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the home depot\'s (hd) ceo craig menear on q2 2016 results - earnings call transcript

by:LSDD     2019-12-12
Home department store. (NYSE:HD)
At 9: 00 a. m. on August 16, 2016, ETExecutivesDiane Dayhoff Q2 2016 earnings call-
Menear, Vice President of Investor Relations-
President, CEO and president
Executive vice president, Tom MerchandisingCarol-
Mark Holifield, Chief Financial Officer and Executive Vice President, Corporate Services-
Draft regulations on supply chain and product development
EVP, external Sales & Services analyst
Morgan steinney, Kate McShane.
Citi Research
Chris Christopher Hofer
Mushkin JPMorganScott-
Wolf Studies Bugatch-
Raymond James Michael rather
Higman UBSSeth-
Benedict XVIRobert W.
Byrden bin
Brian Nagel-Jeffery
Oppenheimer company
Scottish people
Royal Bank of Canada
Nomura Securities
Gracie Laura champing
Hello everyone, welcome to the conference call on the financial report of Home Depot Q2 \'16.
Today\'s meeting is being recorded. [
Operation instructions].
I want to hand over the meeting to Ms at this time.
Diane Dayhoff, vice president of investor relations.
Please continue.
Diane DayhoffThank, Shirlone, good morning, everyone
Craig mennar, Chairman, CEO and president, attended our conference call today;
EVP for sale, Ted Decker;
Carol Tomé, chief financial officer and executive vice president of corporate services.
After the comments we have prepared, the analyst\'s questions will be made public.
The issue will be limited to analysts and investors, and as a reminder, we would appreciate it if the participants only focused on one issueup please.
If we are unable to answer your question on the phone, please call our Investor Relations Department 770-384-2387.
Now, before I transfer the call to Craig, let me remind you that today\'s press release and our executive presentations include forwarding
Outlook statement as defined in the Private Securities Litigation Reform Act of 1995.
There are risks and uncertainties in these statements that may lead to significant differences in actual results from our expectations and forecasts.
These risks and uncertainties include, but are not limited to, the factors identified in the distribution and in our submission to the Securities and Exchange Commission.
Today\'s speech may also include someGAAP measures.
Reconciliation of these measures is provided on our website.
Now, let me transfer the call to Craig.
Thank you, Diane. good morning, everyone.
We have a solid quarter that achieves the highest quarterly sales and earnings milestones in the company\'s history.
Sales in the second quarter were $26. 5 billion, up 6.
6% more than last year.
Comp sales increased by 4.
7% from last year and our US
Positive compensation for S store is 5. 4%.
Diluted earnings per share are $1.
The second quarter rose 97.
Compared with last year, 9%. In the U. S.
All three of our departments released positive competition in the second quarter led by our western sector. In all 19 U.
The United States and the top 40 single market
Digital competition this quarter.
In the world, our Mexico and Canada business has been strong for another quarter.
Mexico report double
Digital companies in local currencies have achieved positive salary growth for 51 consecutive quarters.
Our Canadian business has also achieved positive salary growth for 19 consecutive quarters.
We will continue to see
Tickets and deals in our store have all grown.
All of our sales departments have released positive comps, and we have seen healthy balanced growth between our specialty and DIY categories, with professional sales surpassing our DIY business in the USS.
As we continue to achieve the acquisition of value drivers, Interline integration is making progress.
We have been experimenting with our first business use case to provide Interline\'s catalog of products for professional shopkeepers Depot stores.
We are satisfied with the appeal we have seen in this pilot, although it is still too early.
We continue our efforts to leverage Interline\'s capabilities to expand our share of wallet with current customers and gain new customers.
Compared with last year, our online business sales increased by about 19%, or 5.
6% of total sales.
As Ted will detail, we continue to leverage our sales tools to improve products across channels based on customer preferences.
Our goal is to provide our customers with the convenience and satisfaction they want.
We will continue to enhance our customer experience.
For example, in recent months we have started implementing dynamic ETA features for online purchases.
Dynamic ETA provides delivery date according to customer\'s location.
In the past, we have released a generic delivery window estimate, which provides additional time or buffer for delivery commitments to customers.
When we start implementing dynamic ETA, the delivery date we promised our customers will be estimated earlier and more accurately.
So we see an improvement in customer satisfaction.
We continue to see the tremendous productivity of the supply chain as the return on investment over the past few years has had a positive impact on our inventory productivity, logistics costs, serving our stores and customers.
As you know, we see our supply chain transformation as an ongoing work and continue to optimize our network through initiatives such as supplychain Sync.
Sync is in the early stages of years of promotion.
We are investing to meet the needs of our customers more effectively.
The launch of our new customer order management system, COMS, is now fully deployed in all regions of the United StatesS stores.
