Q1 2025 The Home Depot Inc Earnings Call
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Isabel Janci: Greetings and welcome to the Home Depot First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Greetings and welcome to the home Depot first quarter 2025 earnings Conference call.
At this time all participants are in a listen only mode.
Speaker: A brief question and answer session will follow the formal presentation.
A brief question and answer session will follow the formal presentation.
Speaker: 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.
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.
Isabel Janci: It is now my pleasure to introduce your host, Isabel Janci, please go ahead. Thank you, Christine. Good morning, everyone.
Speaker Change: It is now my pleasure to introduce your host Isabel Chancy. Please go ahead.
Isabel Chancy: Thank you Christy and good morning, everyone welcome to <unk> first quarter 2025 earnings call.
Isabel Janci: Welcome to Home Depot's first quarter 2025 earnings call.
Isabel Janci: Joining us on our call today are Ted Decker, Chair, President and CEO, Ann Marie Campbell, Senior Executive Vice President, Billy Bastick, 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.
Ken Stecher: On our call today are Ken Stecher, Chairman, President and CEO Ann Marie Campbell Senior Executive Vice President Billy Bad thing Executive Vice President of merchandising and Richard Mcphail, Executive Vice President and Chief Financial Officer.
Ken Stecher: 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.
Ken Stecher: If we are unable to get to your question during the call. Please call Investor Relations at 77038 for Q3 87.
Speaker: 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 other filings with the FCC. 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 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 a.
Speaker Change: Actual results could 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 other filings with the SEC.
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 for a reconciliation of these and other non-GAAP measures to the corresponding GAAP measure please refer.
Speaker: For a reconciliation of these and other non-GAAP measures to the corresponding GAAP measures, please refer to our earnings press release on our website.
Speaker Change: Two of our earnings press release on our website.
Ted Decker: Now, let me turn the call over to Seth. Thank you, Isabel, and good morning, everyone. Sales for the first quarter were $39.9 billion, up 9.4% from the same period last. Comp sales declined 0.3% from the same period last. and Comps in the U.S. increased 0.2%. Adjusted diluted earnings per share were $3.56 in the first quarter. compared to $3.67 in the first quarter last year. Our first quarter results were in line with our expectations, despite unfavorable weather in February and unplanned pressure from foreign exchanges. In local currency, Canada posted comps below the company average, while Mexico posted positive comps.
Speaker Change: Now, let me turn the call over.
Speaker Change: Thank you Isabel and good morning, everyone sales for the first quarter were $39 $9 billion up nine 4% from the same period last year.
Speaker Change: Sales declined 3% from the same period last year and comps in the U S increased 2%.
Speaker Change: Adjusted diluted earnings per share were $3 56 and the.
Speaker Change: First quarter compared to $3 67 in the first quarter last year.
Speaker Change: Our first quarter results were in line with our expectations despite unfavorable weather in February.
Speaker Change: Unplanned pressure from foreign exchange rates.
Speaker Change: Local currency, Canada posted comps below the company average.
Speaker Change: <unk> posted positive comps.
Ted Decker: The momentum in the business during the back half of fiscal 2024 continued into the first quarter. Our customers engaged across smaller projects and in our spring event. Our associates remain focused in the quarter, and we feel great about our store readiness and product assortment as spring continues to break across.
Speaker Change: The momentum in the business during the back half of fiscal 2024 continued into the first quarter, our customers engaged across smaller projects in our spring events.
Speaker Change: Our associates remain focused in the quarter and we feel great about our store readiness and product assortment.
Speaker Change: <unk> continues to break across the country.
Ted Decker: Let me take a moment to comment on our global sourcing strategy. Today, more than 50% of our purchases are sourced in the United States. Over the last several years, we have worked diligently with our vendors to further diversify our global supply chain. During that period, the vast majority of our supplier partners developed diversified sourcing strategies across several including the United States. As a result, we now have tremendous sourcing flexibility. We are already taking action and anticipate the 12 months. No single country outside of the United States will represent more than 10% of our population. Our team has effectively navigated many economic cycles.
Speaker Change: Let me take a moment to comment on our global sourcing strategy.
Speaker Change: Today more than 50% of our purchases are sourced in the United States over the last several years, we have worked diligently with our vendors to further diversify our global supply chain.
Speaker Change: During that period, the vast majority of our supplier partners develop diversified sourcing strategies across several countries, including the United States.
Speaker Change: As a result, we now have tremendous sourcing flexibility we are already taking action and anticipate that 12 months from now no single country outside of the United States will represent more than 10% of our purchases.
Speaker Change: Our team has effectively navigated many economic cycles. We believe we have the best merchants supply chain finance teams with exceptional tools to help us understand cost impacts by country at the SKU level.
Ted Decker: We believe we have the best merchants, supply chain, and finance. with exceptional tools to help us understand cost impacts by country at the SKU level. We also have robust product and project elasticity models at the market level. We have strategic vendor partners who understand the need to deliver the right value proposition to our customers. We remain bullish on the fundamentals of home improvement and are confident we are best positioned to win. We operate in a highly fragmented, addressable market of approximately $1 trillion, and our consumer, the homeowner, remains healthy. For most people, their home is their biggest asset, and home prices continue to rise.
Speaker Change: We also have robust product and project elasticity models at the market level and we.
Speaker Change: Strategic vendor partners, who understand the need to deliver the right value proposition to our customers.
Speaker Change: We remain bullish on the fundamentals of home improvement and are confident we are best positioned to win.
Speaker Change: We operate in a highly fragmented addressable market of approximately one trillion dollars.
Speaker Change: In our consumer the homeowner remains healthy.
Speaker Change: For most people their home is their biggest asset and home prices continue to rise. This has led to record levels of home equity, giving our customers confidence to invest in their homes.
Ted Decker: This has led to record levels of home equity, giving our customers confidence to invest in their home. The housing stock is aging and 55% of homes are 40 years or older. We know that as homes get older, they require more maintenance and upkeep. We will continue investing in our business to ensure we are best positioned to gain market share, particularly in periods of disruption. Our associates have never been more engaged and ready to serve our customers.
Speaker Change: Our housing stock is aging and 55% of homes are 40 years or older.
And we know that as homes get older they require more maintenance and updates.
Speaker Change: We will continue investing in our business to ensure we are best positioned to gain market share, particularly in periods of disruption.
Speaker Change: Our associates have never been more engaged and ready to serve our customers you'll hear more from an in a moment, but we remain focused on our associates because we know that if we take care of our associates. They will take care of the customer and everything else will take care of itself.
Ted Decker: You'll hear more from Anne in a moment, but we remain focused on our associates. Because we know that if we take care of our associates, they will take care of the customers. everything else will take care of itself.
Ted Decker: We're also focused on maturing our pro ecosystem to better serve pros working on large, complex projects. SRS is now managing our trade credit program, and we are seeing tremendous results as we onboard pros to the program. and SRS continues to perform above our expectations as our teams work together to gain share. Despite the continued pressure and volatility across the market, our merchants, store and met teams, and supplier partners continue to grow. did an outstanding job serving our customers.
Speaker Change: We're also focused on maturing our protein ecosystem to better serve pros working on large complex projects.
Speaker Change: <unk> is now managing our trade credit program and we're seeing tremendous results as we onboard pros to the program.
Speaker Change: And Srs continues to perform above our expectations as our teams work together to gain share.
Speaker Change: Despite the continued pressure and volatility across the market, our merchants store and met teams supplier partners and supply chain teams did an outstanding job, serving our customers I'd like to close by thanking them for their dedication and hard work and also our thoughts are with those.
Ted Decker: I'd like to close by thanking them for their dedication and hard work, and also our thoughts with those impacted by the severe storms and tornadoes yesterday.
Speaker Change: Impacted by the severe storms and tornadoes yesterday.
Anne Marie Campbell: With that, let me turn the call over to Anne. Thanks, Ted, and good morning, everyone. As you heard from Ted, we continue to invest in our business with a focus on taking care of our associates and customers. We know that having the best customer shopping experience in home improvement makes a significant difference and drives sales. Our stores are at the heart of the Home Depot experience, and our associates' deep product and project knowledge differentiates us from our competitors. Customers come to the Home Depot to solve their home improvement problems and build their dreams. And it is our job to consistently deliver the best interconnected shopping experience.
Ann: With that let me turn the call over to Ann.
Ann: Thanks, Ted and good.
Ann: And everyone as you heard from Ted we continue to invest in our business with a focus on taken care of or some shifts and customers.
Ann: We know that having the best customer shopping experience in home improvement makes a significant difference and drive sales.
Ann: Our stores are at the heart of the home depot, Experian and associates deep product and project knowledge differentiates us from our competitors.
Ann: Customers come to the home depot to solve their home improvement problems and build their dreams and it is or job to consistently deliver the best interconnected shopping experience.
Anne Marie Campbell: To do that, we must be laser-focused on our associates and showing that we are providing the tools they need to continue to be engaged, knowledgeable, and ready to serve our customers. Our business isn't unique in that it provides our customers with what we refer to as a three-legged stool, having the best assortment, value, and exceptional customer service. and we are continuously reinforcing that with our team.
Ann: To do that we must be laser focused on our associates and showing that we are providing the tools they need to continue to be engaged knowledgeable and ready to serve our customers.
Ann: Our business is unique in that it provides our customers with what we refer to as a three legged stool, having the best assortment value and exceptional customer service and we are continuously reinforcing that with our teams.
Anne Marie Campbell: One way we do this is at a store manager's meeting which we held in March. That's where we celebrate the hard work and dedication of our 2,300-plus store leaders and 200 distribution center general managers, among others. It is a fantastic event that reminds all leaders of what really matters, delivering a high level of service. And we do this by creating a learning environment that empowers our associates with the knowledge and tools to have the confidence to sell. To do this, we are continuing to leverage existing tools like PocketGuide, an application on the HD phone that provides extensive product knowledge, including tutorials and how-to guides.
