The Home Depot Announces Second Quarter Fiscal 2023 Results; Reaffirms Fiscal 2023 Guidance; Announces $15 Billion Share Repurchase Authorization The Home Depot

home depot earnings call

But clearly, people snapped up, in minutes a pretty decent price point, 100% discretionary item. And then a follow-up on that sort of, Ted, your point on, people came back from vacation and have reengaged in the category. Last year that seemed to happen more in the September timeframe where DIY reengaged.

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Big ticket comp transactions or those over $1,000 were down 6.5% compared to the first quarter of last year. We saw some big ticket strength across Pro-heavy categories like portable power, gypsum and pipe and fittings. Diluted earnings per share were $5.05 in the second quarter up 11.5% from $4.53 in the second quarter of last year. From a geographical perspective, each of our 19 US regions delivered positive comps versus last year, while Mexico and Canada posted comps above the company average. The team has done a fantastic job serving our customers, while continuing to navigate global supply chain disruptions, inflation in a tight labor market. Based on this approach and assuming there are no material shifts in demand, we calculate that sales growth and comp sales growth will be slightly positive for fiscal 2022.

And obviously, we manage cost and price independently, Michael, and transportation costs are a market dynamic. And so we will make sure that we are positioned as the customer’s advocate for value with respect to price. But as Ted said, we will get more into this in 2023 – sorry, in June, June 13th. Could you talk about the macro and housing indicators that you believe are now most correlated to your business today? And then considering the golden handcuffs of sub-3% mortgages out there, do you think this takes longer now for housing turnover to materially recover. You’re going to want more space and just improvements in the home because you’re there more often.

Comp sales declined 4.5% from the same period last year and our U.S. stores had negative comps of 4.6%. Diluted earnings per share were $3.82 in the first quarter compared to $4.09 in the first quarter last year. And Michael, as you know, we’re building a unique interconnected Pro ecosystem to capture more of that Pro planned purchase. To serve our Pros, it’s really about removing friction through a multitude of enhanced product offerings and capabilities, and it all starts with brand assortments and job lot quantities. And as you know, these new supply chain assets allow us to do that at a different level.

Questions & Answers:

I think that we’ve probably fully seen the impact of higher mortgage rates on potential sellers. In this environment, if you have a low fixed rate mortgage, and let’s just remind ourselves, 40% of owner-occupied homes are owned outright. And of the households that hold the mortgage, close to 90% of those hold fixed rate mortgages under 5%. So with mortgage rates where they are today, there is a reluctance to sell your home, and there is a greater incentive to stay in place and improve in place.

And we’re doing this exact same thing with PPG. They are now introducing their PPG-branded paint. Well, I think it is such an imprecise science.

Management noted that the low-end of its guidance assumes that its share of PCE (personal consumption expenditures) reverts back to 2019, pre-Covid levels. However, it said it saw no indication of this. It also noted that the fears for a severe recession have subsided and that its core customer remains strong. And profitability is holding up well despite pressures including falling sales and lumber price deflation. „We were pleased with our performance in the second quarter,“ CEO Ted Decker told investors on Aug. 15.

We expect our 2022 operating margin to be flat to 2021. And we would expect low single-digit percentage growth in diluted earnings per share compared to fiscal 2021. Over the course of fiscal 2022, we plan to invest approximately $3 billion back into our business in the form of capital expenditures, in line with our annual expectation of approximately 2% of sales going forward. Core commodity categories positively impacted our average ticket growth by approximately 185 basis points in the fourth quarter driven by inflation in lumber, building materials, and copper. For example, in the fourth quarter alone, the pricing for framing lumber ranged from approximately $585 to over $1,200 per 1,000 board feet, an increase of more than 100%.

We will hold all questions until the end of our prepared remarks. Sales for fiscal 2022 were $157.4 billion, an increase of $6.2 billion, or 4.1 percent, from fiscal 2021. Comparable sales for fiscal 2022 increased 3.1 percent, and comparable sales in the U.S. increased 2.9 percent.

Financial Calendars

Well, it’s something we clearly look at carefully. There certainly has been a lot of cumulative inflation in price in our average unit retail in our ticket but that is not something that we are expecting to broadly deflate. Now commodity prices those price essentially weekly, and we will price those up or down on a weekly basis. But price levels in a number of our products have increased and been established over the past 3 years and embedded in that higher ticket is innovation. So when you think of ticket, a lot of that is not just cost and price, it’s trading up to better product. When you think of battery-powered outdoor power equipment, what we’ve done in the paint department with better and better paints there is innovation and with innovation, it’s usually higher price points.

home depot earnings call

So planning the continuation of the project business, the Pro business, and we’ll be there for our consumer when it comes to Labor Day, coming up in a few weeks. We’ve got a great program planned for Labor Day, as we move through Halloween, as we head in the Black Friday timeframe, we’ll be there for our customers with great value. And we’ll continue being the advocate for value for our customers. Chris, I will share with you that is the performance of our high spend Pro has been very consistent over the last several quarters. We’re seeing other areas of our Pro business as far as the customer size accelerate quarter-over-quarter.

So all those dynamics could suggest normalization might be, in fact, a higher level of PCE spending in our sector. But regardless of all that, we will get through this transition period and we remain incredibly bullish on the health of this sector. It’s one of the absolute best sectors in all of retail. It’s a large and fragmented market, and we have tremendous growth opportunities going forward.