The next phase of COM is Optimization and optimization-
Tune this new system.
Following the launch of COM, BODFS or the purchase of an online delivery service from the store, we expect it to be completed by the end of the fiscal year.
As you have heard, while we have a strong quarter, we are making a high level of change in many areas of our business.
As this number changes, there will be learning and opportunities to improve the process.
In the current quarter, we have identified some opportunities for improvement, particularly with regard to inventory management and cargo handling, which we are working on.
When it comes to the macro environment, we continue to see positive signs of housing data, which we see as a downwind in our business.
As Carol will elaborate, we are reiterating our sales guidance and adding our earnings per share guidance this year to reflect our performance for the quarter and our outlook for the rest of the year
A successful spring depends on the hard work and dedication of more than 400,000 employees we serve our customers today.
Finally, I want to thank them.
Based on the results of the first half of the year, nearly 100% of our stores were successful and shared our profits
Our hourly staff sharing program.
We are very proud of their efforts.
With this, let me transfer the phone to Ted.
Thank you, Craig. good morning, everyone.
We are satisfied with our second quarter results.
Core maintenance and repair categories, as well as many Pro heavy categories, continue to maintain a steady performance this quarter.
Our growth this quarter is balanced.
Total Comp transactions increased by 2.
2%, while the average fare for comp increased by 2. 5%.
As the project business continues to show strength, ticket growth is driven by the growth of each basket of projects.
A small rise in commodity prices has also had a positive impact on our average fares, mainly from building materials and timber.
The overall impact of rising commodity prices on ticket growth is about 18 basis points.
In addition, the US economy is stronger
The dollar has had a negative impact on our average fare growth, about 69 basis points.
Focused on big ticket sales for the second quarter, ticket deals exceeded $900, or about 20% of the U.
Sales increased by 8. 1%.
The drivers behind the high-priced purchase of HVAC, appliances and roofs.
All sales departments have announced positive competition led by electrical companies
Digital competition this quarter.
Tools, wood, plumbing, decoration, interior gardens, building materials and lighting are all above the company\'s average.
The hardware, outdoor garden, kitchen, bathroom, wood products, appliances, paint and flooring were positive but below the company average.
As Craig mentioned, we continue to see significant advantages for our professional customers.
Led by our high-spending professional customers, professional sales are growing faster than the company\'s comp.
This continued force resulted in comps being above the company average in terms of commercial, industrial lighting, fencing, power tool accessories, cabling equipment and interior doors.
As our customers take on a variety of projects, we see continued strength at the heart of the store.
For example, landscape lighting, laminate and vinyl flooring, garage organization and cleaning were highly competitive during the quarter.
The generally record high temperatures during the quarter drove strong performance in HVAC, fan and air circulation.
Sales in categories such as irrigation and watering are also more than doubledigit comps.
Our store staff did a fantastic job executing our summer activities and creating excitement in our store.
Our activities on Memorial Day, Father\'s Day and July 4 offer excellent value and we see a strong demand from our customers.
These activities help drive strong competition in areas such as appliances, tool storage, outdoor power supplies, and grills.
In our efforts to constantly update and update our portfolio, we are constantly using our merchandising tools to fine tune our portfolio of online and store merchandise.
A concrete example of this is our terrace products.
We found that many customers wanted to walk into our store to buy and pick up their patio.
We changed our classification and put some patio back into the store.
This strategic move is good.
Received by our customers resulting in sales and sales records
Through our store.
Our online business grew strongly this quarter, doubling
Growth and Transformation of digital traffic.
To meet the ever-changing needs of our customers, our connected retail program is evolving.
Mobile and tablets account for more than 50% of our traffic and are an important tool for our customers to engage with our products, stores and colleagues.
We are enhancing the capabilities of mobile devices with features such as larger and clearer product images, live mobile chat, and a simplified checkout experience.
As evidence of the success of our connected strategy, about 42% of our online orders are now achieved using our store footprint, and nearly 90% of online product returns are processed through the convenience of our store.
Now let\'s turn our attention to the third quarter.
Our focus on innovation is a key part of our strategy.
For our professional customers, we will launch the dewalt flexvolt system in our store this fall.
This DEWALT system uses an innovative FLEXVOLT battery that identifies various types of DEWALT tools and adjusts the voltage to provide the appropriate level of power required.
These products provide wired performance without code, and innovative brushless motors improve the running time and durability of the tool, saving our professionals time and money in the workplace.
Among large box retailers, dewalt flexvolt systems can only be found in Home Depot.
As smart devices continue to resonate with customers, we are excited to extend our smart technology with the new Ryobi garage door opener.
This innovative system can be connected to any smart device and allows our customers to remotely operate the garage door, use laser Park auxiliary accessories to easily talk or play music through an embedded Bluetooth speaker or park.