Ann: One way, we do this with our store managers meeting, which we held in March.
Ann: That's where we celebrate the hard work and dedication of our 'twenty 300, plus store leaders and 200 distribution Center general managers among others.
Ann: It is a fantastic event that the mines or leaders.
Ann: Really matters delivery.
Ann: Level of service.
Ann: And we do this by creating a learning environment that empowers our associates with the knowledge and tools to have the confidence of salad.
Ann: To do this we are continuing to leverage existing tools like pocket guide an application on the <unk>.
Ann: <unk> extensive product knowledge, including tutorials and how to guides.
Anne Marie Campbell: We're also investing in additional training opportunities. This quarter, we launched a certification for live good associates, providing them a deeper level of localized product knowledge to drive incremental sales during our biggest selling season. And we are introducing new tools using generative AI that leverages our internal data and deep knowledge base, provides store associates quick access to operational and product knowledge via their HD phones. These tools, coupled with a multitude of other investments to drive better service, on-shelf availability, and better insights into our customers' projects, help us win with all of our customers' DIYs and pros.
Ann: We're also investing in additional training opportunities. This quarter, we launched a certification for live goods associates, providing them a deeper level of localized product knowledge to drive incremental sales.
Ann: Biggest selling season.
Ann: And we are introducing new tools using generative AI that leverages, our internal data and deep knowledge base provides store associates quick access to operational and product knowledge via.
Ann: HD phone.
These tools, coupled with a multitude of other investments to drive better service on shelf availability and better insights into our customers projects help us win with all of our customers' DIY and pros.
Anne Marie Campbell: Recently, we conducted our annual Voice of the Associates survey, which showed improvement scored particularly in development. It is clear that as we invest more broadly in our associates, including through tools and education, we continue to see record retention rates, better engagement, and improved customer service. I am so excited about all we are doing for our associates to help them better serve customers and ultimately drive increased customer satisfaction and sales. Our amazing associates continue to go above and beyond to serve our customers regardless of the external environment, and I want to thank them for all that they do.
Ann: Recently, we conducted our annual voice of the Associate's Survey would show improvement scored.
Ann: Particularly in development.
Ann: It is clear that as we invest more broadly in our associates, including through tools and education, we continue to see rapid retention rates better engagement and improved customer service.
Ann: I am so excited about all we could do it for our associates to help them better serve our customers and ultimately drive increased customer satisfaction and sales.
Billy: Our amazing associates continue to go above and beyond to serve our customers with regardless of the external environment and I want to thank them all that they do with that let me turn the call over to Billy.
Billy Bastek: With that, let me turn the call over to Billy. Thank you, and good morning, everyone. I want to start by also thanking all of our associates and supplier partners for their ongoing commitment to serving our customers and communities. In particular, and as you heard from Ted, we are well-positioned to navigate the current macroeconomic environment. Our best-in-class merchants, supply chain, and finance teams provide us with a competitive advantage and continue to position us for success. Their knowledge base and the tools that they have developed over the years provide us with visibility at the SKU level to help inform our global sourcing strategy.
Billy: Thank you Anne and good morning, everyone.
Speaker Change: I want to start by also thanking all of our associates and supplier partners for their ongoing commitment to serving our customers and communities.
Speaker Change: In particular and as you heard from Ted we are well positioned to navigate the current macroeconomic environment.
Speaker Change: Our best in class merchant supply chain and finance teams provide us with a competitive advantage to continue to position us for success.
Speaker Change: Their knowledge base and the tools that they have developed over the years provides us with visibility at the SKU level to help inform our global sourcing strategy.
Billy Bastek: And this deep business understanding, coupled with the strong collaboration with our vendor partners, is what enables us to move quickly to accelerate sourcing diversification. Turning to our first quarter results, as you heard from Ted, our performance during the first quarter was in line with our expectations, despite unfavorable weather that impacted February. As the weather improved throughout the quarter, we experienced similar engagement compared to what we saw in the back half of fiscal 2024 with customers taking on smaller home improvement related projects. However, the higher interest rate environment continues to pressure larger remodeling. In the first quarter, six of our 16 merchandising departments posted positive comps, including appliances, plumbing, indoor garden, electrical, outdoor gardens, and building materials.
Speaker Change: And as deep business understanding coupled with the strong collaboration with our vendor partners is what enables us to move quickly to accelerate sourcing diversification.
Speaker Change: Turning to our first quarter results as you heard from Ted our performance during the first quarter was in line with our expectations. Despite unfavorable weather that impacted February.
Speaker Change: As the weather improved throughout the quarter, we experienced similar engagements compared to what we saw in the back half of fiscal 2024 with customers taking on smaller home improvement related projects.
Speaker Change: However, the higher interest rate environment continues to pressure larger remodeling projects.
Speaker Change: In the first quarter six of our 16 merchandising departments posted positive comps, including appliances plumbing indoor garden, electrical outdoor garden and building materials.
Billy Bastek: During the first quarter, our comp average ticket was essentially flat, and comp transactions decreased 0.5%. Inflation from core commodity categories positively impacted our average ticket by approximately 30 bases. Driven by Inflation in Lumber and Copper. Additionally, during the quarter, we continue to see our customers trading up for new and innovative products. Big ticket comp transactions for those over $1,000 were positive .3% compared to the first quarter of last year. We were pleased with the performance we saw in categories such as building materials, lumber, and hardware. However, we continue to see softer engagement in larger discretionary projects where customers typically use financing to fund the project, such as kitchen and bath remodeling.
Speaker Change: During the first quarter, our comp average ticket was essentially flat and comp transactions decreased <unk>, 5%.
Inflation from core commodity categories positively impacted our average ticket by approximately 30 basis points driven by inflation in lumber and copper.
Additionally, during the quarter, we continued to see our customers trading up for new and innovative products.
Speaker Change: Big ticket comp transactions or those over $1000 were positive <unk>, 3% compared to the first quarter of last year.
We were pleased with the performance we saw in categories such as building materials lumber hardware. However, we continued to see softer engagement and larger discretionary projects, where customers typically use financing to fund the project such as kitchen and Bath Remodels.
Billy Bastek: During the first quarter, pro comp sales were positive and outpaced the DIY customers. In the first quarter, we saw strength across many pro-heavy categories like gypsum, decking, concrete, and cypress. Turning to total company online comp sales, sales leveraging our digital platforms increased approximately 8% compared to the first quarter of last year. We continue to invest in enhancing our interconnected experience, and this quarter we continue to lean into marketing our speed of delivery that is resonating with our customers. Those customers benefiting from faster delivery are engaging more and spending more with us across our category. Additionally, during the back half of last year, we began rolling out a new feature on our website called Magic Apron, a generative AI tool that helps customers find the answers they need related to their home improvement.
Speaker Change: During the first quarter pro comp sales were positive and outpaced the DIY customer.
Speaker Change: In the first quarter, we saw strength across many pro heavy categories like gypsum decking concrete and siding.
Speaker Change: Yeah.
Speaker Change: Turning to total company online comp sales sales leveraging our digital platforms increased approximately 8% compared to the first quarter of last year.
Speaker Change: We continue to invest in enhancing our interconnected experience and this quarter, we continued to lean into marketing our speed of delivery and that is resonating with our customers.
Speaker Change: Those customers benefiting from faster delivery are engaging more and spending more with us across our categories.
Speaker Change: Additionally, during the back half of last year, we began rolling out a new feature on a website called magic apron agenda is AI tool that helps customers find the answers they need related to their home improvement projects.
Billy Bastek: Whether summarizing product reviews or answering live questions with our proprietary expertise, Magic Apron has seen strong customer engagement contributing to growth and online conversion.
Speaker Change: When theres summarizing product reviews are answering live questions with our proprietary expertise magic apron has seen strong customer engagement contributing to growth in online conversion.
Billy Bastek: Our customers have always relied on the expertise of our associates in our stores to answer questions and help them solve problems. Magic Apron is designed to bring that same expertise to the digital world, leveraging our proprietary knowledge base to support our customers and give them the confidence to tackle their home improvement projects anytime, anywhere.
Speaker Change: Our customers have always relied on the expertise of our associates in our stores to answer questions and help them solve problems.
Speaker Change: <unk> is designed to bring that same expertise to the digital world leveraging our proprietary knowledge base to support our customers and give them the confidence to tackle their home improvement projects anytime anywhere.
Billy Bastek: In the first quarter, we were extremely pleased to announce an expanded relationship with Bayer to exclusively offer Kills branded primer products in the United States. With our new exclusive agreement, the Home Depot will become the only home improvement big box retailer to offer Kills branded primer products, including Kills Original, All Purpose, Premium, Restoration, and more problem-solving primer products and aerosols. This new exclusive agreement will deepen our relationship with our pro customers, allowing us to continue to gain share in this important.
Speaker Change: In the first quarter, we were extremely pleased to announce an expanded relationship with barrick to exclusively offer kills branded primary products in the United States.
Speaker Change: With our new exclusive agreement the home depot will become the only home improvement Big box retailer to offer kills branded primary products, including kills original all purpose premium restoration and more problem solving primary products in aerosols.
Speaker Change: This new exclusive agreement, we will deepen our relationship with our pro customers, allowing us to continue to gain share in this important space.
Billy Bastek: During the first quarter, we also hosted our annual Spring Black Friday and Spring Gift Center events and saw strong performance across both events. Our merchants did a fantastic job curating the best products and we saw strong engagement with our customers throughout the year. We're pleased with the results we saw, particularly in categories like appliances, power tools, grills, and paint.
Speaker Change: During the first quarter. We also hosted our annual spring Black Friday in spring gift center events and saw strong performance across both events.
Speaker Change: Our merchants did a fantastic job curating, the best products and we saw strong engagement with our customers throughout the event.
