS was already in QuoteCenter, but not in Allmark. Today, they are in nearly every market with their roofing product. Since making this change, we have seen SRS's sales and quotes center more than triple. Going forward, we will continue to support SRS's momentum. We expect their organic sales to grow mid-single digits in fiscal 2025.

Speaker Change: For us was already in quote center, but not in all markets.

Speaker Change: Today, they're in nearly every market with the roofing products and since making this change we have seen srs's sales and quote center more than triple.

Speaker Change: Going forward, we will continue to support Srs's momentum, we expect organic sales to grow mid single digits in fiscal 2025.

Ted Decker: Our real estate footprint remains one of our distinct competitive advantages. We are expanding that footprint by investing in new stores in areas that have experienced population growth or where it makes sense to relieve pressure on existing high-volume stores. Fiscal 2024, we opened 12 new stores. 10 in the U.S. and 2 in Mexico. We are seeing great results from these stores, which are outperforming our expectations.

Speaker Change: Our real estate footprint remains one of our distinct competitive advantages, we are expanding that footprint by investing in new stores in areas that have experienced population growth or where it makes sense to relieve pressure on existing high volume stores.

Speaker Change: In fiscal 2024, we opened 12, new stores 10 in the U S and two in Mexico.

Speaker Change: We are seeing great results release stores, which are outperforming our expectations for.

Ted Decker: For Fiscal 2025, we plan to open 13- For fiscal 2025, we expect total sales growth of approximately 2.8%, comparable sales growth of approximately 1%, and adjusted diluted earnings per share to decline approximately 2%. We remain excited about all our growth opportunities.

Speaker Change: For fiscal 2025, we plan to open 13, new stores.

Speaker Change: For fiscal 2025, we expect total sales growth of approximately two 8% comparable sales growth of approximately 1% and adjusted diluted earnings per share to decline approximately 2%.

Speaker Change: We remain excited about all our growth opportunities and we feel confident that the investments, we're making will set us up for continued success.

Ted Decker: And we feel confident that the investments we are making will set us up for continued I want to close by thanking our associates for their hard work and dedication to our customers. fourth quarter and throughout the year. Our results reflect strong execution by our stores, merchants, and supply chains. as well as our vendor partners. They remain focused on delivering value and service to our community.

I want to close by thanking our associates for their hard work and dedication to our customers in the fourth quarter and throughout the year our results reflect.

Speaker Change: Reflects strong execution by our stores merchants and supply chain teams as well as our vendor partners as they remain focused on delivering value and service to our customers.

Unknown Executive: With that, let me turn the call over to... Thanks, Ted. And good morning, everyone.

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

Ed: Thanks, Ted and good morning, everyone. Our thoughts continue to be with everyone impacted by Hurricanes, Helene and Milton as well as the devastating fires plus annually.

Unknown Executive: Our thoughts continue to be with everyone impacted by Hurricanes Helene and Milton, as well as the devastating fires in Los Angeles. We're here as these communities rebuild with our associates and suppliers who consistently go above and beyond to serve our customers. And I want to thank them for all that they do.

Ed: We are here as these communities rebuild with our associates and suppliers, who consistently go above and beyond to serve our customers and I want to thank them for all that they do.

Anne-Marie Campbell: As you heard from Ted, growing our share of wallet with the pro is a key part of our growth strategy, and I'd like to take a moment to talk more about the progress we've made. For the quarter, all or poor cohorts positive count, and it's clear that our initiatives are working. Over the last few years, we've made investments in our stores, as well as through our pro ecosystem, to improve the shopping experience for all of our pros, regardless of their purchase occasion. whether they are shopping in-store, online, or getting delivery from stores or or distribution centers.

Ed: As you heard from Ted growing our share of wallet with the pro is a key part of our growth strategy.

Ed: I'd like to take a moment to talk more about the progress we have made.

Ed: For the quarter, all four cohorts positive comps and it is clear that our initiatives are working.

Ed: Over the last few years, we have made investments in our stores as well as to a full ecosystem to improve the shopping experience for all of our pros regardless of their purchase occasion.

Ed: Whether they are shopping in store online or getting delivery from stores or distribution centers.

Anne-Marie Campbell: We know that nearly all pros shop or store. Over the years, we have been investing across our stores to simplify and enhance the in-store shopping experience through investments in our workflow process and technology to increase on-shelf availability, investments in inventory to provide a deeper assortment and job-lot quantities in core SKUs. Enhancements in Our Labor Model, and the Introduction of CXMs or Dedicated Customer Experience Managers. and the development of selling tools to provide better insights for our associates to help serve the pros. In addition to these in-store investments, our investments in the FDC network have improved the in-store experience by taking many deliveries out of the store, which reduces clutter in the aisles from staged orders.

Ed: We know that nearly all pro shop our stores.

Ed: Over the years, we have been investing across all stores to simplify and enhance the in store shopping experience too.

Ed: Investments wasteful process and technology to increase on shelf availability.

Ed: Investments in inventory to provide a deeper assortment and job lot quantities and core skus.

Ed: Hence events in all labor model and the introduction of <unk> dedicated customer experienced managers.

Ed: And the development of selling tools to provide better insights for our associates.

Ed: So the pro.

Ed: In addition to these in store investments our investments in the FTC network have improved the in store experience by taking many deliveries out of the store, which reduce clutter, India outs from state orders.

Anne-Marie Campbell: As a result, our in-stock have improved and our associate availability is higher. The FDC has also enabled faster delivery, expanded fulfillment options, and more consistent on-time and complete delivery of larger orders directly to the job site. We also continue to build out a more comprehensive set of capabilities in our pro ecosystems. These capabilities include a broader and deeper assortment of products in the FDC, dedicated sales teams that provide a higher level of service, enhanced selling tools with CRM capabilities to better serve our customers, additional digital capabilities through a B2B website, loyalty, and preferred pricing program.

Ed: As a result, our in stocks have improved and our associate availability is higher.

Ed: The FTC has also enabled us to delivery.

Ed: Banded fulfillment options and more consistent on time and complete the delivery of a larger orders directly to the job site.

We also continue to build out a more comprehensive set of capabilities.

Ed: Full ecosystem.

Ed: These capabilities include a broader and deeper assortment of products in the FTC dedicated sales teams that provide a higher level of service enhanced selling tools CRM capabilities to better serve our customers additional digital capabilities to our <unk> website.

Ed: Loyalty and preferred pricing programs it.

Anne-Marie Campbell: It is all of these capabilities, as well as the enhancement in-store, that have really allowed us to win a greater share of wallet with all our pros. Our initiatives are resonating with pros, and not only are we gaining traction with the larger pro that works on complex projects, we're also seeing meaningful lift in sales with all pros across all purchase occasions. In fact, these investments have driven over $1 billion in incremental sales on an annualized basis in 17 markets. Even in these 17 markets, we are in different stages of maturity, and there's still a lot to do to better serve all our pros, from improving our delivery experience, to building new capabilities like trade credit and order management, to leveraging SRS and improving connectivity with our stores.

Ed: It is all of these capabilities as well as the enhancement in store that have really allowed us to win a greater share of wallet with all or pros.

Ed: Our initiatives are originated with trials and not only are we gain and traction with the larger pool that works on complex projects.

Ed: Also seen meaningful lift in sales with all pros across all purchase occasions.

Ed: In fact, these investments have driven over $1 billion in incremental sales on an annualized basis in 17 markets.

Ed: Even in these 17 markets, we are in different stages of maturity and Theres still a lot to do to better serve all of our pros from improving our delivery experience to build a new capability, just like trade credit and order management to leveraging our service and improving connectivity with our stores.

Anne-Marie Campbell: We know that as we invest across all of our assets, it will allow us to more uniquely serve the pro.

Ed: We know that as we invest across all of our assets. It will allow us to more uniquely serve the pro.

Anne-Marie Campbell: For more information, visit www.FEMA.gov We have a lot to be proud of this year. We continue to focus on delivering the best customer experience in home improvement. We've seen great associate engagement and historically high retention rates. Our safety performance was exceptional and we've made significant progress in shrink driven by our company specific initiatives. All of these efforts are positioning us well and will allow us to continue to grow with all of our customers.

Ed: We have a lot to be proud of this year, we continue to focus on delivering the best customer experience in home improvement, we've seen great associate engagement and historically high retention rates. Our safety performance was exceptional and we have made significant <unk>.

Ed: And shrink driven by or company specific initiatives.

Ed: All of these efforts are positioning us well and will allow us to continue to grow with all of our customers. Thank you and with that let me turn the call over to Billy.

Unknown Executive: Thank you. And with that, let me turn the call over to Billy. Thank you, Anne, and good morning, everyone.

Speaker Change: 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, our performance during the fourth quarter exceeded our expectations as we saw broader engagement across home improvement related projects. In addition, we also saw incremental sales as a result of the ongoing hurricane recovery. However, the higher interest rate environment continues to pressure larger remodeling projects. Turning to our merchandising department comp performance for the fourth quarter, ten of our sixteen departments posted positive comps including appliances, indoor garden, lumber, power, building materials, paint, outdoor garden, storage, hardware, and plumbing.

Billy: Wanted 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 our performance during the fourth quarter exceeded our expectations as we saw broader engagement across home improvement related projects.

Billy: In addition, we also saw incremental sales as a result of the ongoing hurricane recovery efforts. However, the higher interest rate environment continues to pressure larger remodeling projects.