The new exclusive Ryobi garage door opener can only be found at Home Depot.
Autumn season and cool temperatures are coming, and we offer our customers an incredible range of value-added items and specials during Labor Day, Fall Cleanup and Halloween harvest.
During the Halloween harvest season, we have introduced a large number of new seasonal products, such as the exclusive animated window projector kit, which makes it easy for our customers to decorate their windows with animated digital holiday clips.
This is the first digital decoration in the market, which is unique to Home Depot.
Our exciting third-quarter event and the excellent execution of the store will make us successful in the third quarter.
With this, I want to transfer the phone to Carol.
Thank you, Ted. Hello, everyone.
Before I review our results, I would like to remind you that our net profit for 2015 includes
Net pre-tax fees of $92 million and $2014 related to our 0. 144 billion data breach
Tax proceeds from the sale of HD supplies common stock.
Together, the two projects contributed $0.
02 diluted earnings per share last year, not repeated this year.
So let\'s get started.
Sales for the second quarter were $26. 5 billion, a 6.
Driven mainly by positive comp sales and the influence of Interline Brands, up 6% from last year
The dollar has had a negative impact on total sales growth of about $0. 181 billion or 0. 7%.
Our head office comp store is the same-
The store is selling well.
At 7% this quarter, positive competition was 2. 3% in May, 7.
June 5% and 4. 5% in July. Comps for U.
The S store is positive.
This quarter was 4%, compared with 3% in the 8 quarter.
It was 4% per cent in June and 5% per cent in July.
Due to the timing of Memorial Day, our monthly comp sales are a bit distorted.
Last year\'s Memorial Day sales were included in our June performance, and this year also included in our performance.
To adapt to this time shift, our America
S comps was originally 4.
In June, there were 3% persons, 7% in July, and 5% persons.
The gross profit margin of our company is 33.
7%, an increase of three basis points over last year.
The changes in our gross profit margin are mainly explained by the following factors.
First of all, as expected, we have 22 basis points for gross margin contraction due to the influence of the middle line.
Second, the gross profit margin expansion in our supply chain has 13 basis points, mainly due to increased productivity and reduced fuel costs.
Finally, we have 12 basis points for gross margin expansion due to higher common profits.
Op and rebate levels in certain category categories reduce our cost.
For fiscal 2016, we continue to expect our gross margin to be roughly the same as the report for fiscal 2015.
Operating expenses as a percentage of sales fell by 78 basis points to 18 basis points in the second quarter. 2%.
As I mentioned, our expenses for 2015 included $92 million in net data leakage related expenses that were not repeated in 2016.
In the first quarter, we were satisfied with our cost performance because we had the full cost under our plan.
As we continue to focus on cost controls, we now believe that our expenses for fiscal 2016 will grow at approximately 32% of the sales growth rate for fiscal 2016.
Our operating margin for this quarter is 15.
5%, an increase of 81 basis points over last year.
Interest and other expenses for the second quarter were $0. 228 billion, an increase of $0. 144 billion over last year
The sale of tax proceeds from the supply of ordinary shares without duplicate HD this year.
In the second quarter, our actual tax rate was 37%, compared to 37.
The second quarter of fiscal 3% was 2015.
For fiscal 2016, we expect our income tax rate to be around 37%.
Our diluted earnings per share for the second quarter were $1.
97, an increase of 13.
9% more than last year.
Now go to the balance sheet.
As of the end of the quarter, inventory was $12.
3 billion, an increase of $0. 464 billion over last year, mainly due to the impact of Interline.
Inventory turnover is 5 times.
2x, an increase of 1/10 over the second quarter of last year. Year-over-
Annual Accounts payable increased by $0. 778 billion to $8.
3 billion reflects the time of purchase and the impact of Interline.
We bought back $1 in the second quarter.
25 billion or about 9.
46 million shares have been issued.
For the rest of the fiscal year, we intend to buy back about $2.
5 billion of outstanding stocks use excess cash, and the total repurchase of 2016 shares is expected to reach $5 billion.
Calculated based on the average of start and end long-
In the past four quarters, the return on investment capital was 29%, 400 basis points higher than the second quarter of fiscal 2015.
Turn our attention now. year.
Recent GDP growth estimates suggest a slowdown in US economic growth.
Look at the US economy from our expectations.
But we are encouraged by the strength of our core business as the US.
The housing market continues to recover.
Based on our performance in the first half of the year and our outlook for the rest of the year, we reiterate the sales growth guidance we developed at the end of the first quarter.
In fiscal 2016, we expect sales to grow by about 6.
3% is about 4 with comps. 9%.
This guide implies comp in the second half of fiscal 2016, approximately 4 years. 3%.
This is not a reflection of a continuous slowdown in sales, but a reflection of the yearover-
Annual performance. On a two-
Based on the year stack, we expect the comps for the second half to be roughly the same as our report for the first half.