Speaker Change: We're pleased with the results, we saw particularly in categories like appliances power tools grills and pain.
Billy Bastek: As we look forward to the second quarter, we are ready for spring across all our product categories. Our life is going to look incredible with everything from shrubs to a variety of flowers, herbs and vegetables for every type of garden. Our merchants partner each year with global, regional, and local breeders to make sure we have the right plants with the right attributes to ensure that our customers will have success in their garden. The innovation we continue to bring in this space helps bring gardening confidence, creating brand loyalty, while also putting our customers in a position to succeed in their garden.
Speaker Change: As we look forward to the second quarter, we are ready for spring across all our product categories.
Speaker Change: Our live goods look incredible with everything from shrubs to a variety of flowers herbs and vegetables for every type of Gardner.
Speaker Change: Our merchants partner each year with global regional and local leaders to make sure. We have the right plants with the right attributes to ensure that our customers will have success in their gardens.
Speaker Change: The innovation, we continue to bring in this space helps bring gardening confidence, creating brand loyalty, while also putting our customers in a position to succeed in their gardens.
Billy Bastek: We're excited about spring breaking across the country, and we remain ready to help our customers with all of their outdoor projects and outdoor living.
Speaker Change: Excited about spring breaking across the country and we remain ready to help our customers with all of their outdoor projects and outdoor living needs.
Richard Mcphail: With that, I'd like to turn the call over to Richard. Thank you, Billy, and good morning, everyone. In the first quarter, total sales were $39.9 billion. An increase of $3.4 billion, or approximately 9.4% from last year. During the first quarter, our total company comps were negative 0.3%, with comps of negative 3.6% in February, positive 0.6% in March, and positive 1.1% in April. Comps in the US were positive 0.2% for the quarter, with comps of negative 3.3% in February, positive 1.3% in March, and positive 1.8% in April.
I'd like to turn the call over to Richard.
Richard: Thank you Billy and good morning, everyone.
Richard: In the first quarter total sales were $39 9 billion, an increase of $3 4 billion or approximately nine 4% from last year.
Richard: During the first quarter, our total company comps were negative <unk>, 3% with comps of negative three 6% in February.
Richard: Positive <unk>, 6% in March and positive one 1% in April.
Richard: Comps in the U S were positive <unk>, 2% for the quarter with comps of negative three 3% and February positive one 3% in March and positive one 8% in April for.
Richard Mcphail: for the quarter, and in local currency, Mexico posted positive comps, whereas Canada was below the company average. Additionally, foreign exchange rates negatively impacted total company comps by approximately 70 basis points per quarter. In the first quarter, our gross margin was 33.8%, a decrease of approximately 35 basis points from the first quarter of last year. reflecting a change in mix as a result of the SRS acquisition. partially offset by benefits from lower shrink and supply chain productivity. During the first quarter, operating expense as a percent of sales increased approximately 70 basis points to 20.9% compared to the first quarter of 2024.
Richard: For the quarter and in local currency, Mexico posted positive comps, whereas Canada was below the company average.
Richard: Additionally, foreign exchange rates negatively impacted total company comps by approximately 70 basis points for the quarter.
Richard: In the first quarter, our gross margin was 33, 8% a decrease of approximately 35 basis points from the first quarter of last year.
Reflecting a change in mix as a result of the Srs acquisition.
Richard: Partially offset by benefits from lower shrink and supply chain productivity.
Richard: During the first quarter operating expense as a percent of sales increased approximately 70 basis points to 29% compared to the first quarter of 2024.
Richard Mcphail: Our operating expense performance was in line with our expectations. Our operating margin for the first quarter was 12.9% compared to 13.9% in the first quarter of 2024.
Richard: Our operating expense performance was in line with our expectations.
Richard: Our operating margin for the first quarter was 12, 9% compared to 13, 9% in the first quarter of 2024.
Richard Mcphail: in the quarter, pre-tax, intangible asset amortization. was $139 million. Excluding the intangible asset amortization in the quarter, our adjusted operating margin for the first quarter was 13.2% compared to 14.1% in the first quarter of 2024. Interest and other expense for the first quarter increased by $163 million. $591 million due primarily to higher debt balances than a year ago. In the first quarter, our effective tax rate was 24.4 percent. compared to 22.6% in the first quarter of fiscal 2020. Our diluted earnings per share for the first quarter were $3.45 compared to $3.63 in the first quarter of 2024.
Richard: In the quarter pre tax intangible asset amortization was.
Richard: It was $139 million.
Richard: Excluding the intangible asset amortization in the quarter, our adjusted operating margin for the first quarter was 13, 2% compared to 14, 1% in the first quarter of 2024.
Richard: Interest and other expense for the first quarter increased by $163 million to $591 million due primarily to higher debt balances than a year ago.
Richard: In the first quarter, our effective tax rate was 24, 4% compared to 22, 6% in the first quarter of fiscal 2024.
Richard: Our diluted earnings per share for the first quarter were $3 45 compared to $3 63 in the first quarter of 2024.
Richard Mcphail: Excluding intangible asset amortization, our adjusted diluted earnings per share for the first quarter were $3.56, a decrease of approximately 3% compared to the first quarter of 2024.
Richard: Excluding intangible asset amortization, our adjusted diluted earnings per share for the first quarter were $3 56.
Richard: A decrease of approximately 3% compared to the first quarter of 2024.
Richard Mcphail: During the first quarter, we opened three new stores, bringing our total store count to 2,350. At the end of the quarter, merchandise inventories were $25.8 billion, up approximately $3.3 billion compared to the first quarter of 2024, and inventory turns were 4.3 times, down from 4.5 times last year. Turning to capital allocation, during the first quarter, we invested approximately $800 million back into our business in the form of capital expenditure. And during the quarter, we paid approximately $2.3 billion in dividends to our shareholders. Computed on the average of beginning and ending long-term debt and equity for the trailing 12 months, return on invested capital was 31.3%.
Richard: During the first quarter, we opened three new stores, bringing our total store count to 2350.
Richard: At the end of the quarter merchandise inventories were $25 8 billion.
Richard: Up approximately $3 3 billion compared to the first quarter of 2024 and inventory turns were four three times down from four five times last year.
Richard: Turning to capital allocation during the first quarter, we invested approximately $800 million back into our business in the form of capital expenditures.
Richard: And during the quarter, we paid approximately $2 3 billion in dividends to our shareholders.
Richard: Computed on the average of beginning and ending long term debt and equity for the trailing 12 months return on invested capital was 31, 3% down.
Richard Mcphail: down from 37.1% in the first quarter of fiscal 2020.
Down from 37, 1% in the first quarter of fiscal 2024.
Richard Mcphail: Now I will comment on our outlook for fiscal 2025. Excluding the unplanned FX rate pressure, our performance during the first quarter was in line with our expectations. The customer engagement we saw in the back half of 2024 continued into the first quarter and through the first two weeks of the second. In addition, we are confident that we will be able to effectively navigate the environment as it stands today.
Richard: Now I will comment on our outlook for fiscal 2025.
Richard: Excluding the unplanned FX rate pressure our performance during the first quarter was in line with our expectations.
Richard: The customer engagement, we saw in the back half of 2024 continued into the first quarter and through the first two weeks of the second quarter.
Richard: In addition, we are confident that we will be able to effectively navigate the environment as it stands today.
Richard Mcphail: As a result, we are reaffirming our fiscal 2025 guidance. We expect total sales growth to outpace sales comp with sales growth of approximately 2.8% and comp sales growth of approximately positive 1% compared to fiscal 2024. Our gross margin is expected to be approximately 33.4%, essentially flat compared to fiscal 2024. Further, we expect operating margin of approximately 13% and adjusted operating margin of approximately 13.4%. 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.
Richard: As a result, we are reaffirming our fiscal 2025 guidance.
Richard: We expect total sales growth to outpace sales comp with sales growth of approximately two 8% and comp sales growth of approximately positive 1% compared to fiscal 2024.
Richard: Our gross margin is expected to be approximately 33, 4%.
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 a natural deleverage from sales.
Richard: And continued investments across the business as well as reflecting the mix impact from the Srs acquisition.
Richard: Our effective tax rate is targeted at approximately 24, 5%.
Richard: We expect net interest expense of approximately $2 2 billion.
Richard Mcphail: We expect our diluted earnings per share to decline approximately 3% compared to fiscal 2024 when comparing the 52 weeks in 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 2021. On a 52-week basis, adjusted diluted earnings per share 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.
Richard: We expect our diluted earnings per share to decline approximately 3% compared to fiscal 2024.
Richard: When comparing 52 weeks in fiscal 2025 to the 53 weeks in fiscal 2024.
Richard: And we expect our adjusted diluted earnings per share to decline approximately 2% compared to fiscal 2024.
Richard: On a 52 week basis adjusted diluted earnings per share would be essentially flat compared to fiscal 2024.
Richard: We plan to continue investing in our business with capital expenditures of approximately two five.
Richard: 5% of sales for fiscal 2025.
Richard Mcphail: 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 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.
Speaker: 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 and Christine we are now ready for questions.
Richard: Thank you.
Speaker: We will now be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.
Richard: We'll now be conducting a question and answer session.
Richard: If you would like to ask a question. Please press star one on your telephone keypad.
Richard: A confirmation tone will indicate your line is in the question queue.
Richard: You May press Star two if you would like to remove your question from the queue.
Richard: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Richard: One moment, please while we poll for questions.
Speaker: Thank you.
Speaker Change: Thank you. Our first question comes from the line of Christopher <unk> with Jpmorgan. Please proceed with your question.
Christopher Horvers: Our first question comes from the line of Christopher Horvers with JPMorgan. Please proceed with your question. Thanks.