Billy: Turning to our merchandising department comp performance for the fourth quarter 10 of our 16 departments posted positive comps, including appliances Indoor garden lumber power building materials paint outdoor garden storage hardware and plumbing.

Billy Bastek: During the fourth quarter, our comp transactions increased 0.6% and comp average ticket increased 0.2%. Inflation from core commodity categories positively impacted our average ticket by approximately 20 basis points, driven by inflation in lumber and copper wire. Additionally, during the quarter, we continue to see our customers trading up for new and innovative products. Big Ticket Comp transactions, or those over $1,000, were up 0.9% compared to the fourth quarter of last year. We were pleased with the performance we saw in categories such as appliances, building materials, and lumber. However, we continue to see softer engagement and larger discretionary projects for customers typically use financing to fund the project, such as kitchen and bathroom.

Billy: During the fourth quarter, our comp transactions increased 6% and comp average ticket increased 2%.

Billy: Inflation from core commodity categories positively impacted our average ticket by approximately 20 basis points driven by inflation in lumber and copper wire.

Billy: Additionally, during the quarter, we continued to see our customers trading up for new and innovative products.

Billy: Big ticket comp transactions or those over $1000 were up 9% compared to the fourth quarter of last year.

Billy: We were pleased with the performance we saw in categories, such as appliances building materials and lumber. However, we continued to see softer engagement and larger discretionary projects for customers typically use financing.

Billy: The projects, such as kitchen, and Bath Remodels.

Billy Bastek: During the fourth quarter, both pro and DIY comp sales were positive, with pro outpacing the DIY comp. In the fourth quarter, we saw strength across many pro-heavy categories like gypsum, decking, concrete, and fencing. Turning to total company online sales, excluding the impact of the extra week in the quarter, sales leveraging our digital platforms increased approximately 9% compared to the fourth quarter of last year. There are a lot of drivers to our online success. from the focus on continuously improving the shopping and browsing experience to enhancing the delivery and post-delivery experience to leveraging AI to enhance our chat features, product descriptions, and creating rating summaries for our customers.

Billy: During the fourth quarter, both pro and DIY comp sales were positive with pro outpacing the DIY customer.

In the fourth quarter, we saw strength across many pro heavy categories like gypsum decking concrete and sensing.

Billy: Turning to total company online sales, excluding the impact of the extra week in the quarter sales leveraging our digital platforms increased approximately 9% compared to the fourth quarter of last year.

Billy: There are a lot of drivers to our online success.

From the focus on continuously improving the shopping and browsing experience to enhancing the delivery and post delivery experience.

Billy: Sirius to leveraging AI to enhance our chat features product descriptions and creating rating some reach for our customers.

Billy Bastek: This quarter, I'd like to talk more specifically about As you heard from Ted, we remain focused on continuing to improve our interconnected retail experience and have made significant progress on the delivery experience for our customers. We have invested in a broader assortment across our 19 DFCs, established partnerships with third-party last-mile providers, and made technology improvements across our 2,000-plus stores to better utilize all of our assets for the benefit of our customers. Today, we have the fastest delivery speeds across the greatest number of products in company history. Our customers also have more fulfillment options than ever before.

Billy: This quarter I'd like to talk more specifically about delivery.

Speaker Change: As you heard from Ted we remain focused on continuing to improve our interconnected retail experience and have made significant progress on the delivery experience for our customers.

Speaker Change: We have invested in a broader assortment across our 19 Dsc's established partnerships with third party last mile providers and made technology improvements across our 2000 plus stores to better utilize all of our assets for the benefit of our customers.

Speaker Change: Today, we have the fastest delivery speeds across the greatest number of products in company history.

Speaker Change: Our customers also have more fulfillment options than ever before.

Billy Bastek: They can choose what they want, when they want, including same day and next day delivery. We know that driving a superior customer experience, including speed of delivery, drives greater customer satisfaction, higher engagement, higher conversion, and ultimately more sales. We've seen these customers who are engaging in our delivery capabilities, meaningfully increase their overall spend with us across all purchase occasions and channels. During the fourth quarter, we hosted our Appliance, Gift Center, Decorative Holiday, and Black Friday. We saw strong engagement across all of these events with our appliance and gift center events posting record sales.

Speaker Change: They can choose what they want when they want including same day and next day delivery.

Speaker Change: We know that driving a superior customer experience, including speed of delivery drives greater customer satisfaction higher engagement higher conversion.

Speaker Change: Ultimately more sales.

Speaker Change: We've seen these customers who are engaging in our delivery capabilities meaningfully increase their overall spend with us across all purchase occasions and channels.

Speaker Change: During the fourth quarter, we hosted our appliance gift center decorative holiday and Black Friday events, we saw strong engagement across all of these events with our appliance and gift center events posting record sales years.

Billy Bastek: We're looking forward to the year ahead, particularly with the spring selling season right around the corner, and we have a great lineup of new and innovative products from live goods to outdoor power. We continue to see an industry wide shift from gas powered to battery powered tools and we have been leaning into this trend for some time. We have the brands that matter most to our customers, including Ryobi, Milwaukee, DeWalt, and Makita. In our Spring Gift Center event, we will provide our largest assortment of battery-powered products with longer run times and enhanced performance across a number of battery platforms, including Ryobi One, Milwaukee M18 Forge, DeWalt XR PowerPak and PowerStack, and Makita LXT, to name a few.

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

Speaker Change: We continue to see industry wide shift from gas powered battery powered tools, we've been leaning into this trend for some time.

Speaker Change: We have the brands that matter, most to our customers, including Ryobi, Milwaukee Dewalt and makita.

Speaker Change: And our spring gift Center event, we will provide our largest assortment of battery powered products with longer run times and enhanced performance across a number of battery platforms, including Ryobi one Milwaukee.

Speaker Change: <unk> XR power back in power stack and Makita, Alex T to name a few.

Billy Bastek: We're also excited about our live goods program. Each year, our merchants partner with a wide network of regional and local growers to ensure that our customers have new and improved varieties and the right localized assortments to enhance the overall garden experience. Investing in our relationships with our growers will allow us to continue to drive innovation to meet our customers' needs and improve their shopping experience while building loyalty to the Home Depot. As we look forward to spring, we are excited about continuing to provide a broad assortment of best-in-class products that are in stock and available for our customers when and how they need it.

Speaker Change: We're also excited about our live goods program each year, our merchants partner with a wide network of regional and local growers to ensure that our customers have new and improved varieties and the right localized assortments to enhance the overall garden experience.

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

As we look forward to spring, we're excited about continuing to provide a broad assortment of best in class products.

Speaker Change: In stock and available for our customers when and how they need it.

Richard Mcphail: With that, I'd like to turn the call over to Richard. Thank you, Billy, and good morning, everyone. In the fourth quarter, total sales were $39.7 billion, an increase of $4.9 billion. or approximately 14% from last year. Fiscal 2024 included a 53rd week, which added approximately $2.5 billion in sales for the quarter and the year. During the fourth quarter, our total company comps were positive 0.8%, with comps of negative 1.7% in November, positive 6.6% in December, and negative 2% in January. Comps in the U.S. were positive 1.3% for the quarter, with comps of negative 2% in November, positive 8% in December, and negative 1.4% in January.

Richard: With that I'd like to turn the call over to Richard.

Richard: Thank you Billy and good morning, everyone.

Speaker Change: In the fourth quarter total sales were $39 7 billion, an increase of $4 9 billion.

Richard: Or approximately 14% from last year.

Richard: Fiscal 2024 included a 50, <unk> week, which added approximately $2 $5 billion in sales for the quarter and the year.

Richard: During the first during the fourth quarter, our total company comps were positive <unk>, 8% with comps of negative one 7% in November positive six 6% in December and negative 2% in January.

Richard: Comps in the U S were positive one 3% for the quarter.

Richard: With comps of negative 2% in November positive, 8% in December and negative one 4% in January.

Richard Mcphail: It is important to note that holiday shifts positively impacted December while negatively impacting November and January. Our results for the fourth quarter include a net contribution of approximately $220 million in hurricane-related sales, which positively impacted total company comps by approximately 65 basis points for the quarter. Additionally, foreign exchange rates negatively impacted total company comps by approximately 70 basis points for the quarter. For the year, our sales totaled $159.5 billion. an increase of $6.8 billion or 4.5% versus fiscal 2023. For the year, total company comp sales decreased 1.8%, and U.S. comp sales decreased 1.8%. In the fourth quarter, our gross margin was approximately 32.8%, a decrease of 25 basis points from the fourth quarter last year, reflecting a change in mix as a result of the SRS acquisition.

Richard: It is important to note that holiday shifts positively impacted December while negatively impacting November and January.

Richard: Our results for the fourth quarter include a net contribution of approximately $220 million in hurricane related sales, which positively impacted total company comps by approximately 65 basis points for the quarter.

Richard: Additionally, foreign exchange rates negatively impacted total company comps by approximately 70 basis points for the quarter.

Richard: For the year, our sales totaled 159 $5 billion, an increase of $6 $8 billion or four 5%.

Richard: Versus fiscal 2023.

Richard: For the year total company comp sales decreased one, 8% and U S comp sales decreased one 8%.

Richard: In the fourth quarter, our gross margin was approximately 32, 8% a.

Richard: A decrease of 25 basis points from the fourth quarter last year, reflecting a change in mix as a result of the Srs acquisition, which was in line with our expectations.