While reiterating sales growth guidance, we are improving earnings per share growth guidance for this year, mainly because of better cost control, so more operational leverage than we expected at the end of the first quarter.
For earnings per share, keep in mind that we directed GAAP.
We now expect diluted earnings per share to grow by about 15 in fiscal 2016. 6% to $6. 31.
Therefore, we would like to thank you for attending today\'s conference call.
Shirlone, we are ready to answer the question. Question-and-
[Answer]
Operation instructions]
We will get the first question from Simon Gutman at Morgan Stanley.
West Mai GutmanThanks. Good morning.
There was a lot of noise that sounded like the weather and some Memorial Day shifts early in the quarter. Do you --
Is there, I don\'t know if it is possible to measure this, but do you think that there is some level of damage to demand that you didn\'t get and that June, July, has improved.
But if you think that potential demand might actually be stronger than it seems, I\'m trying to understand that?
Craig MenearI believes that there is no doubt that your opinion may lead to a difficult start.
When you see a change in the quarter --to-
Compared to a year, a month
In the past, we had higher variability, and part of it was obviously driven by the weather.
For example, in Washington, DC alone, there is 20 days of rain in a month.
So it\'s hard to say, but obviously, we know there\'s an impact.
West Mai GutmanOkay.
Then, my followers
I mean, there is a lot of noise in the retail industry in many segments.
You mentioned that housing or housing prospects are good.
I know it looks obvious, but can you talk about what makes you confident in it?
Is this career growth, is it a project type, and I\'m sure it\'s all on it, but I \'d like to hear some color on the subject?
Craig MenearSo is very clear that when we look at housing, we are concerned about the value-added of our own value that continues to grow, and we are concerned about the volume of housing that runs this norm, which is expected to be in fiscal 4%, 2016 of housing reserves will increase slightly.
Then we look at the new family structure, all of which are the driving forces of our business, all of which are continuing to recover.
Carol Tome but what I\'m trying to say is that when Ted announces another outstanding quarter in our big ticket category, what gives us confidence is to strengthen big tickets.
As Ted also pointed out, the quarter\'s growth was balanced between tickets and transactions, and part of the ticket growth was a project in basket growth.
This tells us that the project business is very alive.
Finally, we see the advantages of Pro, our Pro business is more than our DIY business.
So when you combine the trends we see in our existing business with those we see in the housing sector, it gives us confidence in the second half of the year.
West Mai GutmanOkay. Thanks.
We will be performing next to Kate McShane at Citi Research Center. Kate McShaneHi.
Thank you for answering my question.
This may sound a bit quibble, so I\'m sorry, but I just noticed in your prepared review that you mentioned that the kitchen is lower than the company average.
I just wanted to reconcile the power you saw in Pro this quarter, not some commodity reviews, and the factors q2 that you saw more specifically driving Pro\'s business?
Ted DeckerWell, we did a great job in our overall kitchen business.
The special order kitchen is not so much a professional category as a professional category.
Kitchen needs, our inventory kitchen business is more professional business, in fact, this is more powerful than special orders.
Carol Tome you may see some seasonality in our kitchen business.
People are on vacation in the summer and putting a new kitchen in your home is not the thing you care about most.
We expect the kitchen business to resume in the fall as it usually does.
Thank you, Kate.
We are going to play next to John baough at Stifel.
Thank you, John.
Congrats for strong performance this quarter.
I\'m just curious about Accounts payable.
You mentioned the timing.
If you can talk about the sustainability of this figure in the second half of the year and whether your free cash flow assumptions have changed this year? Thank you.
Carol, John.
The performance of payables at the end of the third quarter reflects an increase in procurement.
Craig commented in his comments that we had some lessons learned during the quarter, and one of the lessons was that the order logic we used when we purchased our inventory was wrong.
So we corrected this error and corrected it and actually sent the purchase to our supplier so it was just a matter of time.
It will normalize by the end of this year.
So this is not a consistent trend. John Bogg. Thank you. Craig MenaresCarol TomeYes.
We will be next to Christopher Horvers at JPMorgan Chase.
Christopher HorversThanks. Good morning.
Good morning, Ted.
Christopher HorversI wants to talk about inventory.
We \'ve heard some vendors talk about retail inventory going to stock and orders drop in the second quarter.
Is this mainly the process behind Home Depot?
Does it reflect in any way that the market outlook is not very optimistic?
I know, Craig, you mentioned knowledge and process improvements on inventory management and freight handling.
From what we hear from the vendor community, is there any impact on this?
As Carol mentioned just now, Craig meneyer Chris, one of the experiences of this quarter is that we do have errors in the update logic when adding.
We found this and corrected this, which clearly did have an impact on the order abortion that occurred in the quarter, which has been corrected in the quarter.