Ted Decker: Good morning everybody. So, there's a lot of noise out there with the weather, which you called out, perhaps some CNN effect given the news cycle. So, I want to get more insights on how you would characterize the overall demand environment. Do you think there was any uncertainty impact of sales trends in one cue that could actually be understating the actual momentum in the business? And then more broadly, with respect to the momentum that emerged in the back half of last year, as we think about an environment where existing home sales is flat, wouldn't replacement cycles portend acceleration from the trends that you exited 2024 with, especially if there's a tick up in inflation?
Christopher <unk>: Thanks, Good morning, everybody.
Speaker Change: So theres a lot of noise out there with the weather, which you called out perhaps some CNN. The fact, given the new cycles. So wanted to get more insights on how you would characterize the overall demand environment. Do you think there was any uncertainty impact of sales trends and <unk> that could actually be understating the the <unk>.
Christopher <unk>: Actual momentum in the business.
Christopher <unk>: And then more broadly with respect to the momentum that emerged in the back half of last year as we think about an environment where existing home sales is flat.
Christopher <unk>: We didnt replacement cycles portend acceleration from the trends that you exited 2024, with especially if there's a pickup in inflation.
Ted Decker: Hey, good morning, Chris. Thanks for that question.
Christopher <unk>: Hey, good morning, Chris Thanks for that question.
Ted Decker: Um, you know, let me just raise up a bit is how we see overall consumer and then drill down a little bit into that specific question. I think from the macro, the worst concerns, I and Stock Market Correction in early April, to where today stock markets fully recovered. Recession expectations are way down in the past month. Morning Consult just came out with their daily consumer sentiment tracking that showed. We know unemployment remains low, TCE grew nicely in April after a very strong March print, and inflation is trending down toward 2% in April. Home prices also continue to increase nationally.
Christopher <unk>: Let me just raise up a bit is how we see overall consumer and then drill down a little bit into that specific question.
Christopher <unk>: I think from the macro.
Christopher <unk>: Worse concerns I think have passed we've gone from a dynamic of where we were going to have a near certain recession.
Christopher <unk>: Stock market correction in early April to where today stock markets fully recovered recession expectations are way down in the past months.
Speaker Change: Good morning, consult just came out.
Speaker Change: With the daily consumer sentiment tracking that showed significant improvement just in the last two weeks, we know unemployment remains slow.
Speaker Change: <unk> grew nicely in April after a very strong March print and inflation is trending down towards 2% in April.
Speaker Change: Home prices also continue to increase nationally, but as you said with interest rates and mortgage rates remaining stubbornly high.
Ted Decker: But as you said, with interest rates and mortgage rates remaining stubbornly high, housing turnover has remained at decades-long lows and starts are flat. So you would think you've heard us talk before with so much home equity built up. Our consumer has a job increasing wages. increases of home equity are up as much as 50% since the end of 19.
Speaker Change: <unk> turnover has remained a decades long lows and starts are flat. So you would think you've heard us talk before with so much home equity built up our consumer has a job increasing wages.
Speaker Change: Increases of home equity are up as much as 50% since the end of 19 why haven't we seen the larger remodeling cycle, particularly as people stay in their homes.
Ted Decker: Why haven't we seen the larger remodeling cycle particularly as people stay in their home? And, again, we cited the increased engagement in Q4 of 2024 and how that. to the first quarter of 2025, but we've yet to see that large project. The large project generally requires some sort of financing, and while there are literally trillions of dollars of equity available to be tapped in the homes, I think there's still enough macro uncertainty and, again, those stubbornly high interest rates that people are painting again and working in their yards and doing smaller projects, but just have not engaged in the larger projects.
Speaker Change: And again, we see.
Cited the increased engagement in Q4 of 2024, and how that continued into the first quarter of 2025, but we've yet to see that large project large projects generally require some sort of financing and while they are literally trillions of dollars of equity.
Speaker Change: Available to be tapped in the homes I think there is there is still enough macro uncertainty and again those stubbornly high interest rates that people are painting again and working in their yards and doing smaller projects, but just have not engaged in the larger.
Ted Decker: Now, obviously, we think that that will increase. We cited last quarter that we're at now a net... And that's a cumulative shortfall of about $50 billion of home improvement spend on housing, so we're very much looking forward to it as much as you are when people tap their equity. gain the stronger macro confidence and engage in those bigger projects. Thank you.
Speaker Change: No no. Obviously, we think that that will will increase we cited last quarter that we're at now a net.
Speaker Change: Cumulative shortfall of about $50 billion of home improvement spend on housing. So we're very much looking forward to it as much as you are when people tap their equity gain.
Speaker Change: Again, the stronger macro confidence and engage in those bigger projects.
Speaker Change: Thank you and then my follow ups.
Christopher Horvers: And then my follow-up is on the Eshinae line. Eshinae, I think, grew 12% year-over-year this quarter. That's a pretty sizable step up from the underlying growth rate of the past few quarters.
Speaker Change: The SG&A line SG&A I think grew 12% year over year. This quarter, there was a pretty sizable step up from the underlying growth rate over the past few quarters can you talk about talk about was there anything one time in that that maybe the street missed and how are you thinking about SG&A growth as the year progresses, thanks very much.
Ted Decker: Can you talk about, you know, was there anything one time in that that maybe the street missed? And how are you thinking about, you know, Eshinae growth as the year progresses?
Ted Decker: Thanks very much. Yeah, thanks, Chris. So we did, as we've said, operating expenses can show a little bit of variability from quarter to quarter. In this case, we're overlapping a legal settlement of some size in Q1 of last year. So that did have an impact. You also have to remember we're adding the SRS expenses to our expense base. That didn't exist in Q1 of last year. And so when you take that noise out, we levered expenses exactly how we would have expected to in a comp environment like this. Our operators are managing their portfolios exactly how we would hope.
Speaker Change: Yeah. Thanks, Chris So we did.
Speaker Change: As we've said operating expenses Ken.
Speaker Change: So a little bit of variability from quarter to quarter. In this case, we're overlapping a legal settlement.
Speaker Change: Some size in Q1 of last year, so that did have an impact.
Speaker Change: You also have to remember, we're adding the Srs expenses to our expense base that didn't exist in Q1 of last year and so when you when you take that noise out.
Speaker Change: We levered expenses exactly how we would have expected to in the comp environment like this.
Speaker Change: Our operators.
R R.
Speaker Change: Our managing their portfolios exactly how how we would hope.
Ted Decker: And frankly, kicking up to the cost of goods sold, if I may just for a moment, I want to call out our incredible merchants and supply chain and operations teams who again show us great results in supply chain productivity and insurance.
And frankly kicking up the cost of goods sold if I may just for a moment callout our.
Speaker Change: Incredible merchants and supply chain and operations teams, who again.
Speaker Change: Show Us great results and supply chain productivity and in shrink results. So for the remainder of the year.
Ted Decker: So for the remainder of the year, just kind of zooming back out, we've reaffirmed guidance. And let me just kind of reorient you to the year-over-year expectation. So year-over-year, 24 to 25, operating margin will decline from 13.8 to 13.4%. About 20 basis points of that is from what you would expect, natural de-leverage, right? We typically lever it around three points of comp. So if you say, at one point of comp, we've got kind of two points of de-leverage headwind, two times about 10 basis points each gives you about 20 basis points of de-leverage. So that's 20 of the 40.
Speaker Change: Just kind of zooming back out we've reaffirmed guidance and let me just kind of reorient.
Speaker Change: You to the year over year expectation, so year over year, 24% to 25% operating margin will decline from 13, 8% to 13, 4% about 20.
Speaker Change: <unk>.
Speaker Change: <unk> points of that is from what you would expect natural deleverage right. We typically lever at around three points of comp. So if you say.
Speaker Change: At one point of comp, we've got kind of two points of deleverage headwind two times about 10 basis points. Each gives you about 20 basis points of deleverage. So that's 20th of 40 than 15 of the 40 is the partial year over year impact of Srs.
Ted Decker: Then 15 of the 40 is the partial year-over-year impact of SRS. We will own SRS 12 months this year. We owned them for about seven months last year. So that 15 is the year-over-year impact. Think of the fully annualized impact of SRS, just mixed impact, being around 40 basis points to adjusted operating margin. But the year-over-year is 15. So that's 20 from due leverage, 15 from SRS, and the remaining five is caused by going from a 53rd week year to a 52 week.
Speaker Change: We'll own Srs 12 months. This year, we owned them for about seven months last year. So that 15 is the year over year impact think of the fully annualized impact of Srs just mix impact being around 40 basis points to adjusted operating margin, but the year over year is 15.
So thats 20 from deleverage 15 from Srs and the remaining five is caused by going from a 50 <unk> week year to a 52 week year.
Ted Decker: Underlying all that, we are generating fantastic productivity, which we're reinvesting in the business to put ourselves in position to take share in any Thank you. Have a great rest of spring.
Speaker Change: Underlying all of that.
Speaker Change: We are generating fantastic productivity.
Speaker Change: We are reinvesting in the business to put ourselves in position to take share in any environment.
Speaker Change: Thank you have a great rest of the spring.
Speaker Change: Thanks.
Simeon Gutman: Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question. Hey, good morning, everyone. Thanks for the question. I want to follow up on the comp guidance for the year. The April exit and then, you know, May commentary sounds good. You're close to two. SRS will kick up, I think, at some point in the second quarter. And I also think the back half was always expected to be a little bit better than the first half.
Speaker Change: Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Speaker Change: Hey, good morning, everyone. Thanks for the question I wanted to follow up on the comp guidance for the year. The April exit and then May commentary sounds good.
Speaker Change: You're close to two.
Speaker Change: We will kick up I think at some point in the second quarter and I also think the back half was always expected to be a little bit better than the first half. So curious what if theres any added caution or just prudence and how you're setting it up.
Simeon Gutman: So curious what, if there's any added caution or just prudence in how you're setting it up, you could get to one and a half to two. I'm not trying to get you on that.