Richard Mcphail: which was in line with our expectations. For the year, our gross margin was approximately 33.4%. an increase of approximately five basis points from last year, which was in line with our expectations. During the fourth quarter, operating expense as a percent of sales increased approximately 30 basis points. 21.5% compared to the fourth quarter of 2023. Our operating expense performance was in line with our expectations. For the year, operating expenses were approximately 19.9% of sales, representing an increase of 75 basis points from fiscal 2023. Our operating margin for the fourth quarter was 11.3% compared to 11.9% in the fourth quarter of 2020.

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

Richard: An increase of approximately five basis points from last year, which was in line with our expectations.

Richard: During the fourth quarter operating expense as a percent of sales increased approximately 30 basis points to 21, 5% compared to the fourth quarter of 2023.

Richard: Okay.

Richard: Our operating expense performance was in line with our expectations.

Richard: For the year operating expenses were approximately 19, 9% of sales representing an increase of 75 basis points from fiscal 2023.

Richard: Our operating margin for the fourth quarter was 11, 3% compared to 11, 9% in the fourth quarter of 2023.

Richard Mcphail: Excluding intangible asset amortization in the quarter, our adjusted operating margin for the fourth quarter was 11.7% compared to 12.1% in the fourth quarter of 2020. Our operating margin for the year was 13.5% compared to 14.2% in 2023. Excluding intangible asset amortization, our adjusted operating margin for the year was 13.8% compared to 14.3% in 2023. Interest and other expense for the fourth quarter increased by $150 million to $608 million due primarily to higher debt balances than a year ago. In the fourth quarter, our effective tax rate was 22.9%, and for the year it was approximately 23.7%.

Richard: Excluding intangible asset amortization in the quarter, our adjusted operating margin for the fourth quarter was 11, 7% compared to 12, 1% in the fourth quarter of 2023.

Richard: Our operating margin for the year was 13, 5% compared to 14, 2% in 2023.

Richard: Excluding intangible asset amortization, our adjusted operating margin for the year was 13, 8% compared.

Richard: Compared to 14, 3% in 2023.

Richard: Interest and other expense for the fourth quarter increased by $150 million to $608 million due.

Richard: Merrily to higher debt balances than a year ago.

Richard: In the fourth quarter, our effective tax rate was 22, 9% and for the year was approximately 23, 7%.

Richard Mcphail: Our diluted earnings per share for the fourth quarter were $3.02, an increase of approximately 7% compared to the fourth quarter of 2023. Diluted earnings per share for fiscal 2024 were $14.91, a decrease of 1.3% compared to fiscal 2020. Excluding intangible asset amortization, our adjusted diluted earnings per share for the fourth quarter were $3.13, an increase of approximately 9.4% compared to the fourth quarter of 2023. Adjusted diluted earnings per share for fiscal 2024 were $15.24, essentially flat compared to fiscal 2022.

Our diluted earnings per share for the fourth quarter were $3 <unk>, an increase of approximately 7% compared to the fourth quarter of 2023.

Richard: Diluted earnings per share for fiscal 2024 were $14 91, a decrease of one 3% compared to the fiscal 2023.

Richard: Excluding intangible asset amortization, our adjusted diluted earnings per share for the fourth quarter were $3 13.

Richard: An increase of approximately nine 4% compared to the fourth quarter of 2023.

Richard: Adjusted diluted earnings per share for fiscal 2024 were $15 and 24.

Richard: Essentially flat compared to fiscal 2023.

Richard Mcphail: During the year, we opened 12 new stores, bringing our store count to 2,347 at the end of fiscal 2024. Retail selling square footage was approximately 243 million square feet. and total sales per retail square foot were approximately $600 in fiscal 2020.

Richard: During the year, we opened 12, new stores, bringing our store count to 2347 at the end of fiscal 2024.

Richard: Retail selling square footage was approximately 243 million square feet.

Richard: And total sales per retail square foot were approximately $600 in fiscal 2024.

Richard Mcphail: At the end of the quarter, merchandise inventories were $23.5 billion, up approximately $2.5 billion versus last year, and inventory turns were 4.7 times, up from 4.3 times last Turning to capital allocation. During the fourth quarter, we invested approximately $1.1 billion back into our business in the form of capital expenditure. This brings total capital expenditures for fiscal 2024 to approximately $3.5 billion. And during the year, we paid approximately $8.9 billion in dividends to our shareholders.

Richard: At the end of the quarter merchandise inventories were $23 5 billion up approximately $2 $5 billion versus last year and inventory turns were four seven times up from four three times last year.

Richard: Turning to capital allocation.

Richard: During the fourth quarter, we invested approximately $1 $1 billion back into our business in the form of capital expenditures. This brings total capital expenditures for fiscal 2024 to approximately $3 5 billion.

Richard: And during the year, we paid approximately $8 $9 billion in dividends to our shareholders.

Richard Mcphail: Today, we announced our Board of Directors increased our quarterly dividend by 2.2 percent to $2.30 per share, which equates to an annual dividend of $9.20 per share.

Richard: Today, we announced our board of directors increased our quarterly dividend by two 2% to $2 30 per share.

Richard: Which equates to an annual dividend of $9 20.

Richard: Per share.

Richard Mcphail: And finally, during fiscal 2024, we returned approximately $600 million to our shareholders in the form of share repurchase. Computed on the average of beginning and ending long-term debt and equity for the trailing 12 months. Return on Invested Capital was approximately 31.3%, down from 36.7% in the fourth quarter of fiscal 2020.

Richard: And finally during fiscal 2024, we returned approximately $600 million to our shareholders in the form of share repurchases.

Richard: Computed on the average of beginning and ending long term debt and equity for the trailing 12 months return on invested capital was approximately 31, 3% down from 36, 7%.

Richard: For the fourth quarter of fiscal 2023.

Richard Mcphail: Now I will comment on our outlook for 2025. As you heard from Ted, we feel great about the investments we made in 2024, the progress we've made throughout the year, and the significant opportunities we have as we look ahead. And while there are signs that the home improvement market is on the way towards normalization.

Richard: Okay.

Richard: Now I'll comment on our outlook for 2025.

As you heard from Ted we feel great about the investments we made in 2024 the progress we've made throughout the year and the significant.

As we have as we look ahead.

Richard: And while there are signs that the home improvement market is on the way towards normalization.

Richard Mcphail: Uncertainties still remain. As we look ahead to Fiscal 2025... We expect the underlying momentum in the business that we saw in the back half of 2024 to continue into 2025. However, we are not assuming any meaningful changes to the macroeconomic environment. We expect our consumer will remain healthy. We are not assuming a change in the rate environment nor improvements in housing turnover.

Richard: Uncertainty still remains.

Richard: As we look ahead to fiscal 2025.

Richard: We expect the underlying momentum in the business that we saw in the back half of 2024 to continue into 2025.

We are not assuming any meaningful changes to the macroeconomic environment.

Richard: We expect our consumer will remain healthy.

Richard: We are not assuming a change in the rate environment, nor improvements in housing turnover.

Richard Mcphail: As a result, we would expect continued pressure on larger remodeling projects. Given these factors, our fiscal 2025 outlook is for total sales growth to outpace sales comp. sales growth of approximately positive 2.8% and comp sales growth of approximately positive 1%. compared to fiscal 2024. Total sales growth will benefit from the SRS acquisition. the new stores we opened in fiscal 2024 and plan to open in fiscal 2025. And for the year, we expect SRS to deliver mid-single-digit organic growth. Our gross margin is expected to be approximately 33.4%.

Richard: As a result, we would expect continued pressure on larger remodeling projects.

Given these factors our fiscal 2025 outlook is for total sales growth to outpace sales comp with sales growth of approximately positive two 8% and.

Richard: Comp sales growth of approximately positive 1% compared to fiscal 2024.

Richard: Total sales growth will benefit from the Srs acquisition.

Richard: The new stores, we opened in fiscal 2024 and plan to open in fiscal 2025.

Richard: And for the year, we expect Srs to deliver mid single digit organic growth.

Richard: Our gross margin is expected to be approximately 33, 4%.

Richard Mcphail: essentially flat compared to fiscal 2020. Further, we expect operating margin of approximately 13% and adjusted operating margin of approximately 13.4%. This primarily reflects natural de-leverage from sales and continued investments across the business as well as reflecting the mixed impact from the SRS acquisition. Our effective tax rate is targeted at approximately 24.5%. We expect net interest expense of approximately 2.2 billion dollars. We expect our diluted earnings per share to decline approximately 3% compared to fiscal 2024 when comparing the 52-week fiscal 2025 to the 53 weeks in fiscal 2024. And we expect our adjusted diluted earnings per share to decline approximately 2% compared to fiscal 2024.

Richard: Essentially flat compared to fiscal 2024.

Richard: Further we expect operating margin of approximately 13% and adjusted operating margin of approximately 13, 4%.

Richard: This primarily reflects natural deleverage from sales and continued investments across the business as well as reflecting the mix impact from the Srs acquisitions.

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

Richard: We expect net interest expense of approximately $2 2 billion.

Richard: We expect our diluted earnings per share to decline approximately 3% compared to fiscal 2024, when comparing the 52 weeks in fiscal 2025% to 53 weeks in fiscal 2024.