Christopher HorversOkay
Think about the weather, think about the first half of the upcoming fourth quarter, and now in retrospect, you have gone further, can you re-evaluate the pull momentum and tub effect between the first and second quarters?
When you think about the upcoming fourth quarter, I think a lot of investors are talking about it, hey, you know, Home Depot really benefits from a warm winter.
Do you have any thoughts on this, do you think the fourth quarter actually pulls demand in the first half of this year? Craig Menares
It\'s really, really hard to measure.
Obviously, when we made the call in the first quarter, we felt there was some progress.
It\'s really hard to know how much has happened.
Who knows them--
In the upcoming fourth quarter, we will continue to focus on driving the business.
Carol Tomé, we know we had a big compensation in the fourth quarter of last year and we have to make it on that basis and we plan to do that.
We will have a great holiday and we will talk to you next quarter.
Christopher HorversOkay
Thank you very much.
Scott Mushkin, operator of wolf research
Guys, Scott muskini.
Thank you for answering my question.
I have three fast ones.
Craig menthers
Scott MushkinI thinks the first one is a 60 day clause, and I think what you\'re bringing up is Pro sales at the beginning of this year.
As you can see, any quantification of what you think this has to do with your professional sales, I know you \'ve talked about the strength there. Carol tomeria
So when we see the sale of our private label card, especially our commercial private label card, we are very happy with the result.
Sales increased year on yearon-
A year ahead of our expectations.
Our new account is double-digit higher than we expected.
So it\'s too early. we only have six months.
But we are very happy with what we have seen.
Now, if I can zoom in a bit and talk about our private label project in total, we actually see a drop in penetration --on-
At 30 basis points of the year, our penetration rate has dropped below 23%.
The reason for the decline is the decline in consumer cards.
When we look back at the layers of the onion, we say, what happened to the consumer card?
We saw something.
Last year, we held important promotions that were not repeated this year.
So this affects penetration.
Then we see more and more competition from bank cards.
In fact, I received a visa at home this week to provide Deferred financing.
So competition is increasing.
And finally, the interesting thing is, we see the PIN-debit. PIN-
Annual debit growth of more than 100 basis points-on-
This year is the third largest form of bidding within our company.
So the first one is the bank card, the second one is the private label card, and the third one is the PIN-debit.
Scott mushkininterested. Thank you.
This is good information. Did you --
Did you see it when we went through the election cycle? -
Obviously, we\'re going to speed up the election cycle. we \'ve heard that. end, some high-
Some purchases were delayed by end consumers due to the election cycle.
Did you guys look at your numbers? How do these numbers go through Home Depot when we go through the fall?
To be honest, we focus on our customers.
We didn\'t pay much attention to it.
It\'s all about how we take care of our customers every day and make sure we drive for them every day.
Scott muskeno
This is definitely a random question, but this is the golden day of our second year.
Do you feel like a golden day like Amazon?
Then I gave in. Thanks.
Interestingly, there are so many activities in the market during prime time.
It has attracted a lot of shoppers online and our customers have responded and we have had a great day.
Scott muskenoPerfect.
Thank you guys.
We\'re right next to Bugatch, Raymond James.
Good morning and congratulate you on having a solid quarter.
My first question, I think, is related to inter-line integration.
Maybe talk a little more, or give us an in-depth understanding, give us some color of;
What are you doing, B;
May be the impact on the company\'s economy this quarter?
Craig MenearSo, Budd, we are still integrating.
We are ahead of the value drive.
We may see it, but I will have Bill comment on it. He’s here.
Bill lennybard, we called last time but our client intercepted the research we are doing based on the priority of customer feedback, if you look at the market opportunity, we have already piloted our first use case, which is to enable customers to shop in the Home Depot store.
We have a pilot of 20 stores.
It\'s still too early, but our results are more than expected, or even three times as high as expected.
So this is encouraging.
It says all the assumptions there have the ability to increase the wallet share of Pro and keep it intact, so take a look ---
And keep an eye on this.
But it\'s a very, very early day.
Carol Toman, in terms of the impact on the quarter, as we are talking about --
Due to the impact on Interline, line\'s growth outpaced our comp sales growth.
We call for the impact on our gross margin.
It does have a dilution effect on our gross margin and we make up for that with the productivity and supply chain and the joint efforts of suppliersop and rebate.
It does then add more variability and cost.
So, if you look at 1/4 of our spending growth factor, hit this one a little more than 60%, as we expected.
As we now mark the third quarter of the acquisition of the Internet, our cost growth factors will be more
In line with our expectations.
In fact, our expenses are well controlled and we are under the spending plan for the second quarter.
We are reducing our cost growth factors from this year.
At the beginning of this year, we said it would be 40% of our sales growth.
We now think this is about 32% of our sales growth.