Speaker Change: You could get to one five to two I'm not trying to get you on that but.
Simeon Gutman: But, you know, if trends that you're seeing today hold, you should do a little bit better maybe than the guidance or is there some extra caution you're putting in with housing?
Speaker Change: If trends that Youre seeing today hold you should do a little bit better maybe than the guidance or is there. Some extra caution you are putting in with housing.
Richard Mcphail: Simeon, thank you for the question. You know, we're one quarter in, the team did an awesome job of hitting our expectations, but for the the FX pressure, which was 270 million, sorry, $275 million in the top line. Without that FX pressure, we would have exceeded our own expectations. But we're a quarter in, we feel good about the business heading into Q2.
Speaker Change: Damian.
Speaker Change: Thank you for the question, we're one quarter in the team did an awesome job of hitting our expectations, but for the the <unk>.
Speaker Change: <unk> pressure.
Speaker Change: Which was 270 million sorry.
Speaker Change: Sorry, $275 million on the top line without that FX pressure, we would have exceeded our own expectations, but were at quarter end, we feel good about the business heading into Q2, but.
Simeon Gutman: But right now we feel good about reaffirming our guidance where Okay, a follow up on sales related to SRS. Can you talk about how how much of a catalyst either order management or trade credits have been or are starting to be? And then within that, if you're if you're willing to share the relative strength of SRS is businesses between roofing pool and landscape.
Speaker Change: Right now we feel good about.
Speaker Change: Reaffirming our guidance where it is.
Speaker Change: Okay.
Speaker Change: Slow up on sales.
Speaker Change: Related to Srs can you talk about.
Speaker Change: How much of a catalyst either order management of trade credits have been or are starting to be and then within that.
Speaker Change: If youre, if youre willing to share the relative strength of Srs businesses between roofing pooling landscape. Thanks.
Ted Decker: Hey, Simeon, we're we're super pleased with SRS's performance. If you just look at their growth by the three verticals they operate in. We exceeded our expectation. We believe they're taking share in each of those three verticals. So couldn't be happier with SRS. They are operating per their playbook of organic growth made up of comp branch growth and opening new branches, as well as tuck-in acquisitions. And that is active in all three verticals.
Speaker Change: Hey, Simeon.
Speaker Change: We're super pleased with Srs's performance, if you just look at there.
Speaker Change: Growth by the three verticals they operate in.
Speaker Change: Exceeded our expectation we believe they are taking share in each of those three verticals. So couldnt be happier with Srs they are.
Speaker Change: Our operating per their playbook of organic growth made up of comp branch growth and opening new branches as well as tuck in acquisitions and that is active in all three verticals.
Ted Decker: um then in terms of how they're helping us on our pro ecosystem The main thing they're working on right now is the trade credit program. So, as we talked about the six broad capabilities of delivery and sales force and pricing and order management, etc., credit is a key component of that ecosystem. And as we started to build out that capability in-house, we said, well, jeez, SRS, that's their business model. They have 90,000-plus accounts on trade credit. They have an extraordinarily capable— set of managers and team members running that program for them. So we just said, rather than build it ourselves here in Atlanta, let's let SRS build that for us and run our credit out of Dallas, which they're doing.
Speaker Change: Then in terms of how they are helping us on a pro ecosystem.
Speaker Change: The main thing they're working on right now is the trade credit program. So as we talked about the six broad capabilities of delivery at Salesforce and pricing and order management et cetera credit is a key component of that ecosystem and as we started to build out that capability in house, we set.
Speaker Change: Oh Jeez Srs that's their business model. They have 90000 plus accounts on trade credit they have an extraordinarily capable.
Speaker Change: Set of managers and team members running that program for them. So we just said rather than build it ourselves here in Atlanta, let slip Srs build that for us and run our credit out of Dallas, which Theyre doing so we're still very early days we're in the.
Ted Decker: So we're still very early days. We're in the thousands of accounts onboarded to a credit program with our Home Depot core pro. And like every bit of our capabilities, as our pros engage in the new capabilities, whether it's be assigned a sales representative. engage in delivery, and now in this case. Retaining a line of credit, we see accelerating comps. So really happy with how this is going, and look forward to increased growth as we onboard more customers. Remember, we have millions of pro-customers. I'm not saying we're going to have millions of accounts anytime soon, but we're in the low single-digit thousands of onboarded accounts on our way to business.
Speaker Change: <unk>.
Speaker Change: Accounts.
Speaker Change: On boarded to our credit program with our home depot core pro.
Speaker Change: And like every bit of our capabilities as our pros engage in the new capabilities, whether it be assigned a sales representative.
Speaker Change: Engage in delivery.
Speaker Change: Now in this case.
Speaker Change: Obtaining a line of credit we see accelerating comps so really happy with how this is going.
Speaker Change: And look forward to increased growth as we onboard.
Speaker Change: More customers remember, we have millions of pro customers not saying, we're going to have millions of accounts that anytime soon but we are in the low single digit thousands of on boarded accounts are on our way to millions and just one thing on the specific verticals, we feel great about performance across all three.
Ted Decker: And just one thing on the specific verticals, we feel great about performance across all.
Speaker: Okay, thanks. Have a good, have a great spring. Thank you.
Speaker Change: Okay. Thanks have a good have a great spring.
Speaker Change: Okay.
Speaker Change: Thank you.
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. My first question is on tariffs. So, a little less than 50 percent of your sales are coming from outside of the U.S. They're currently anywhere from a 10 to 30 percent tariff on those goods. So, if we assume a blended rate of 20 percent and the Home Depot is absorbing half of that, it would mean, on average, that's going to be about a 5 percent tariff on your costs of goods.
Speaker Change: Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.
Michael Lasser: Good morning. Thank you so much for taking my question. My first question is on tariffs.
Michael Lasser: So a little less than 50% of your sales are coming from outside of the U S. Currently anywhere from a 10.
Speaker Change: To 30% tariff on those good so we assume a blended rate of 20% and the home depot is absorbing half of that it would mean on average that's going to be about a 5% tariff.
Michael Lasser: On on your cost of goods.
Michael Lasser: How is the Home Depot approaching that from a pricing standpoint?
Speaker Change: Is the home depot, a protein that from a pricing standpoint, and if we assume pricing.
Michael Lasser: And if we assume you're generally pricing steady, does that offset or absorb some of the productivity, supply chain, and shrink benefits that would potentially accrue to over the next few years that it potentially would not materialize now, given they'll need to be used to offset the pricing, the cost increases? Thank you. Well, good morning, Michael. Thanks for the question. So listen, you hit on a couple of the things that Ted mentioned in his prepared remarks. You know, it's important, but over 50% of our purchases are sourced in the U.S. You know, as you've mentioned, and we've been working with our suppliers for years.
Speaker Change: Pricing.
Speaker Change: <unk> does that offset or absorb some of the productivity supply chain and shrink benefit.
Speaker Change: That would potentially accrue to shareholders over the next few years.
Speaker Change: Potentially would not materialize now given they will need to be used to offset the pricing the cost increases. Thank you.
Michael Lasser: Well good morning, Michael Thanks for the thanks for the question.
Speaker Change: So so listen you hit on a couple of the things that Ted.
Speaker Change: Mentioned in his prepared remarks over 50, it's important but over 50% of our purchases are sourced in the U S.
Speaker Change: As you've mentioned and we've been working with our suppliers for years I mean, one of the hallmarks of home depot has always been diversification in diversifying their supply chain. So during that time, a majority of our suppliers have diversified their sourcing strategies.
Billy Bastek: I mean, one of the hallmarks of Home Depot has always been diversification and diversifying with their supply chain. So during that time, a majority of our suppliers have diversified their sourcing strategies, you know, across several countries. We've got tremendous flexibility here. I can't emphasize that enough. We're already taking action, you know, moving quickly, and we anticipate, you know, 12 months from now, that no single country outside of the U.S. will actually represent more than 10% of our purchases. And so, you think about our scale, the great, tremendous partnerships, I can't reiterate those enough, that we have with our suppliers, and you mentioned productivity, a hallmark of the Home Depot.
Speaker Change: Across several countries, we've got tremendous flexibility here I can't emphasize that enough we're already taking action.
Speaker Change: Moving quickly and we anticipate 12 months from now that no single country outside of the U S will actually represent more than 10% of our purchases and so you think about our scale.
Speaker Change: The great tremendous partnerships I can't reiterate those enough that we have with our suppliers and you mentioned productivity a hallmark of the home depot.
Billy Bastek: We see in our business, we intend to, you know, generally maintain pricing across our portfolio. We'll continue to use the portfolio approach that we've talked a lot about in the past. We don't see broad-based price increases for our customers. at all going forward. It's a great opportunity for us to take share and it's a great opportunity for our suppliers to take share as well.
Speaker Change: We see in our business, we intended to generally maintain pricing across our portfolio will continue to use the portfolio approach that we've talked a lot about in the past, but we don't see broad based price increases for our customers.
Speaker Change: At all going forward.
Speaker Change: It's a great opportunity for us to take share and it's a great opportunity for our suppliers to take share as well.
Billy Bastek: But just to clarify, Billy, does that mean you will have to subsidize what would have been price increases with some of the other benefits that would have accrued to the gross margin otherwise? Listen, we have a number of different levers that we have in the portfolio, Michael. You mentioned a few of those. We have a number of different levers, including productivity. And the other thing I would keep in mind is that if you think about our line structure today, there's items that we have that could potentially be impacted from a tariff that, candidly, we won't have going forward if it doesn't make sense inside the line structure.
Speaker Change: But just to clarify does that mean, you will have to subsidize what would've been.
Speaker Change: Price increases.
Speaker Change: With some of the other benefits that would have accrued to the gross margin otherwise.
Speaker Change: Listen we have a number of different levers that we have in the portfolio. Michael you mentioned a few of those we have a number of different levers, including productivity and then the other thing I would keep in mind is that if you think about our line structure. Today. There is items that we have that could potentially be impacted from a tariff that candidly, we won't have going forward if it.