Richard: And we expect our adjusted diluted earnings per share to decline approximately 2% compared to fiscal 2024 on a 52 week basis, it would be essentially flat compared to fiscal 2024.

Richard Mcphail: On a 52 week basis, it would be essentially flat compared to fiscal 2024. We plan to continue investing in our business with capital expenditures of approximately 2.5% of sales for fiscal 2025. We believe that we will grow market share in any environment by strengthening our competitive position with our customers and delivering the best customer experience and home improvement.

Richard: We plan to continue investing in our business with capital expenditures of approximately two 5% of sales for fiscal 2025.

Richard: We believe that we will grow market share in any environment by strengthening our competitive position with our customers and delivering the best customer experience in home improvement.

Richard Mcphail: Before opening the call for questions, we are pleased to announce that we will be holding an investor conference on December 9th. 2025 in New York City.

Richard: Before opening the call for questions. We are pleased to announce that we will be holding an investor conference on December nine.

Richard: 2025 in New York City.

Unknown Executive: We will share more details in the future, but for now, please hold the date.

Richard: We will share more details in the future, but for now please hold the date.

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

Richard: Thank you for your participation in today's call.

Speaker Change: And Christine we are now ready for questions.

Operator: 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.

Richard: Thank you we will.

Speaker Change: I'll now be conducting a question and answer session.

Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad.

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

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

Speaker Change: 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.

Operator: One moment please while we poll for questions.

Unknown Executive: For more information, visit www.fema.gov Thank you.

Laura Eng: Our first question comes from the line of Laura Eng with Morgan Stanley. Please proceed with your question.

Speaker Change: Thank you. Our first question comes from the line of Laura Eng with Morgan Stanley. Please proceed with your questions.

Simeon Gutman: Good morning, it's Simeon Gutman from Morgan Stanley. My first question is on the macro housing backdrop and the ingredients to a 1% comp. So, existing home sales look like they're set to grow mid-singles, and if that's the case, home improvement demand could arguably be a little stronger than maybe a one comp or whatever assumption you're using. What's your take on that? I know Richard said we're not assuming any improvement in turnover. Is there anything changed about, any change about your forecast due to people staying in their homes longer and rates being stubborn?

Speaker Change: Good morning, it's Simeon Gutman from Morgan Stanley.

Speaker Change: My first question is on the macro housing backdrop, and the ingredients to a 1% comp.

Speaker Change: So existing home sales looked like they're set to grow mid singles.

Speaker Change: The case home improvement demand could arguably be a little stronger than maybe a one comp or whatever assumption you are using what's your take on that I know Richard said, we're not assuming any improvement in turnover is there anything changed about any change about your forecast due to people staying in their homes longer and rates being stubborn.

Simeon Gutman: Hi, Simeon. Yes, at this point, while we've seen a little life and turnover in Q4, we're not expecting meaningful increase off that 40-year low, we've likely reached the bottom of housing turnover at about 3% of units, but we're not expecting a big rebound nor significant increases in new housing starts. However, if you just step back, I mean, if you look at our customers. They remain very healthy. We look at our customer today, we think about $110,000 average income. Those incomes have been growing. We've talked about the increase in home equity values up 50% since the end of 2019, and then wealth effect through the stock market and other investments.

Simeon Gutman: Hi, Simeon.

Simeon Gutman: Yes at this point, while we have seen a little life in turnover in Q4, we're not expecting meaningful increase off that 40 year low we have likely reached.

Simeon Gutman: The bottom of housing turnover at about 3% of units.

Simeon Gutman: But we're not expecting a big rebound nor significant increases in new housing starts. However, if you just step back I mean, if you look at our customer.

Simeon Gutman: They remain very healthy we look at our customer today, we should think about $110000 average income those incomes have been growing we've talked about the increase in home equity values up 50% since the end of 19, and then wealth effect through stock market and other investor.

Simeon Gutman: So our customer is very healthy. And as you say, if they're staying in their homes longer, they will take on larger remodeling projects, as opposed to moving those that are locked in to lower interest rates or just not wanting to get mortgages with the higher rates. But we're not anticipating a large decrease in mortgage rates. It'll be more an issue of consumers getting used to these higher rates. and to take on a larger project, it's usually finance. and that financing is through HELOCs and we've started to see a little increase in each of cash out refis as well as draws on HELOCs.

Simeon Gutman: So our customer is very healthy and as you say if they are staying in their homes longer they will take on larger remodeling projects as opposed to moving those that are locked in.

Simeon Gutman: So lower interest rates are just not wanting to get mortgages with the higher rates.

Simeon Gutman: But we're not anticipating a large decrease in mortgage rates will be more.

Simeon Gutman: The issue of cost.

Simeon Gutman: Consumers getting used to these higher rates and to take on larger projects, that's usually finance.

Simeon Gutman: And that financing is through Helocs and we've started to see a little increase in each of cash out refis as well as draws on helocs.

Simeon Gutman: But there's literally trillions of dollars of equity built up in U.S. housing, and as homes continue to age and people are staying in those homes and realize that we're highly unlikely to see the low interest rates we saw over the past two, three years, that they'll eventually tap that equity and do the larger remodeling project.

Simeon Gutman: But there's literally trillions of dollars of equity built up in.

Simeon Gutman: In the U S housing and as homes continue to age and people are staying in those homes and realize that.

Simeon Gutman: Hi, we unlikely to see the low interest rates, we saw over the past two three years that they'll eventually tap that equity and do the larger remodeling projects.

Simeon Gutman: We're just not sure that turn comes in 2025 at a dramatically accelerated rate. And to follow up on the 1%, just to explain that, Simeon, obviously, this is a triangulation. We look at exit run rates of the business. And as we said, keep in mind that Q4, while certainly showing signs of momentum growing from Q3, still had some benefits from hurricanes that won't fully repeat in 2025. So a slight dampening of the run rate, and then the assumption of continued pressure on larger projects. With the shape of the year increasing slightly through the year, which also includes the inclusion of SRS in our comp, you'll see them in our comp for the last seven months.

Simeon Gutman: We're just not sure.

Simeon Gutman: That turn comes in 2025 at a dramatically accelerated pace.

Simeon Gutman: And to follow up on the 1% just to explain that Simeon. Obviously this is a triangulation we look at exit run rates of the business.

Simeon Gutman: And as we said keep in mind that Q4.

Simeon Gutman: <unk> certainly showing signs of momentum growing from Q3 still had some benefit from hurricanes that won't fully.

Simeon Gutman: Pete in 2025.

Simeon Gutman: A slight dampening of the run rate and then the assumption of continued pressure on larger projects.

Simeon Gutman: With the shape of the year, increasing slightly through the year.

Simeon Gutman: Which also includes the inclusion of Srs in our comp.

Simeon Gutman: You'll see them in our comp for the last seven months of the year.

Simeon Gutman: Okay, that's helpful. The follow up, if comps do end up being a little stronger than one, does each point flow through at this 10 points of leverage to the margin? Or is there a scenario, whether it's better DIY, more pro, more complex project? Or do you spend more? Is there a mix shift that could alter that relationship above one? No, I think the 10 basis points is a good rough estimate of leverage from that point.

Okay. That's helpful. The follow up if comps do end up being a little stronger than one.

Simeon Gutman: Does each point flow through at this 10 points of leverage to the margin.

Simeon Gutman: Or is there a scenario, whether it's better DIY more pro more complex project or do you spend more is there a mix shift that could alter that relationship above one.

Simeon Gutman: No I think I think look the 10 basis points is it is a good rough estimate of leverage from that point.

Simeon Gutman: Great, good luck. You're not going to have meaningful shifts in mixed, even if mixed shifts, you're not going to have meaningful differences in that leverage number. Thank you.

Simeon Gutman: Okay.

Simeon Gutman: Great Good luck.

Simeon Gutman: Not going to have meaningful shifts in mix, even as mix shifts youre not going to have a meaningful meaningful differences in that leverage number.

Speaker Change: Thank you.

Christopher Horvers: Our next question comes to the line of Christopher Horvers with JPMorgan. Please proceed with your question. Thanks. Good morning, everybody. I wanted to go at a similar kind of question, maybe on a different angle. Appliances were up. Paint was up. You know, was that volume driven? And to what extent do you think the category was up versus Home Depot, you know, continuing to gain share? Because as you look forward, the replacement cycle dynamics should get better from 4Q levels. You'll be five years out. You know, Ted, you've talked about in the past, every well was painted in the U.S.

Speaker Change: Our next question comes from the line of Christopher <unk> with Jpmorgan. Please proceed with your question.

Speaker Change: Thanks, Good morning, everybody I wanted to go at.

Speaker Change: A similar kind of question maybe on a different angle appliances were up paint was up.

Speaker Change: Was that was that volume driven and to what extent do you think that category was up versus home depot.

Speaker Change: Continuing to gain share because as you look forward the replacement cycle cycle, Dan dynamics should get better from <unk> levels youll be five years out.

Speaker Change: Ted you've talked about in the past every well was paying in the U S. In 2020, but we're getting further from there. So it doesn't that replacement part of the business further accelerate.

Christopher Horvers: in 2020. But we're getting further from there. So doesn't that replacement part of the business further accelerate?

Christopher Horvers: And curious if you were going to say like, well, you know, X percent of the business is replacement versus Y percent is, you know, more like big ticket remodel, which would, you know, we expect to continue to be an anchor.

Speaker Change: Im curious if youre going to say like well X percent of our business is replacement versus y percent.