Buga Jokai. And my follow-
Up is really related to electrical appliances.
Digital compensation if I hear it wrong.
How about Ted--
How sustainable is this?
What is the reason for this?
Do you see the progress of the market itself?
Ted DeckerWell, obviously, there are some sharing opportunities in the market that we have specifically positioned for ourselves, so we continue to invest in expanding our Electrical Exhibition Hall and expanding the larger exhibition hall, we can put more exhibits on the floor.
It allows us to display Whirlpool\'s products more widely, as well as the high
High-end brands like KitchenAid.
So we have better products in this field.
Carol Tome and two.
Digital compensation in the home appliance industry means that our company\'s total salary growth has reached 50 basis points.
Buga Jokai.
Soon, there was only one follow-up.
Up, Pro penetation, can you please comment on this as a percentage of sales?
Carol Tomé has been hovering around 40% of sales.
Craig menalette
Thank you very much.
Congrats.
Thanks, Craig mennier.
We will be next to Michael Lasser at UBS.
Good morning, Michael LasserGood.
Thank you very much for accepting my question.
Craig, how long do you think home decoration needs can be decoupled from other elements of the economy, other elements of retail?
In her prepared comments, I think, Carol pointed out that some of the economic forecasts have gradually declined, but your sales forecasts for the same store remain unchanged.
So, how long do you think this could be an oasis in a wider economy?
Craig MenearWell, I think when you look at a few factors.
There are about four in the first place.
Supply for 6 months, the average history is about 6 months.
So, of course, it means having an opportunity as you move forward, which also helps to keep the value added to your home.
There are forecasts from various sources in the market that will say that housing value will certainly continue to appreciate in the next few years.
So I think this is the downwind we see in the boot window we give for the foreseeable future.
If you look at some of the real estate markets in San Francisco, Miami, Michael laslan will know.
Have you seen a similar trend or are there any indications that demand is starting to decline?
No changes have been seen by Craig MenearWe.
We did not see any changes.
Craig pointed out that the fundamentals of housing and the impact on home improvement are really good and you can go back to the family structure.
If the family population falls to more than 2000, this will create 4 people.
3 million new households.
Are they all going into single parent families now? No.
But we both have
We provide services to our own residents and to our rental residents.
As a result, only a large number of people continue to support our business, and our business prospects will definitely reach 2017 by 2016.
If not 18 years, 19 years.
Michael LasserAnd my followers
The Up problem is the implementation of comp and the changes in the sorting algorithm that you implemented in this quarter.
Does this have an impact on sales?
Will this drag sales down?
Does it have an impact on in -? stock?
Craig MenearI means it\'s really hard to know.
We really don\'t know.
The reason we don\'t do this is that there are so many items in the store that can be replaced.
Therefore, if we do harm on one item, it is likely that the customer will pick up another item.
So it\'s hard to say.
Michael LasserUnderstood.
Good luck in the second half.
Thanks, Craig mennier.
We will be next to Seth Hickman at Credit Suisse.
Seth SigmanThanks. Good morning.
Great quarter, guys.
I just want
The last question.
So you pulled out of the quarter on a fairly healthy trend.
It sounds like the tone is positive for the outlook for demand.
In the second half of this year, the third and fourth quarters, should we consider the rhythm of comp growth? Carol TomeYes.
The way we make plans and forecasts is that comps for Q3 and Q4 are more or less the same and should not see a lot of changes there.
Now, you will see a change in the cost growth factor.
The cost growth factor for the third quarter will be higher than in the fourth quarter, mainly dueover-Year comparison. For the full-
Our sales growth should be around 32% of the cost growth. Seth seigmanoaThat\'s helpful.
Then maybe just dig further.
I mean, have you seen any major changes in trends or requirements-
Like in the beginning of the third quarter, the demand outlook will exit this quarter?
Carol tomeno, we are very pleased with the results of August.
It is clear that parts of the country are flooded.
We have a shop closed in the state of Luis Anna. -
Our hearts are open to those affected by this.
But we will be happy if you ignore these activities.
Seth SigmanOkay, get it.
Then one of the things you\'re talking about is the unit growth of each transaction.
I\'m just wondering if there\'s a change in the trend there, if so, like you think it\'s the result of some of the plans, or the comp location of the project that\'s being done right now, maybe a bit different, how do you see this trend, for example?
Craig MenearI believes that the unit of each transaction is now about the third quarter, when you think about all the positive competition we have in the last few years, the units of each transaction are really not moving that much.
But in the past few quarters we have seen healthy growth in units for each transaction, and in larger ticket programs, it is indeed a unit.
When you start getting into the bigger ticket items, you\'ll see 40, 50, 60 or even 70 items in the basket.
So this is obviously a project where sales of electrical appliances, for example, will help with the average fare, but you only see one or two items, appliances, and maybe some connecting hoses.