Speaker Change: Does it makes sense inside the line structure, so it's a little bit less about the item in the <unk>.
Billy Bastek: So it's a little bit less about the item and the percentages that you mentioned and more about the line structure and how we'll manage that going forward. And there'll be some things that don't make sense that just end up going away. So if you think about it that way, really a limited impact from that standpoint. And our suppliers, along with our teams, have done a terrific job diversifying their global supply chains. And this is not new to the Home Depot. It's always been something that we've worked closely with our suppliers on. So we feel good about all the productivity and the other things that we have in our arsenal to manage that accordingly.
Speaker Change: Percentages that you mentioned and more about the line structure and how we will manage that going forward and there'll be some things that don't make sense that just end up going away. So if you think about it that way really limited impact from that standpoint, and our suppliers along with our teams have done a terrific job.
Speaker Change: <unk> define their global supply chain and this is not new.
Speaker Change: The home depot has always been something that we've worked closely with our suppliers on so we feel good about all of the productivity and the other things that we have in our arsenal to manage that accordingly for our customers.
Billy Bastek: Got you.
Speaker Change: Got you.
Ted Decker: My follow-up question is on Ted's comment that there could be $50 billion of deferred demand in home improvement. If we just simply apply Home Depot's market share of around 25% to that number, that would be $10 to $15 billion of deferred demand that Home Depot could experience over the next few years, either as rates come down or as the consumer just comes in off the sidelines because a matter of time passes. Why shouldn't we think about that as providing an outsized benefit to the Home Depot's sales growth over the next few years, above and beyond the 3% to 4% top-line growth that is inherent in your algorithm?
Speaker Change: Follow up question is on his comment that there could be $50 billion.
Speaker Change: Demand in home improvement if we just.
Speaker Change: Simply apply home depot with market share of around 25% to that number that would be $10 billion to $15 billion of deferred demand that home depot could experience over the next few years, either as rates come down or.
Speaker Change: As the consumer.
Speaker Change: It comes in off the sidelines because a matter of time passes why shouldn't we think about that as providing an outsized benefit to the home depot sales growth over the next few years above and beyond the 3% to 4% top line growth that is inherent in your algorithm. Thank you so much.
Ted Decker: Thank you so much. Well, that that's certainly our our expectation that that that's exactly the type of share opportunity as to the guest list. That's exactly what we hope to do.
Speaker Change: Well, that's certainly our expectation that that.
Speaker Change: That's exactly the type of share opportunity as we continue to dial in the <unk>.
Speaker Change: Core Orange box business servicing the DIY and pro and then all of the capabilities that we're building to capture more share of wallet with the larger pro that would absolutely be the.
Michael Lasser: <unk> case, where we're taking more share Michael.
Speaker Change: That's exactly what we hope to do we'll talk more about that in December at our Investor Conference.
Speaker: We'll talk more about that in December at our Understood. Thank you so much and good luck.
Speaker Change: Understood. Thank you so much and good luck.
Chuck Grom: Our next question comes from the line of Scot Ciccarelli with Truist. Please proceed with your question. Good morning, guys. Thanks for the time. Last quarter, you provide some extra comments on the 17 markets where you have extra capabilities rolled out for the complex pro.
Speaker Change: Our next question comes from the line of Scot Ciccarelli with Trust. Please proceed with your question.
Scot Ciccarelli: Good morning, guys. Thanks for the time.
Scot Ciccarelli: Last quarter, you provided some extra comment.
Scot Ciccarelli: On the 17 markets, where you had extra capabilities rolled out for the complex grow can we get an update on what capabilities, you're kind of rolled out wear and then any more color on the relative performance of those markets.
Chuck Grom: Can we get an update on what capabilities are kind of rolled out where and then any more color on the relative performance of those markets? Thanks. So there's, Scott, there are no additional markets. So we're in 17 markets with our, in the distinction of the 17 markets, again, is where we have a flatbed distribution center. Now we're delivering in all markets as we've done for years, but again. We've just continued to make progress, so the sales team continues to mature, our pricing schemes continue to mature, delivery are on time, and complete, scaled delivery has never been better.
Speaker Change: So there is there is.
Speaker Change: Scott there no additional markets. So we're in 17 markets with our <unk>.
Speaker Change: Distinction of the 17 markets again.
Speaker Change: Where we have a flatbed distribution center now we're delivering in all markets.
Speaker Change: We have done for years, but again.
Speaker Change: English there is but we have a separate facility.
Speaker Change: We've just continued to make progress so the sales team.
Speaker Change: <unk> continues to mature.
Speaker Change: Our pricing schemes continue to mature delivery are on time and complete scaled delivery has has never been better and by the way that is that as with the <unk>.
Billy Bastek: And by the way, that is with. to the big and bulky deliveries out of our stores, as well as out of our multiple distribution facilities, our MDOs, market delivery operations, our DFCs, and our FDCs. We've never been in a better in stock and on time and complete delivery with the fastest speed of all time in our in our delivery rate.
Speaker Change: Consumer DIY parcel business to the big and bulky deliveries out of our stores as well as out of our <unk>.
Speaker Change: Multiple distribution facilities are empty OS market delivery operations or Dfc is in our FTC, we've never been in a better in stock and on time and complete delivery with the fastest speed.
Speaker Change: Of all time.
Speaker Change: Our delivery rates.
Billy Bastek: The last and maybe longest hole in the tent is finishing up the IT work on order management and account management. As I said, the credit program is built, and we're onboarding just early days there, and we'll be finishing up throughout 2025 the last initial build of the technology work to build more agile order management. And then that should only improve our on time. Got it. Thank you for that.
Speaker Change: The last and maybe longest.
Speaker Change: Hold the 10 is finishing up the work on order management and account management as I said the credit credit program was built and we're Onboarding just early days, there and we'll be finishing up throughout 2025, those last initial build of the technology.
Speaker Change: Work to build more agile order management, and then that should only improve our our on time and complete and speed metrics.
Speaker Change: Got it thank you for that and then.
Richard Mcphail: And then, Richard, can you just comment on the expectations regarding SRS getting layered into the comp, kind of mid-2Q, kind of how you guys are thinking about that for the balance of the year? Thanks, guys. Yes, so we acquired, we closed on the acquisition of SRS mid-June last year, so they will enter our comp base shortly, and we'll own them for a little more than seven months this year. Once they enter the comp base, We will report them as part of total company comp. So our U.S. comp that we report is principally our retail operation.
Speaker Change: Can you just comment on the expectations regarding Srs getting layered into the comp kind of mid <unk> kind of how you guys are thinking about that for the balance of the year. Thanks guys.
Speaker Change: Yes. So we acquired we closed on the acquisition of Srs mid June last year. So they will enter our comp base.
Speaker Change: Shortly.
Speaker Change: And we will own them for a little more than seven months of this year once they enter the comp base.
Speaker Change: We will report them as part of total company comp so our U S comp that we report is principally our retail operations.
Richard Mcphail: and reflects those. We have historically reported HD Supply, for instance, not in U.S. comp but in total company comp to give you that clean look of the U.S. retail business. So SRS will be treated similarly. They will not be reported as part of U.S. comp. They will be reported as part of total company comp. We expect them, so look, for the quarter, SRS actually exceeded our expectations. They delivered $2.6 billion in sales. And we expect them to meet our expectations of mid-single-digit growth for the year. And we're looking forward to continued growth with them. That acquisition is one to be proud of.
Speaker Change: It reflects those we have historically reported.
Speaker Change: <unk> supply for instance, not in U S comp, but in total company comp to give you that clean look.
Speaker Change: The U S retail business so.
Speaker Change: Srs will be treated similarly, they will not be reported as part of U S comp they will be reported as part of total company comp.
Speaker Change: We expect them so look for the quarter Srs actually exceeded our expectations they delivered $2 $6 billion in sales.
Speaker Change: And we expect them to to meet our expectations of mid single digit growth for the year and we're looking forward to two.
Speaker Change: Continued continued growth with them.
Speaker Change: That acquisition.
Speaker Change: As wanted to be proud of and we're making.
Speaker: And we're making, as Ted said, a lot of progress with SRL. Great. Thanks a lot, guys. Good luck.
That said a lot of progress on Srs.
Speaker Change: Great. Thanks, a lot guys. Good luck.
Speaker Change: Okay.
Zhihan Ma: Our next question comes from the line of Zhihan Ma with Bernstein.
Speaker Change: Our next question comes from the line of Jehan Mall with Bernstein. Please proceed with your question.
Richard Mcphail: Please repeat your question. Hi, thank you for taking my question. So a first one on the inventory, which looks to be up about 15% this quarter. Can you just help us understand how much of that was driven by SRS in the base? And has there been any pull forward of inventory? And more broadly speaking, how do you feel about your inventory positioning ahead of the summer and more forward looking into the holidays?
Jehan Mall: Alright. Thank you for taking my question. So first one on the inventory, which looks to be up about 15%. This quarter can you just help us understand how much of that was driven by Srs.
Speaker Change: And has there been any pull forward of inventory and more broadly speaking how do you feel about your inventory positioning ahead of the summer and more forward looking into the holiday. Thank you.
Richard Mcphail: Thank you. We feel great about our inventory position. We are at in-stock levels as good as they've ever been, but a little bit behind the numbers. First, recall, SRS was not reflected in our Q1 balance sheet last year, so the majority of the increase year-over-year in inventory is simply from adding the SRS inventory into our base. Yeah, I mean, this is our Super Bowl season, Q2 specifically, and so, as Richard mentioned, we did not pull forward any inventory. Having said that, all of our goods for really the season, I think in the first half of our business, depending on where it breaks across the country, has been in our DCs, in our network.