Speaker Change: Is more like.

Speaker Change: Big ticket remodel, which would we expect to continue to be an anchor.

Ted Decker: Sure, Chris, let me make a broad comment and then Billy can can give some detail on particular categories. Look at if we just step back and look at this quarter. We're happy with it, right? Sales exceeded our expectation. And we're happy with positive comps, obviously, for the first time in two years and particularly happy with positive transaction comps, which has been negative for over three years. And as you say, the business is strengthened across many categories and in many geographies. In fact, we haven't seen this broader-based performance in over two years and maybe even closer to three years.

Speaker Change: Sure, Chris Let me make a broad comment and then Billy can can give some detail on particular categories look at it if we just step back and look at this quarter.

Speaker Change: We're happy with it right sales exceeded our expectations.

Speaker Change: And we're happy with with positive comps, obviously for the first time in two years, and particularly happy with positive transaction comps, which has been negative for over three years.

Speaker Change: And as you say the business has strengthened across many categories and in many geographies. In fact, we haven't seen this broader base performance in over two years and maybe even closer to three years and if you go back Chris to your comment on <unk>.

Ted Decker: And if you go back, Chris, to your comment on COVID, I'd say that shift of spending back to services post-COVID and the pull forward of demand during the pandemic, those have largely played out. There may be a category here and there, but I'd say that PC shift and home improvement pull forward have largely played out.

Speaker Change: <unk> I'd say that shift of spending back to services post COVID-19 and the pull forward of demand during the pandemic. Those have largely played out there may be a category here and there, but I would say that PC shift in home improvement pull forward.

Speaker Change: Largely played out.

Billy Bastek: And engagement in repair and smaller updates and decor-oriented updates is strengthening, and Billy can give some detail on the categories. Yeah. Listen, as Ted mentioned, the broader-based performance, I talked about the 10 of the 16 departments that posted positive comps. We had an outperform, Chris, as you mentioned, in appliances in our gift center business, which we had record sales, candidly, in those areas across the store. So we had a healthy balance of transactions and unit... We hadn't seen them in a while. With that said, still the pressure we know in finance projects, we had great performance across many of our pro heavy categories.

Speaker Change: And engagement in repair and smaller updates into core oriented updates is strengthening and Billy can give some detail on the categories. Yeah unit listen as Ted mentioned, the broader based performance I talked about the 10.

Speaker Change: 16 departments that posted positive comps, we had an outperform Chris as you mentioned in appliances, and our gift center business, which we had record sales candidly in that in those areas across the store. So we.

Speaker Change: We had a healthy balance of transactions and unit performance, which to Ted's point, we hadn't seen.

Speaker Change: Meanwhile, with that said still the pressure we know when financed projects, we had great performance across many of our pro heavy categories, I mentioned, gypsum and decking concrete fencing and while there was some hurricane impact in there we're pretty pleased with the broad base of performance not only across.

Billy Bastek: I mentioned gypsum and decking, concrete, fencing, and while there was some hurricane impact in there, you know, we're pretty pleased with the broad base of performance, you know, not only across the merchandising departments, but certainly. the country, but there's just no denying it. you know the deferral that we're still seeing. We are pleased with the pull forward that we think is largely you know behind us at this point.

Merchandising departments, but certainly across the country, but theres just no denying the.

Speaker Change: The deferral that we are still seeing we are pleased with the pull forward that we think.

Speaker Change: Is largely behind us at this point from a go forward standpoint so.

Billy Bastek: So, you know, all those things bode well, but still the pressure and some of the, you know, more finance projects were still. Got it.

Speaker Change: All those things bode well, but still under pressure and some of the.

More finance projects, we're still continuing to see to see that exist.

Richard Mcphail: And then, Richard, can you talk about the monthly U.S. comps, you know, adjusting for the holiday shift? There's been a lot of questions, I think, over the past five, six weeks on what's going on with the consumer. You saw F&D talk about a, you know, slowdown relative to what they saw in the fourth quarter, and they talked about weather. So can you talk about, do you think, you know, that the weather had any influence on the business in January and any comment on exit rate? Thanks very much. I think that, so, you know, the monthly progression was absolutely influenced by holiday shifts, again, to the benefit of December to the detriment of November and January.

Richard: Got it and then Richard can you talk about.

Speaker Change: Monthly U S comps adjusting for the for the holiday shifts there's been a lot of questions I think over the past five six weeks on what's going on with the consumer.

Speaker Change: F&B talk about a slowdown relative to what they saw in the fourth quarter and they talked about weather. So can you talk about do you think.

Speaker Change: That the weather had any influence on the business in January and any comment on exit rate. Thanks, very much I think that so the monthly progression was absolutely.

Speaker Change: Influenced by holiday shifts.

Speaker Change: Again to the benefit of December to the detriment of November and January but no doubt whether it was horrible in January.

Richard Mcphail: But no doubt, weather was horrible in January. We've had two years in a row of tough Januaries, but this one was particularly tough. And so that's why we don't read a tremendous amount into it when we think about exit run rate, but no doubt weather had an impact.

Speaker Change: Had two years in a row of tough January just with this one.

Speaker Change: Was was particularly tough.

And so that's why we don't read a tremendous amount into it when we think about.

Speaker Change: About exit run rate, but no doubt weather had an impact.

Richard Mcphail: Great. Thanks very much.

Unknown Executive: Have a great spring.

Speaker Change: Great. Thanks, very much have a great spring.

Speaker Change: Thanks.

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

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

Good morning. Thank you so much for taking my question what market share assumptions have you embedded into your 2025 outlook and why wouldn't it be reasonable for us to assume that home depot's market share gains.

Michael Lasser: What market share assumption have you embedded into your 2025 outlook? And why wouldn't it be reasonable for us to assume that Home Depot's market share gains should accelerate from here and be above where they've been historically in light of you now having SRS, as well as many more capabilities, given the investments that have been made over the last several years? Is that a sign that you think your DIY market share is starting to peak and that could have an impact on the overall overall share gains?

Speaker Change: It accelerates from here and be above where these big historically in light of you know, having srs as well as many more capabilities given the investments that have been made over the last several years is that a sign that you think your DIY market share is starting to pay.

Speaker Change: And that could have an impact on the overall overall share gains for the enterprise.

Michael Lasser: Hi, Michael. Thanks for the question. As we look at the overall market for for 2025. We see it overall, being flat, you know, maybe up slightly, those expectations have come down over the last several months. And our plus one, as Richard explained, is the continuation of some of the underlying strength in the business and our initiatives that we absolutely are gaining incremental sales for us. So that's why, you know, we peg our comp growth at 1%. Now, if you look at the combination of what's driving our share gain for both pro Consumer in the Core.

Speaker Change: Hi, Michael Thanks for the question.

As we look at the.

Speaker Change: Overall market for for 2025, we see it.

Overall being flat, maybe up slightly those expectations have come down.

Speaker Change: Over the last several months and are plus one as Richard explained is the continuation of some of the underlying strength in the business and our initiatives that we absolutely are are gaining incremental sales for us. So that's why we peg our.

Speaker Change: <unk> growth at 1% now if you look at the combination of what's driving our share gain for both pro and consumer in the core.

Michael Lasser: It is all the capabilities that that we're putting in the marketplace and we talked a lot about interconnected and in all the investments we've made on the interconnected journey, and then certainly all the investments on our pro ecosystem.

Speaker Change: It has all the capabilities that we're putting in the marketplace and we've talked a lot about interconnected.

Speaker Change: And all the investments we've made on the interconnected journey and then certainly all of the investments on our pro ecosystem.

Michael Lasser: And I'll have Jordan spend a few minutes more on what we're doing on interconnected. And then you add what we're doing with SRS, you know, SRS will grow faster. Thank you. All of this is believed in the core and we believe they are taking share in each of their three verticals so we are very pleased with what SRS is doing. So all that with our new stores which are starting to add some meaningful dollars to our growth. gets us to the 1% comp and 2.8% overall growth in a flat market.

Speaker Change: I'll have Jordan spend a few minutes more on what we're doing on interconnected.

Speaker Change: And then you add what we're doing with Srs Srs will grow faster.

Speaker Change: And then the core.

Speaker Change: We believe they are taking share in each of their three verticals. So we're very pleased with what <unk> is doing so all of that with our new stores, which are starting to add some some meaningful dollars to our growth.

Speaker Change: It gets us to the 1% comp and two 8% overall growth in a flat market. So we wouldn't say our share has peaked by any means in DIY or pro.

Jordan: So we wouldn't say our share has peaked by any means in DIY or And then Jordan, if you could chat about what we're doing to drive share in pro and consumer with Interconnected. Sure. So, I mean, Billy shared the excitement we have had on .com sales performance, and that's really across both the consumer and the pro, both of them up healthily online. And it's been a combination of investments that we've made that have helped deliver that From the site experience and really making that journey so much better from a browse and search perspective and finding the right product to the fulfillment, Billy mentioned that we've had the fastest delivery speeds in the history of our company, same day delivery, next day delivery, whether that's concrete and lumber or whether that's a light bulb or a power tool.

Jordan: And then Jordan chat about what we're doing to drive share.

Jordan: Pro and consumer Yeah with interconnect sure Billy Billy shared the excitement we have had.

Jordan: On dotcom sales performance and that's really across both the.