When we think about the one-time legal settlement, so we did realize a large one-time benefit from a legal settlement our guidance assumes this benefit will be offset during the remainder of the year. And so that’s just a simplified assumption. We will protect that 14% operating margin, we’d agree with – operate with a degree of financial flexibility. And as the year progresses, we will be evaluating the levers available to us against the backdrop of the environment. So let’s first walk from 15.3%, which is our actual operating margin in 2022 to our original guide of 14.5% margin.

Today, Geena’s experience would be meaningfully different as her shopping journey is met with a lot less friction. As Geena begins her project online, improvements in search provide her with more relevant results. We also have a better understanding of the intent of her shopping journey and can make recommendations supporting her whole project.

HD Estimated and Actual Revenue by Quarter

But the retailer has endured many cyclical slumps through its time leading the industry and has always emerged from these periods to set new annual sales and earnings records. With that big picture in mind, let’s zoom out and look at Home Depot’s prospects over the next several years. Can you just help us better understand, does that imply the underlying is actually lower?

  • During the first quarter, our comp average ticket increased 0.2% and comp transactions decreased 5%.
  • We continue to successfully offset supply chain and product cost pressures while maintaining our position as the customer’s advocate for value.
  • You led us through a transformational period and positioned us well for the future.
  • Net earnings for the fourth quarter of fiscal 2022 were $3.4 billion, or $3.30 per diluted share, compared with net earnings of $3.4 billion, or $3.21 per diluted share, in the same period of fiscal 2021.

We are not modeling 2024 at that level of specificity as we are only a few months into 2023. But broadly, Michael, our model is meant to leverage and will leverage with volume. And we have some costs to take out of the business.

We’re also excited about our lineup for Halloween. Our merchants have worked with our supplier partners to put together an expanded assortment of product offerings for this Halloween season. These products bring excitement to our stores and help drive traffic and our sneak preview of our Halloween lineup was a tremendous success.

And then a newer dynamic now that we’re really seeing, again, is just this past quarter is a more cautious consumer, given the broader macro concerns, including credit availability. And that aligns with what we’re observing in our business and the comments I made about our Pros and consumers taking on smaller, less discretionary projects. And then lastly, with the buildup of inflation that we’ve seen, there is certainly some price sensitivity, particularly with respect to those bigger ticket discretionary items. So in general, our homeowner consumer is – remains very healthy. It’s a matter of digesting the outsized growth and shift those consumption spend out of services in the goods and particularly into home improvement. While we’ve had a slower start to the season, we continue to be excited about the lineup of products we have for our customers and remain ready to help them with their outdoor projects or outdoor living needs.

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And there is generally a lag effect, as you say, to home price appreciation or depreciation. I think the difference here is how sensitive are people going to be that I was up 45% in home value from the end of 2019. And yes, now month-over-month, the values are off slightly, but I am still up 40% or 38% from where I was at the end of 2019. So, I wouldn’t think that, that would have that big of an impact.

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It’s tough to extrapolate this early in the year. And so we feel like the range approach is the most helpful guidance that we can give. No, again, we manage cost and price independently. As Ted said, we don’t expect broad-based deflation in this market. And when you think about resilience to the customer and willingness to spend on clearly discretionary items, we had two releases of some of that product, very, very specific limited quantities leading up to this period. When it comes to the Pro, we’ll be there in terms of innovation and job-lock quantities and leveraging our supply chain capabilities and the other capabilities that Hector spoke to.

We expect this relationship to continue, and we’re committed to levering expense with volume. Gross margin dollar growth will be a function of the opportunities we take to drive outsized share gains. And hardware tools, lumber, flooring, appliances, and our garden departments were positive but below the company average. During the fourth quarter, our comp average ticket increased 12.3%. The growth in our comp average ticket was driven primarily by inflation across several product categories. On a 2-year basis, our performance was positive and as Ted just mentioned and Billy, we saw that disproportionate impact from lumber and weather.

Yeah, Brian, if I can add to that, on, are there any parts of the business doing better than we expected. I mean, we truly are just thrilled with what we’re doing with the Pro as Hector outlined. This Pro ecosystem that, we’re building I mean, we are truly building a set of capabilities that is not seen in our marketplace. And in talking to our Pros and the research we did, they are more than comfortable to do more with Home Depot as we develop capabilities to serve their larger plan purchase.

She is also a host of the Marketer’s Brief podcast and spearheads special reports including 40 Under 40 and Hottest Brands. Pasquarelli joined Ad Age in 2015 after writing for Crain’s New York Business, where she also focused on the retail industry. Revenue growth is expected to be fall -2.6% this gross sales vs net sales year, and then grow around 3% a year over the next few years. And the enrollments are strong and the revenue is strong. And then our Pros are engaging in the perks and we are seeing significant growth in that level of engagement. And Dallas was the first market that we stood up these capabilities.

The Home Depot Announces Second Quarter Results; Reaffirms Fiscal 2022 Guidance

We have continued to navigate a challenging and fluid environment with agility. After that, the call will be open for questions. Questions will be limited to analysts and investors.

And so implicit in our guide is the expectation that we will continue to take share. I mean you would say that particularly at the bottom end of the range would assume greater deceleration than we have observed to-date. And it’s consistent with the hypothetical case we laid out at the beginning of the year which was to say, look, if our share of PCE reverts to 2019 levels by the end of the year, that is what you would see. And again, that would be an accelerated rate of reversion versus what we have seen. So, the negative 2, again, sort of has – it takes into account the fact that we saw a sharper reversion than expected in Q1 and that we would hold that share through the end of the year.

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