But our project business is still very healthy, and the growth of units such as each transaction and wood and building materials is very healthy for the business.
So it talks to Pro and to project. Seth seigmanoa
Good color.
Thank you very much.
We will be performing next to Peter Benedict and Robert Baird.
Guys, Peter Benedict.
Next, can you provide us with a historical perspective on this, the unit of each trading trend you see?
How is the current indicator compared to any period in the past?
How long will this last when you start to see the rise in history?
Is there anything you can do to help us with our views? Thank you.
Our history is not very good in each basket project.
Our records are not that broad, but we can\'t really get back to the previous period.
But what we can do at the moment is, I think a very good new story in terms of occupational health is that while high-spending professionals are driving growth in performance, the gap between high consumption and low consumption is narrowing.
As this gap closes, it\'s a sign of health, as we expect ---
In the professional field.
Therefore, we expect this trend for each basket of goods to continue.
Peter BenedictOkay Carlo, thank you. That\'s helpful.
And then my next one.
Up will, just curious if you guys see mixed changes within the category, especially building products?
Evidence of any transaction
Is it going on or something like that? Thank you.
Craig MenearWell, we continue to see trade
Up, we discussed this in the last few calls, we are looking at all our price points, and as we rise from good, our comp progress has improved for another quarter, the best.
Specific to professional pricing, what I would say is that the only mark when you start some trade is that the price of wood is going up
Between plywood and OSV.
Just as these prices pick up, there is not much gap in the category of better quality products in plywood.
Ted deckerclear innovation is the driving force for customers to improve in the production line structure.
People step in when you offer new and innovative products.
Peter Benedict TokaiMakes, sense.
Thank you very much.
OperatorWe went next to Dan Binder and held this view.
Thank you, Dan Binde.
I just want to go back to your previous comments on the replenishment era.
I\'m just curious if it\'s important enough that it creates anythingstock or in-
Inventory issues or the impact of sales losses?
Craig MenearI means we definitely see the impact inside of us
About six weeks of stock positions in the quarter, but apparently recovered from that point.
Carol tumand, let\'s look ahead for you.
We strive-
Shares of 99% or higher.
As Craig points out, we have six weeks under this target, but the biggest gap is 13 basis points.
So it\'s not a big mess, but we feel it because our criteria are 99% or better. Craig Menares
We did not meet our expectations. Dan BinderOkay. Great.
You then mentioned earlier that you did not repeat certain promotions, resulting in a slight decrease in the penetration rate of private labels on credit.
I\'m just curious, if you can talk about your promotion posture, how do you consider the promotion relative to the market from the online big box, and in this regard, you can share anything great with us.
Craig MenearI will say that we have doubled our efforts to focus on the value of our customers every day.
Therefore, we are more and more focused on providing the best products and the best brands for all our customers at the best price every day, no matter how they pay. Dan BinderOkay.
Give you the last one if you can.
Last year people were willing to take on more debt for stock buybacks, so far you stick to a $5 billion stock buyback, can you see a little more leverage?
I think at this point you are still under two adjustments from EBITDA.
Carol Tomme is about 1 year old.
8 times, this gives us about $3 billion in borrowing capacity relative to our target.
We have no intention of continuing to grow our lending capacity.
As we have in the past, we have used interest rates and availability to raise incremental stocks and increase our share buybacks.
So you should think about what we did in the past.
This is what we should continue to do in the future.
But we like to be guided by what we know today.
What we know today is the excess cash to buy back the stock.
We will let you know if we want to issue some incremental debt and buy back some additional stock. Dan bindewei
Thank you very much.
Brian Nagel, Oppenheimer\'s opera actorBrian NagelHi. Good morning.
Congrats for a beautiful quarter.
Thanks, Craig mennier.
First question from Brian NagelMy, sorry for some of the previous questions, which may be a bit repetitive.
But to be clear, I think someone mentioned that there was a lot of noise outside-
From the recent retail sales, we can clearly see that what other companies are talking about is the weather.
But when you see the data, it\'s even more granular than what we\'re talking about today.
What\'s there--
Do you see anything that suggests or suggests a more cautious consumer environment, especially in larger ticket types?
We have already said that we are lucky that we are in a place where customers are willing to spend money.
This is clearly driven by the dynamics of the real estate market as a whole.
As Ted has called for, our performance on tickets was strong, more than $900, an increase of eight times.
1%, driven not only by big ticket categories such as HVAC and electrical appliances, but also by units in each basket of the project business.
So what we see is very encouraging.
Brian NagelThanks.
Then one.
Carol in terms of cost leverage.
For some time, Home Depot seems to continue to exceed expectations in terms of cost leverage.
You mentioned this again today and now is the higher EPS guidance this year.