Jordan: Consumer and the pro both of them up healthily online and it's been a combination of investments that we've made to help deliver that from the site experience and really making that journey so much better from a from a.

Speaker Change: Browse and search perspective, and finding the right product to the fulfillment Billy mentioned that we've had the fastest delivery speeds and the history of our company same day delivery next day delivery, whether thats concrete and lumber or whether that's a light bulb or power tool, it's been really fast and all of those investments that come together to really drive an improvement in conversion rate.

Jordan: It's been really fast. And all of those investments have come together to really drive an improvement in conversion rate on the site. And then what we see is an increased engagement across channel with more purchases that come in store.

Speaker Change: On the site and then what we see is an increased engagement across channel.

Jordan: So we're real excited about the momentum there and see the investments that we've made really paying off. Thank you for that.

Speaker Change: With more purchases to come in store. So we're real excited about the momentum there and see the investments that we've made really really paying off.

Speaker Change: Thank you for that my follow up question is on what's been happening as of late there's been a lot of focus on the impact that the government efficiency measures and or.

Michael Lasser: My follow-up question is on what's been happening as of late. There's been a lot of focus on the impact that the government efficiency measures and or immigration policy implementation could have on the U.S. consumer. How did you factor that and those considerations into the guidance? And while you just indicated that weather was really the underlying cause of some of the results in January, are you seeing any evidence that these factors are having an impact on the business? There's been talk about housing inventory in the mid-Atlantic starting to creep higher. So anything you can provide that would be very helpful.

Speaker Change: Immigration policy.

Speaker Change: Implementation could have on the U S consumer how did you factor that in those.

Speaker Change: Consideration into the guidance.

Speaker Change: And while you just indicated that weather was really the underlying cause of.

Speaker Change: Some of the results in January are you seeing any evidence.

Speaker Change: These factors are having an impact on the business you can talk about.

Speaker Change: Housing inventory in the mid Atlantic starting to creep higher.

Speaker Change: Anything you could provide that would be very helpful.

Michael Lasser: Michael, I don't think we've we've seen anything specifically if you tick through some of the things you mentioned in some I some I'd add, you know, tax policy would be you know, one of the most important to Home Depot is a full taxpayer. So we'd be very pleased if the corporate rate stays at 21%. Tariffs is obviously a lot of discussion on what rates would be and what countries would be impacted and what categories of goods. We've been through that before, and I think we have the best team to manage through any tariff environment, which.

Michael Lasser: Michael I don't think we we've seen.

Michael Lasser: Anything specifically if you tick through some of the things you mentioned in some some I'd add tax policy would be.

Michael Lasser: One of the most important to home depot is a full taxpayer. So it would be very pleased with the corporate rate stays at 21%.

Michael Lasser: Tariffs is obviously a lot of discussion on what rates would be and what countries would be impacted and what categories of goods. We've been through that before and I think we have the best team to manage through any tariff environment, which would impact the industry.

Michael Lasser: Contact Us www.irsuccessstudios.com quite good over the last six or seven years. You mentioned immigration, you know, we've talked about having a shortage of skilled trades folks in this country for some time. We believe it's...

Michael Lasser: Broadly I would say our diversification efforts out of certain concentrations in countries has been.

Speaker Change: Quite good over the last six or seven years, you mentioned immigration.

Michael Lasser:

Michael Lasser: We've talked about having a shortage of skilled trades folks in this country for some time, we believe it's 400 odd thousand trades folks short.

Unknown Executive: I'm not sure you can mention�� Thank you very much and good luck. Thank you.

Michael Lasser: And not.

Michael Lasser: Not sure how that number would change.

Michael Lasser: With any any.

Michael Lasser: A meaningful change in immigration and then specifically to the government efficiency in mid Atlantic No. We've not seen seen anything there.

Speaker Change: Thank you very much and good luck.

Michael Lasser: Thank you.

Scot Ciccarelli: Our next question comes from the line of Scot Ciccarelli with Truist. Please proceed with your question. Good morning, guys. Anne talked about a billion dollars of incremental sales in the 17 markets where you've started to build out complex pro capabilities. How do you actually measure that? And then what kind of ramp would you expect in those markets in 25 as you continue to phase in order management, credit expansion, et cetera, some of the other capabilities that you've discussed? Thanks. Yeah. Thank you, Scott. Yeah. As we mentioned that we're incredibly pleased with what we've seen so far.

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

Speaker Change: Good morning, guys.

Speaker Change: <unk> talked about a $1 billion of incremental sales in the 17 markets, where you're starting to build out complex CRO capabilities. How do you actually measure that and then what kind of ramp would you expect in those markets in 'twenty five as you continue to phase in order management credit expansion et cetera, some of the other capabilities that you've discussed.

Speaker Change: Yes. Thank.

Speaker Change: Thank you Scott Yeah, as we mentioned that we're incredibly pleased with what we've seen so far.

Scot Ciccarelli: We're generating a billion dollars and growing. So that's been fantastic. And as we mentioned as well, you know, it's geared across all participation. The way we measure that is the incremental sales in the 17 markets versus what we see in the top 40 markets. So the billion dollars of annualized sales is that in those 17 markets, we have been outperforming other top 40 markets. And so when you think about 2025, we are focused on really maturing the capabilities in these 17 markets, which is really important. Not only maturing the existing capabilities, but really, really rolling out new capabilities as well.

Speaker Change: We're generating $1 billion and growing so that's been fantastic and as we mentioned as well it's geared across all participation. The way we measure that is the incremental sales in the 17 markets versus what we see in the top 40 markets. So the $1 billion of annualized sales.

Speaker Change: Is that in those 17 markets, we have been outperforming other top top 40 markets and so when you think about 2025.

Speaker Change: We are focused on really mature and the capabilities in the 17 markets, which is really important not only in mature and the existing capabilities, but really really rolling out new capabilities as well so whether it be delivery.

Scot Ciccarelli: So whether it be delivery, expanding our sales force, those are key things that we'll continue to focus on, as well as new capabilities. As we talk about trade credit, order management, account management, those are opportunities that we have to continue to grow in 2025. And Ted talked about SRS. And there's also an opportunity for us to really drive cross-selling opportunities across the SRS portfolio. Last but not least, we have, you know, more FDCs in the pipeline as well. We have three FDCs under construction. We have more in the pipeline. So we're incredibly pleased with what we've seen in 2024 when we think about the 17 markets across our company and compared to the top 40 markets.

Speaker Change: Spending our sales force those are key things that we will continue to focus on as well as new capabilities as we talk about trade credit order management account management. Those are opportunities that we have to continue to grow in 2025, and Ted talked about Srs and there's also an opportunity for us to really drive cost.

Speaker Change: Selling opportunities across the Srs portfolio.

Speaker Change: Last but not least we.

Speaker Change: More sbcs in the pipeline as well we have our three FTC under construction, we have more in the pipeline. So we're incredibly pleased with what we've seen in 2024, when you think about 17 markets across.

Speaker Change: Our company and compare it to the top 40 markets, but more importantly, what we've seen with the pro ecosystem across the country as well and making sure that we are.

Scot Ciccarelli: But more importantly, what we've seen with the pro ecosystem across the country as well, and making sure that we're doubling down on the, you know, the opportunities that we have. I appreciate that.

Speaker Change: We're doubling down on that.

Speaker Change: The opportunities that we see.

Scot Ciccarelli: What's the biggest sticking point as you roll this out? Is it building the specialty sales force? Is it the recognition from your complex pros, et cetera? Like what's the toughest piece that you kind of learned that you have to, what's your toughest hurdle you have to clear? Yeah, Scott, this is, you know, what we continue to find. This is an entire ecosystem, right? So it's not just one component of the ecosystem, right? When we talk about the outside sales or we talk about delivery, or we talk about order management and account management, it's all of those things working in concert.

Speaker Change: I appreciate that whats the biggest sticking point as you roll. This out is it building, especially salesforce is it.

Speaker Change: The recognition from your complex pros et cetera, like what is the toughest piece that you've kind of learned that you'd have to what what are what's the toughest hurdle you have to clear yes. Scott. This is what we continue to find this as an entire ecosystem right. So it's not just one component of the ecosystem right when we talk about.

The outside sales, while we talk about delivering what we talk about order management and account management. It's all of those things are working in concert. So what is always kind of difficult because as you roll these capabilities out and there are different levels of maturity. Our focus is to refine and really protect what we have.

Scot Ciccarelli: So what, you know, is always kind of difficult is as you roll these capabilities out and there are different levels of maturity, our focus is to refine and really perfect what we're seeing. And that takes time in a market, especially when you're building relationships. We don't want to create new relationships with our new capabilities with our pros and then have big failure points. So the difficult part is making sure that we're doubling down and moving at a speed that drives outcomes, but at the same time that we focus on perfecting within the market. So it's incredibly complex.

Speaker Change: <unk> and that takes time in the market, especially when you are building relationships, we don't want to create new relationships with new capabilities with our pros and then big failure point. So the difficult part is making sure that we're doubling down and moving at a speed that in June.

Speaker Change: Lives outcomes, but at the same time that we are focused on perfecting within the market. So.

Scot Ciccarelli: It is really important that we do this right. And in 2024, we saw some really, really great progress. And that's what makes us excited about what we will do in 2025 and beyond.

Speaker Change: It's incredibly complex. It is really important that we do this right and in 2024, we saw some really really great progress and that's what makes US excited about what we will do in 2025 and beyond.