Speaker Change: Thank you we feel great about our inventory position, we are at in stock levels.
Speaker Change: As good as they've ever been.
Speaker Change: But a little bit behind the numbers first recall Srs was not reflected in our Q1 balance sheet last year. So the majority of the increase year over year inventory is simply from adding the Srs inventory into our base that we also made investments so as we saw.
Speaker Change: Gains from our speed initiative online and in our supply chain.
Speaker Change: We saw momentum.
Speaker Change: That.
Speaker Change: That part of our business and that customer experience.
Speaker Change: We began.
Speaker Change: Heavier load ends in our Dcs to take advantage of that customer.
Speaker Change: Customer momentum and so that that's the.
Speaker Change: The inventory position is right, where we want to be really no pull forward here.
Speaker Change: And if you think about Billy maybe you want to talk a little bit about spring and how that works.
Speaker Change: Is our Super Bowl.
Speaker Change: In Q2, specifically and so as Richard mentioned, we did not pull forward any inventory, having said that all of our goods for for really the season, you'll think of the first half of our business, depending on where it breaks across the country has been NRG.
Speaker Change: In our Dcs in our network, so a little bit slower as we mentioned in February that that's caught back up but all of that inventory landed.
Speaker Change: Well before.
Speaker Change: The fiscal year started and so we feel great about our position we've.
Speaker Change: We mentioned our in stock rates have never been better really thrilled with that thanks to our suppliers again for great work, there, but we feel we're in a great position.
Speaker Change: <unk> as it relates to the biggest part of our year coming up and then we talked about speed and how thats working for us with our customers really pleased with the performance. There. We've continued to invest in our Dfc network. As we now speed is the key metric to conversion and we're really pleased with with the productivity, we're getting out of that inventory as well.
Richard Mcphail: We've continued to invest in our DFC network, as we know speed is the key metric to conversion, and we're really pleased with the productivity we're getting out of that inventory as well.
Speaker: Great.
Speaker Change: Great. Thank you a quick follow up in terms of the accelerating comps in over the course of Q1 was there any Easter timing shift impacted there and are you seeing the exit rate continue in may. Thank you again.
Speaker: Thank you.
Speaker: A quick follow-up in terms of the acceleration in comps over the course of Q1. Was there any Easter timing shift impact in there, and are you seeing the exit rate continue in May?
Richard Mcphail: Thank you again. There absolutely was an Easter timing shift, that if you add to April, it benefited March to the detriment of April. And so if you adjust for that Easter week shift, April would have been closer to 2.5% comp in the U.S. than I reported.
Speaker Change: They're absolutely wasn't Easter timing shift.
Speaker Change: That if you add to April it benefited March to the detriment of April and so if you adjust for that Easter week shift April would have been closer to two 5% comp in the U S than our reported them.
Zachary Fadem: Our next question comes from Zach Fadem with Wells Fargo. Please proceed with your question. Morning. Following up on pricing, as it sounds like you've got the levers at your disposal to hold pricing and margins relatively consistent. But when you think about the industry and your competitors, is it fair to say in that scenario that your price spreads versus your peers would widen? And then when you look at your elasticity models, is there a specific level of tariffs that would preclude you or the industry from being able to hold price constant?
Speaker Change: Our next question comes from the line of Zack <unk> with Wells Fargo. Please proceed with your question.
Speaker Change: Good morning, following up on pricing is it sounds like you've got the levers at your disposal to hold pricing and margins relatively consistent but when you think about the industry and your competitors is it fair to say in that scenario that your price spreads versus your peers would would widen and then when you look at your elasticity models.
Speaker Change: Is there a specific.
Speaker Change: Level of tariffs that would preclude you or the industry from being able to hold price constant.
Billy Bastek: Yeah, thanks, Zach. You know, I'm not going to speak to our competitive set and what they're going to do with retails, as I mentioned, you know, a few minutes ago, we feel very good about, you know, about our position in terms of where we are, diversification, and all the things, you know, that I mentioned there. We are always testing the elasticity models in this environment, in every environment. We have a great team with our merchants and obviously with our finance partners, and we're always testing those elasticity models in any environment. We'll do the same here as we've done, you know, every other time.
Speaker Change: Yes, Thanks Zack.
Speaker Change: I'm not going to speak to our competitive set and what theyre going to do with retailers as I mentioned.
Speaker Change: Few minutes ago, we feel very good about our position in terms of where we are diversification and all the things that I've mentioned there.
Speaker Change: We are always testing the elasticity models in this environment in every environment.
Speaker Change: We have.
Speaker Change: <unk> team with our merchants and obviously with our finance partners and we're always testing those elasticity models in any environment. We will do that we'll do the same here as we've done every other time, but as it relates to our price positioning versus the market I wouldn't speculate on that we just feel great about our position we've got the best merchants supply.
Billy Bastek: But as it relates to our price positioning versus the market, I wouldn't speculate on that. We just feel great about our position. We've got the best merchants, supply chain, and finance teams. We've got tremendous models down to the SKU level and where all of our assortments are and where they're going from a diversification standpoint. So I'd say that, you know, we feel very confident about our price Got it.
Speaker Change: Jane and finance teams, we've got tremendous models.
Speaker Change: Down to the SKU level, and where where all of our assortments are in.
Speaker Change: And where they're going from a diversification standpoint, so I'd say that we feel very confident about our price position as I mentioned.
Speaker Change: Got it and then Richard from from an accounting perspective, you are under the retail inventory method.
Richard Mcphail: And then Richard, from an accounting perspective, you're under the retail inventory method. So just want to make sure that there's no change in the way we should think about your gross margin. And if there's any puts and takes, we should keep in mind as the tariff-driven costs flow through your P&L and how that will get recognized as you match that with sales. We are on the retail inventory method. Look, you will see a little bit of variability reflecting, you know, changes in retail where that happens, markups where that happens. But there's really not anything significant.
Richard: So just wanted to make sure that there is no change in the way we should think about your gross margin and if there's any puts and takes we should keep in mind is the tariff driven cost flow through your P&L and how that will we will get recognized as you match that with with sales.
Richard: We are on the retail inventory method look you will see a little bit of variability reflecting.
Richard: Changes in retail where that happens markets where that happens.
Richard: But there's really not anything significant.
Richard Mcphail: to call out. Got it. Thanks. Remember, our retails move in ordinary course. So in any quarter, you're going to see the effect of price changes right in that retail. Thanks, Richard.
To call out quarter to quarter for us.
Richard: Got it thanks for that remember our retails move in ordinary course, so in any quarter, you're going to see.
Richard: The effective price changes right in that retail in that method.
Speaker Change: Thanks Richard.
Seth Sigman: Our next question comes from the line of Seth Sigman with Barclays. Please respond with your question. Hey, good morning, everyone. I wanted to ask about the housing backdrop. And if you could elaborate on regional performance in the period. I'm curious what you're seeing in markets where maybe housing activity has softened a bit where home prices have softened. I guess if we do see home prices weaken, does that matter as much as maybe in the past just given where home equity is versus history? Thanks so much.
Speaker Change: Our next question comes from the line of Seth Sigman with Barclays. Please proceed with your question.
Speaker Change: Hey, good morning, everyone I wanted to ask about the housing backdrop, and if you could elaborate on regional performance in the period I'm curious what youre seeing in markets, where maybe housing activity has softened a bit where home prices have softened.
Speaker Change: I guess, if we do see home prices weaken does that matter as much as maybe in the past just given where home equity is versus history. Thanks. So much.
Ted Decker: Yeah, tough to prescribe set the exact dynamic there. But there are a couple markets that we saw a slight softening, but we've not seen any change. sales associated with that this time of year, as you can imagine, weather is the dominant determinant of. So nothing, nothing yet on any price changes. Okay, got it.
Speaker Change: Yes, it's tough to prescribe stuff.
Speaker Change: The exact dynamic there, but there are a couple of markets that we saw a slight softening, but we've not seen any change in.
Speaker Change: And sales associated with that at this time of year as you can imagine weather.
As the dominant determinant.
Speaker Change: Particular regions performance.
Speaker Change: So nothing nothing yet on any any price changes in housing impacting the business.
Speaker Change: Okay got it and then as you think about the demand outlook. Your business has been improving modestly in Q4, and then again in the last several months. If you look out even as youre not raising prices. It seems like a lot of other companies are going to be raising prices even outside of the home improvement category there.
Ted Decker: And then as you think about the demand outlook, your business has been improving modestly in Q4. And then again, the last several months, if you look out, even as you're not raising prices, it seems like a lot of other companies are going to be raising prices, even outside of the home improvement category. There's a growing concern that that's gonna weigh on the consumer. It's gonna weigh on spending power. How do you think about that? Do you see that as a risk to the outlook that you've laid out here? Thanks so much. Well, I think there was there's a lot of talk of demand destruction, you know, what I what I mentioned earlier in um, an earlier question that You know, if there was a significant shock to the economy and expectation of recession and overall demand destruction.
Speaker Change: There is a growing concern that that's going to weigh on the consumer is going to weigh on spending power. How do you think about that do you see that as a risk to the outlook that you've laid out here. Thanks, so much.
Speaker Change: Well I think there was there was a lot of talk of demand destruction, what I mentioned.
Speaker Change: Earlier.
Speaker Change: An earlier question.
Speaker Change: <unk>.
Speaker Change: If there was a significant shock to the economy and expectation of recession and overall demand destruction I think we're well past that now if there is.
Ted Decker: I think we're well past that. Now, if there is some share of wallet dynamic due to raising prices in other sectors of the economy, we'll be watching that very closely. But again, the thing to keep in mind is we have a very different customer and a very different sort of use case for expenditure in home improvement. So our customer from a broad basis is one of the strongest in the economy. The average income is $110,000. Eighty percent of our customers own their homes. We've talked about how much home price appreciation they've seen over the past year.