Speaker Change: Thank you.

Karen short: Our next question comes from Karen Short with Milius Research. Please proceed with your question. Hi, thanks very much. And good to talk to you. So I had one question regarding guidance, and another totally related. So actually intangible in terms of operating margin guidance. So, so should we look at that as the right way to think about the relationship between sales growth and operating margin growth, i.e. excluding intangible impact from SRS on your gut. Yes, yes, Karen. We believe that removing the non-cash. Amortization expense related to the amortization of intangible assets is the best way to look at our underlying operating margin.

Speaker Change: Our next question comes from the line of Karen short with Melius Research. Please proceed with your question.

Karen short: Hi, Thanks, very much and good to talk to you.

Karen short: So I have one question regarding guidance.

Karen short: And another totally unrelated.

Karen short: So Max tangible in terms of the operating margin guidance.

Karen short: So we look at that as the right way too.

Karen short: Think about the relationship between sales growth and operating margin growth I E. Excluding intangible impact from Srs on your guidance.

Karen short: Yes, yes, Karen.

Karen short: We believe that removing the noncash amortization.

Karen short: Amortization expense.

Karen short: Related to the amortization of intangible assets is the best way to look at our underlying operating margin and so that's where we would we have guided for the last couple of quarters and will continue to guide on the basis of moving forward.

Karen short: And so that's where we would, we have guided for the last couple quarters and will continue to guide on the basis of moving forward.

Karen short: So how should we... And it includes, Karen, by the way, it includes, it includes, we, we, the operating margin is adjusted for all. Non-Cash Amortization Expense at the Not just that related to SRS. Okay, thank you.

Karen short: So how should we add to the repair and by the way. It includes it includes we.

Karen short: Operating margin as adjusted for all <unk>.

Karen short: Noncash amortization expense at the home depot.

Karen short: Not just that related Srs.

Karen short: So how should we think about the relationship on total sales growth versus operating margin or operating profit growth on the way you define it? De-leverage is essentially the same when you're looking at adjusted operating margin versus versus gap operating margin. So there's no change needed in the way that we've talked about leverage or de-leverage in the past.

Karen short: Okay. Thank you.

Karen short: Should we think about that relationship.

Karen short: Total sales growth versus the operating margin or operating profit growth.

Speaker Change: <unk> do you define that.

Karen short: <unk> de levers is essentially the same when youre looking at adjusted operating margin versus.

Karen short: Versus GAAP operating margins, so theres no change needed in the way that we've talked about leverage or deleverage in the past.

Richard Mcphail: Okay, and is 2.5% of sales the right run rate to think about on CapEx going forward? So historically, we've said. 2% is a is sort of a rough expectation. We we have increased that percentage really to reflect two things. Number one, obviously, we're, we're happy with the investments we've made, they are generating exceptional returns. And so we're leaning into those investments. But second, you know, a big part of that investment portfolio are our new stores. And it's it's worth calling our new store program out. In 2023, we announced, we would build 80 stores over five years, including the year 2023.

Karen short: Okay and is two 5% in sales the right run rate to think about capex going forward.

Karen short: So historically we've said.

Karen short: 2% is sort of a rough expectation.

Karen short: We have increased.

That percentage really to reflect two things number one obviously, where we're happy with the investments. We've made they are generating exceptional returns and so we're leaning into those investments, but second big part of that investment portfolio are our new stores and it's worth calling.

Karen short: Our new store program out in 2023, we announced we were.

Karen short: <unk> build 80 stores over five years, including the year 2023, we are 25 stores into that program. So far the results have been fantastic. We're tracking ahead of expectations. So we are going to continue and we will complete that program. This year will be the third year of the program we will complete it.

Richard Mcphail: We are 25 stores into that program. So far, the results have been fantastic. We're tracking ahead of expectations. So we are going to continue and we will complete that program this year will be the third year of the program will complete it by year five, which is 2027. So that 2.5% of sales is is reflective of that new store program as well as leaning into investments that are working.

Karen short: By year, five which is 2027, so that two 5% of sales is.

Karen short: Is reflective of that new store program as well as leaning into investments that are working.

Richard Mcphail: Okay, great. Thank you so much. You're welcome.

Karen short: Okay, great. Thank you so much.

Karen short: Sure.

Steven Zaccone: Our next question comes from the line of Steven Zaccone with Citi. Thank you for your questions.

Speaker Change: Our next question comes from the line of Steven <unk> with Citi. Please proceed.

Speaker Change: With your question.

Steven Zaccone: Very good morning. Thanks very much for taking my question. I actually want to follow up on Karen's question there and maybe dig into the SRS contribution a bit more. Can you help us understand how that's impacting the bottom line for 2025? Because you gave the organic mid-single-digit growth for the business, maybe how's the bottom line tracking versus expectation? $1 billion to our top line from seven months of ownership. They hit that on the button and we feel great about their P&L top to bottom. As we discussed during the deal, we expected this to be cash accretive within the first year of of Ownership.

Steven: Hey, good morning, Thanks, very much for taking my question I actually wanted to follow up on Karen's question, there and maybe dig into.

Steven: <unk> contribution a bit more can you help us understand how that's impacting the bottom line for 2025.

Steven: The organic mid single digit growth for the business, maybe how does the bottomline tracking versus expectation dollars.

Steven: Two our top line from seven months of ownership they hit that on the button and we feel great about their P&L top to bottom.

Steven: And so.

Steven: From a as we discussed during the deal we expected this to be cash accretive.

Steven: Within the first year of.

Steven Zaccone: We'll be coming up on that first year anniversary soon. They're already contributing to the top and bottom line, and so we feel really happy about that. Now, just to be clear, to make sure that everyone understands this, Obviously, we report our results on a consolidated basis. If you think about the pro forma impact of SRS, the reflection of SRS and its mixed impact on the Home Depot, there's about a 40 basis point full year mixed impact to the Home Depot. So think about Home Depot in total being impacted by about 40 basis points, but that's a mixed effect and we'll take that all day long.

Steven: Of.

Steven: Ownership will be coming up on that first year anniversary soon now they're already contributing to the top and bottom line.

Steven: So we feel really happy about that.

Steven: Just to be clear to.

Steven: To make sure that everyone understands this.

Steven: Obviously, we report our results on a consolidated basis.

Steven: If you think about the pro forma impact of.

Steven: Of Srs.

Steven: The reflection of Srs.

Speaker Change: And its mix impact on the home depot, there's about a 40 basis point full year.

Steven: <unk>.

Steven: The mix impact to the home depot, and so think about home depot.

Steven: In total being.

Steven: Being being impacted by about 40 basis points, but that's a mix effect and we will take that all day long.

Steven Zaccone: They are leaders in their spaces. They're performing exceptionally well and we're happy with that.

Steven: They are leaders in their spaces there.

They are performing exceptionally well and we're happy with that.

Steven Zaccone: Okay, thanks.

Billy Bastek: The top question I had was just on maybe the pricing environment. You know, in the past, I think you've talked about prices kind of settling. Do you feel like we're at a point now where we should see sort of a natural, you know, return to a normal environment for pricing? And then how does, you know, the potential for tariffs kind of fit into that view? Well, thanks, Steven. It's Billy. Listen, as it relates to the just the general pricing environment, and then I'll talk for a minute about tariffs. I mean, we are in a very rational market.

Okay. Thanks.

Speaker Change: Follow up question I had was just on maybe the pricing environment in the past I think you've talked about prices kind of settling down.

Speaker Change: Do you feel like we're at a point now where we should see sort of a natural return.

Speaker Change: A normal environment for pricing and then how does the potential for tariffs kind of fit into that view.

Speaker Change: Well, thanks, Stephen it's Billy listen as it relates to the just the general pricing environment, and then I'll talk for a minute about tariffs I mean, we are in a very rational market.

Billy Bastek: just by definition and you know prices as we've mentioned on the last Couple of calls really have settled to your point. And the promotional activity is the same as it's been, you know, kind of pre-COVID as well. So no differences in that. And as I mentioned, again, the last couple of quarters, pricing is settled into the market accordingly. As it relates to... Two tariffs. And we've spoken a little bit about it this morning. I mean, listen, we've been through this before. We'll continue to assess, you know, just, you know, how these impact our business from a go forward standpoint.

Speaker Change: Just by definition and prices as we've mentioned on the last.

Speaker Change: A couple of calls really have settled to your point.

Speaker Change: And the promotional activity.

Speaker Change: Is the same as it's been kind of pre COVID-19 as well so no differences.

Speaker Change: And that in and as I mentioned again, the last couple of quarters pricing has settled into the market accordingly, as it relates to <unk>.

Speaker Change: <unk> tariffs.

Speaker Change: We've spoken a little bit about just wondering I mean listen we've been through this before.

Speaker Change: We will continue to assess just how these impact our business from a go forward standpoint.

Billy Bastek: We've been focused on diversifying sourcing for several years. So we'll continue to assess that going forward. But our number one job in merchandising is to be the customer's advocate for value. We have great, great vendor relationships.

Speaker Change: We've been focused on diversifying sourcing for several years so we.

We will continue to assess that going forward, but our number one job and merchandising is to be the customers' advocate for value, we have great great vendor relationships and with our scale, we feel that were.

Richard Mcphail: And with our scale, we feel that we're is well or better positioned to than anyone in the marketplace to navigate the environment going And actually, I want to go back one question and just follow up on Steven's question. So Steven, just to put a year over year comparison together for you and talk about how SRS impacts year over year from an operating margin perspective. So as you can, as you see in our guidance, we're getting to a 13.4% adjusted operating margin from a 13.8. That's a 40 basis point decrease. Here's how that 40 basis points breaks down.

Speaker Change: As well or better positioned than.

Speaker Change: Anyone in the marketplace to navigate the environment going forward.

Speaker Change: And actually I wanted to go back one question and just follow up on Stephen's question. So Steven.

Speaker Change: Just to put a year over year.

Speaker Change: Comparison, together for you and talk about how Srs impacts year over year from an operating margin perspective.

Speaker Change: So as you can as you would see in our guidance, we're guiding to a 13, 4% adjusted operating margin from a $13 eight that's a 40 basis point decrease.

Richard Mcphail: It's coincidental to the pro forma impact, but the year over year is different. So that 40 reflects 20 basis points of natural de-leverage. And recall, we think this business leverages about a 3% comp. So at a 1% comp, we're getting about two comp points of de-leverage, so two times about 10 basis points per is 20 basis points. Then the inclusion of 12 months of ownership of SRS compared to seven months of ownership. is reflected in 15 basis points of mixed shift. So you've got about a 15 basis point impact of that year-over-year comparison of 12 months versus seven months.

Speaker Change: Here's how that 40 basis points breaks down its coincidental to the pro forma impact, but the year over year is different.

Speaker Change: So that 40 reflects 20 basis points of natural deleverage and recall, we think this business levers about a 3% comp so at a 1% comprehensive about two comp points of deleverage. So two times about 10 basis points per is 20 basis points.

Speaker Change: Then the.

Speaker Change: Inclusion of 12 months of ownership of Srs compared to seven months of ownership.

Speaker Change: Is reflected.

Speaker Change: In 15 basis points of mix shifts so you've got about a 15 basis point impact of that year over year comparison.

Richard Mcphail: And then finally, the comparison versus a 53-week year also shifts margin by five basis points. So you've got 20 BIPs from naturally leveraged, you've got 15 from SRS impact, and you've got five from the 53-week comparison. Within that, I think it's worth saying, look, we are leaning into investments. We're paying for those investments through productivity. And so that's also within that operating margin guidance. There's productivity inside it as well as leaning into investments. And I hope that makes it a little bit more.

Speaker Change: Of 12 months versus seven months and then finally, the comparison versus a 53 week year.

Speaker Change: Also shifts margin by five basis points. So you've got 20 bps from naturally leverage you've got 15 from Srs impact and you've got five.

Speaker Change: From the 50 <unk> week comparison within that I think it's worth saying, but we are leaning into investments we're paying for those investments through productivity and so that's also within that operating margin guidance, there's productivity inside as well as leaning into investments and I hope that makes it.

Richard Mcphail: Yeah, that answers our question. Thank you so much for that follow up.

Speaker Change: A little bit more clear yeah that answers my question. Thank you so much for the follow up.

Speaker Change: Okay.

Unknown Executive: Our next question comes from the line of Seth Sigman with Barclays. Please proceed with your question. Thanks. Good morning, everyone. I do want to follow up on that last point around the flow through. If you step back and look at your sales over the last several years, I think since 2019, sales are up maybe 45%. SG&A is actually up a similar percent. Along the way, there have been investments and plenty of cost pressures. I guess the real question is, to the extent that comps start to improve here, they progress throughout 2025, are we at that point where sales should grow faster than expenses?

Speaker Change: Yeah.

Speaker Change: Our next question comes from the line of Seth Sigman with Barclays. Please proceed with your question. Thanks. Good morning, everyone. I did want to follow up on that last point around the flow through if you step back and look at your sales over the last several years I think since 2019 sales are up maybe 45% SG&A is actually up a similar percent.

Speaker Change: Along the way there have been investments in plenty of cost pressures I guess the real question is to the extent that comps start to improve here they progress throughout 2025.

Speaker Change: At that point, where sales should grow faster than expenses and you can really start to see that flow through come through.

Unknown Executive: And you can really start to see that flow through come through.

Speaker Change: Jeff.

Richard Mcphail: I would point you back to our investor conference back in 2023, right? Once this market normalizes, we would expect a base case of three to 4% top line growth. We would expect and within that we expect flat gross margin is kind of a base expectation. And then we do expect operating expense leverage. And so that takes you to the earnings per share expectation of mid to high single digit growth once our market is normalized and once we are back to that level of sales. and That View Hasn't Changed.

Speaker Change: Yes.

Speaker Change: I would point you back to our Investor Conference back in 2023 right. Once this market normalizes, we would expect the base case of 3% to 4% top line growth.

Speaker Change: We would expect and within that we expect flat gross margin is kind of a base expectation.

Speaker Change: And then we do expect operating expense leverage and so that.

Speaker Change: It takes you to the.

Speaker Change: The earnings per share expectation of mid to high single digit growth. Once our market has normalized once we are back to that level of sales growth.

Speaker Change: And that view hasn't changed since 2023.

Richard Mcphail: Okay, great. Thank you for that. And then just on that point around the gross margin, you are guiding flat in 25. You still have some SRS dilution wrapping into this year.

Speaker Change: Okay, great. Thank you for that and then just on that point around the gross margin you're guiding flat in 'twenty five you still have some srs dilution wrapping into this year.

Richard Mcphail: Can you talk about some of the underlying assumptions for core Home Depot and speak to the offsets that would be helping, you know, mitigate that SRS dilution? Thanks so much. Sure. I'd point it to you're right about that. We still have a little bit of a lap. And so there's pressure from SRS mix. Just two great call outs. Number one, our outstanding supply chain and merchandising teams finding productivity. And, you know, I could go on and on about it, but the benefits we've seen in supply chain productivity alone, are really encouraging. And we would call out our fantastic store operations team, who have now driven improvements and shrink for about a year and a half, year over year, quarter by quarter.

Speaker Change: Can you talk about some of the underlying assumptions for core home depot and speak to the offsets that would be <unk>.

Speaker Change: Helping mitigate that Srs dilution. Thanks, so much.

Speaker Change: I had pointed to youre right about that we still have a little bit of a lap.

Speaker Change: And so there is pressure from Srs mix.

Speaker Change: Just two great callouts number one our outstanding.

Speaker Change: <unk> supply chain and merchandising teams finding productivity.

Speaker Change: And.

Speaker Change: I could go on and on about it but.

Speaker Change: The.

Speaker Change: The benefits we've seen in supply chain productivity alone.

Speaker Change: A really encouraging and we would call out are fantastic store operations team.

Speaker Change: Who have now driven improvements in shrink.

Speaker Change: For about a year and a half year over year quarter by quarter.

Richard Mcphail: We expect that to continue into 2025. And so it's really a story of SRS mix being offset by supply chain productivity, some other great things the merchants are doing. And our fantastic store ops. Thanks, appreciate it.

Speaker Change: We expect that to continue into 2025, and so it's really a story of Srs mix being offset by supply chain productivity as some other great things that merchants are doing and our fantastic store ops team.

Speaker Change: Thanks, I appreciate it Christine we have time for one more question.

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

Zihan Ma: Thank you. Our final question will come from the line of Zihan Ma with Bernstein. Please begin with your question.

Speaker Change: Thank you our final question will come from the line of <unk> with Bernstein. Please proceed with your question.

Zihan Ma: Hi, thank you so much for taking my question. Just a final quick one. How does your complex pro initiatives impact your long term ROIC expectations, taking into account that you're extending more trade credit and potentially holding more inventory with a broader assortment from here? Thank you. I wouldn't expect meaningful impact on ROIC through capital investments. We've talked about driving incremental sales in profit dollar growth. That business has a different margin profile, but certainly incremental sales and profit growth. But it's really a reasonably asset light investment. bring on sales teams that are commissioned sales forces that sort of earn their keep as they build their portfolios.

Speaker Change: Alright. Thank you so much for taking my question just a final quick one.

Speaker Change: How does your complex trop initiatives impact your long term ROIC.

Speaker Change: Taking into account that you are extending more trade credit and potentially holding more inventory with a broader assortment from here. Thank you.

Speaker Change: I wouldn't expect.

Speaker Change: A meaningful impact on ROI see through capital investments as we've talked about driving incremental sales and profit dollar growth.

Speaker Change: That business has a different margin profile, but certainly incremental sales and profit growth.

But it's really a reasonably asset light investment.

Speaker Change: <unk> the Dcs, we lease trucks, we bring on sales teams that are that our commission sales forces that sort of earn their keep as they build their portfolios.

Zihan Ma: Trade Credit, you know, as we scale that, we're tiny, tiny exposure at the moment, but as we build that, it's just not going to be a meaningful balance sheet item, given the scale of our overall balance. Great, thank you.

Speaker Change: Trade credit as we scale that we're tiny tiny exposure at the moment, but as we build that it's just not going to be a meaningful balance sheet item given given the scale of our overall balance sheet.

Speaker Change: Okay, great. Thank you.

Isabel Janci: Ms. Janci, I would now like to turn the floor back over to you for closing comments. Thank you, Christine, and thank you, everybody, for joining us today. We look forward to speaking with you on our first quarter earnings call in May. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Speaker Change: Mr. <unk> I would now like to turn the floor back over to you for closing comments.

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

Speaker Change: Yeah.

Speaker Change: This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.