Speaker Change: Some share of wallet dynamic due to raising prices in other sectors of the economy will be watching that very closely but again the thing to keep in mind is we have a very different customer.
And a very different sort of use case for expenditure and home improvement so our customer.
Speaker Change: Broad.
Speaker Change: Basis is one of the strongest in the economy. The average incomes of $110000, 80% of the of our customers own their homes, we've talked about how much home price appreciation <unk> seen over the past year stock markets have recovered job and wage growth are strong so.
Ted Decker: Stock markets have recovered. Job and wage growth are strong. So our customer is in a good spot right now. I mentioned Morning Consult. If you look at their views of different income levels... expectations of the economy in most recent impact on on wage growth, that hundred plus thousand dollar customer is by far in the best shape. So it's something we're watching. Something like energy pricing is broad-based and obviously impacts everyone. Gas prices are going down, so that's a help, but food prices have remained high. So something we obviously watch.
Speaker Change: Our customer is in a good spot right now I mentioned morning, consult if you if you look at there.
Speaker Change: Use of different income levels.
Speaker Change: Expectations of the economy in most recent impact on on wage growth.
Speaker Change: 100, plus thousand dollars customer is by far in the best shape.
Speaker Change: The.
Speaker Change: Economy, So it's something we're watching something like energy pricing.
Speaker Change: Rod based and obviously impacts everyone gas prices are going down so that's a help but food prices have remained high so something we obviously watch but.
Ted Decker: I think we're well past the The Dialogue of Overall Demand Destruction. Thanks so much, Ted. Appreciate it.
Speaker Change: I think we're well past the.
Speaker Change: The dialogue of overall demand destruction.
Speaker Change: Okay, great. Thanks, so much I appreciate it.
Chuck Grom: Our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question. Hey, good morning. Thanks very much. On the consumer, I'm curious if you saw any pull forward in demand in the quarter or change in project sizes? You know, if there's any sense of urgency to get projects done sooner before prices rise? And I might have missed it. But did you guys have a comment on how May has trended so far relative to the first quarter? Yeah, Chuck, thanks for the question. In terms of pull forward, we didn't see a lot of that.
Speaker Change: Our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question.
Chuck Grom: Hi, good morning, Thanks, very much on the consumer I'm just curious if you saw any pull forward in demand in the quarter or change in project sizes.
Speaker Change: If there is any sense of urgency to get projects done sooner.
Speaker Change: This is Ryan I might have missed it but did you guys comment on how may has trended so far relative to the first quarter.
Chuck Grom: Yes, Chuck Thanks for the question in terms of.
Speaker Change: Pull forward.
Billy Bastek: You know, we may have seen a little bit of that in appliances, but across our broader business, we really didn't see any pull forward at all. We'll wait and see on some of the appliance pieces. But across our business, we haven't seen anything. And in terms of engagement with projects, as I mentioned in my prepared remarks, we're seeing customers engage as they did in the back half of 2024, smaller projects. We know that finance projects are still feeling pressured, but we're really thrilled with the engagement that we saw in our customers where the weather was.
Speaker Change: We didn't see.
Speaker Change: A lot of that May we may have seen a little bit of that in appliances, but across our broader business, we really didn't see any pull forward at all.
Speaker Change: Wait and see on some of the appliance pieces, but across our business. We haven't seen anything in the in terms of engagement with projects as I mentioned in my prepared remarks, we're seeing customers engaged as it did in the back half of 2024 smaller projects. We know the finance projects are still feeling pressure, but we are really thrilled with the engagement that we.
Speaker Change: We saw in our customers, where the weather was and as Richard mentioned in his remarks.
Richard Mcphail: And as Richard mentioned in his remarks, the first two weeks of May, we're very pleased with the performance.
Speaker Change: The first two weeks of May we're very pleased with the performance so far.
Richard Mcphail: Okay, great. Thanks. And then, Richard, just, you know, four consecutive quarters now of shrink, you know, roughly, probably call it 30 to 40 basis points of a tailwind. Can you just remind us where the accrual sits today, maybe relative to 2019? I'm just trying to assess, you know, how much longer that benefit can continue to help you. And then, zooming out on SRS, we talk a lot about the sales benefit, but as you said, 40 basis points of a headwind to the margin profile this year on an annualized basis. How do we think about SRS in 2026 from a margin perspective?
Speaker Change: Okay, great. Thanks, and then one Richard.
Speaker Change: Richard.
Speaker Change: For consecutive quarters now of shrink.
Speaker Change: Roughly probably call. It 30 to 40 basis points of a tailwind can you just remind us where the accruals sits today.
Speaker Change: Relative to 2019, I'm, just trying to assess how much longer that benefit can continue to help you and then.
Speaker Change: Yeah on Srs, we talk a lot about the sales benefit, but as you said 40 basis points of a headwind to the margin profile. This year on an annualized basis, how do we think about Srs in 2026 from a margin perspective.
Richard Mcphail: Well, I'll take those maybe in reverse order. First of all, we're not in a position right now where we're going to talk about 2026. But we know SRS has a track record of growing faster than their competition and taking share in any environment. So we expect there'll be an engine for growth for the company. For your shrink question, I think the most important point, because the world is a lot different now than it was in 2019, is that we're not where we want to be, but we're making great headway. And we know that the external environment is not getting any easier, but our operators are getting better.
Speaker Change: Well I'll take those maybe in reverse order first of all.
Speaker Change: We're not in a position right now where we're going to talk about 2026.
Speaker Change: But we know Srs has a track record of growing faster than their competition and taking share in any environment. So we expect there will be an engine for growth for the company.
Speaker Change: For your shrink question I think the most important point because the world is a lot different now than it was in 2019 is that we're not where we want to be but we're making great headway and we know that the external environment is not getting any easier, but our operators are getting better and they are delivering results.
Richard Mcphail: And they're delivering results. We're not where we want to be yet, but we've bent that curve down actually six quarters in a row on a VLY basis. and then You, just to clarify something, you asked, said 40 basis points of SRS I think you've got it right that's the annualized impact for 2025 versus 24 it's 15 basis points. Okay, thank you very much.
Speaker Change: We're not where we wanted to be yet, but we've bent that curve down actually six quarters in a row.
Speaker Change: On a <unk> basis and then.
Speaker Change: We will see you just to clarify something you asked.
Speaker Change: You said 40 basis points of Srs I think you've got it right. That's the annualized impact for 2025 versus $24 15 basis points.
Speaker Change: Okay. Thank you very much.
Steven Zaccone: Christine, we have time for one more question. Thank you. Our final question comes from the line of Steven Zaccone with Citi. Please proceed with your question. Great. Thanks very much for taking my question. First one was just on the first quarter. When you look at performance by region, can you just help us understand how that played out? Because obviously, there was a good amount of weather volatility. And then did the hurricane recovery efforts provide a benefit at all in the first quarter? Well, we saw the majority of the tough weather kind of play out in the north and in Canada.
Speaker Change: Christine we have time for one more question.
Speaker Change: Thank you. Our final question comes from the line of Stephens <unk> with Citi. Please proceed with your question.
Speaker Change: Great. Thanks, very much for taking my question.
Speaker Change: First one was just on the first quarter. When you look at performance by region can you just help us understand how that played out because obviously there was a good amount of weather volatility and then did the hurricane recovery efforts provide a benefit at all in the first quarter.
Speaker Change: While we saw the majority of the tough weather kind of play out in the north than in Canada.
Richard Mcphail: And with respect to hurricanes, there was some benefit in Q1 right around where we would have expected. And that benefit is baked into our annual guidance because on a year-over-year basis.
Speaker Change: <unk>.
Speaker Change: And with respect to Hurricanes there was some benefit in Q1 right around where we would have expected and that benefit is baked into our annual guidance because on a year over year basis. The benefits seen in 'twenty four is largely matched by the benefit in 2025.
Richard Mcphail: The benefit seen in 24 is largely matched by the benefit in Great.
Steven Zaccone: And then the follow up I had is on pricing. I know it's been asked a good amount, but what are you seeing right now in terms of the competitive environment when it comes to pricing? Because presumably some of the smaller players have probably needed to take up price sooner than others, just they have less negotiating power. So what have you seen in the competitive environment? Yeah, I mean, so far, Steven, we've seen pretty consistent pricing. I mean, we obviously, you know, are very focused on our price position and what we look at and the CPI that we look at, but we haven't seen a lot so far in terms of price modification.
Speaker Change: Great and then.
Speaker Change: The follow up I had is on pricing I know, it's been asked a good amount, but what are you seeing right now in terms of the competitive environment when it comes to pricing.
Speaker Change: Presumably some of the smaller players have probably needed to take up price sooner than others, just they'd have less negotiating power.
Speaker Change: So what have you seen in the competitive environment.
Steve: Yes, I mean, so far Steve.
Steve: We've seen pretty consistent pricing I mean, we obviously.
Steve: We're very focused on our price position and what we look at in the CPI that we look at but we haven't seen a lot so far in terms of price modifications.
Billy Bastek: in the marketplace. Again, it's somewhat early days still, and I would just reiterate our position, as I mentioned, about not seeing broad-based prices. Okay, thank you.
Steve: In the marketplace again.
Steve: It's somewhat early days still and I would just reiterate our position is as I mentioned about not seeing broad based price increases.
Steve: Yes.
Steve: Okay. Thank you.
Isabel Janci: Ms. Janci, I'd like to turn the floor back over to you for closing comments. Thanks, Christine, and thanks, everybody, for joining us today. We look forward to speaking with you on our second quarter earnings call in August.
Speaker Change: Mr. <unk> I'd like to turn the floor back over to you for closing comments.
Speaker Change: Thanks, Christine and thanks, everybody for joining US today, we look forward to speaking with you on our second quarter earnings call in August.
Speaker: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time.
Speaker Change: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.
Speaker: Thank you for your participation and have a wonderful day.