So, the exact source of this latest beat, there may be more colors?
When you look out, is there any indication that Home Depot is really hard to take advantage of at some point, or is there an ongoing opportunity?
Carol toomewell, we think productivity is a virtuous circle in our business.
We are always looking for ways to increase productivity while ensuring that the customer experience is the best.
Recently, our HR team has done a great job in renegotiating some contracts for our staff to support our health benefits program.
This reduction has actually caused the cost, and as the cost is reduced, the cost of our employees will be as high as we expected.
This is good news that the benefit will flow into 2017.
There are other examples that I won\'t bother you with, but, there are other examples that show, our team will move forward after signing large purchase contracts to increase productivity and ensure the experience we want to deliver.
Brian NagelThank thanks and congratulates you again.
Thank you, Carol Tomei.
Thanks, Craig mennier.
Ciccarelli, operator of RBC Capital Market.
Good morning, guys.
Scots.
I know you guys are focused on everyday values and I know you guys have commented on that.
But there is some noise this quarter about some of your competitors in your field that may increase the pace of promotion.
From your point of view, is there anything notable about the change in the promotion environment?
Craig MenearI means from time-to-
We see the increased time for the promotion.
We certainly saw this in the quarter, but we are focused on increasing our daily value for our customers.
Scottish people
So there\'s nothing to pay attention.
And then Carol, I know one of the things you \'ve been talking about more and more in the last few quarters is the aging housing stock in the US. S.
I\'m curious, have you started to come to any conclusion over time as to how much the driver or impact has on your business? Thanks.
Carol Tomé did more research on this because we have never been to this place in our country, so we have no history to rely on.
So we have more research to do.
When we enter 17 years, it actually makes us comfortable with our growth forecast, because you have to solve it when things start to break down.
We think it\'s downwind, but Scott, I don\'t--
I can\'t quantify it yet.
Maybe we can take a look at the research done and we can give you more ideas by the end of the next quarter.
Scott secalley, that would be great. Thanks, guys.
Thanks, Craig mennier.
Jessica Mez, operator of Nomura SecuritiesJessica MaceHi. Good morning.
Good morning, Craig.
The question for Jessica McMillan is as follows
In the supply chain.
You said it was an ongoing job.
You mentioned the COM system and some other factors, but I was wondering if you could give us more details about the next milestone that we should expect and what impact that would have on the P & L? Thank you.
Craig menthers
So we do see supply chain as an opportunity for continuous optimization, and supply chain sync and Mark Hollifield are the next major initiatives.
I will have Mark comment.
We\'re glad Mark Hollyfield. -
As we mentioned, this is an ongoing work.
We continue to see opportunities to improve our
Inventory, our inventory productivity, our logistics costs.
Sync is our biggest move in this regard.
Sync currently accounts for 2 out of 3 of our RDCs, 12 out of our 18 RDCs, and the cost of the goods we process is about 60%, which is the amount passed in the Sync plan.
Therefore, we mainly see the increase in transportation costs and the smooth flow of demand, and we are working with our suppliers to continue to improve the interests of all people in the supply chain.
So we will continue on this road. -
But we are not in a hurry.
It\'s too early, and it\'s a multi-year plan we\'re after there.
Craig MenearTo believes that from 2011 to 2015, our supply chain has driven a cumulative gross profit margin expansion of 68 basis points.
So this is very productive for us.
What we call productivity in the second quarter and the second year. to-
We already have a date of about 12 or 13 productivity basis points.
So we continue to anticipate that the gross margin line will benefit through productivity in the supply chain, and there will be a longer period of time --
Inventory transfer benefits.
We never want to be out of stock, but there will be more long-term stock turnaround opportunities.
Craig MenearAnd this really comes from shortening the delivery time.
Jessica McWill.
Thank you for answering this question.
Craig menthers
We\'re going to be next to Greg merrich of the afdwick ISI. Greg MelichHi. Thanks.
I would like to have a deep understanding of the digital online business.
I think it was up 19% and still strong but is slowing down.
Is this the law of large numbers?
Is there a plan for all of you, be it syncing or a change in the supply chain, or be prepared for BOFDS that affect this?
Craig MenearWe does not see this as a slowdown based on the nominal dollar.
We have now . . . . . . Craig mennar grew by more than $0. 2 billion in 14 quarters.
14 quarters.
One change is the patio line structure I talked about, we put more valuable products in the store and the store sold very well.
It took 2 or 3 points of our online number.
So we\'re in that 20-
For several quarters, the business of ish, 20 plus has grown by $0. 2 billion per quarter.
Greg melichget is here for you. And if you --
To make sure that my numbers are correct, I think you mentioned that 42% of online now is done through the store and I want to make sure that my numbers are correct.
Second, how do you see it changing the online business when you go to the store for delivery?
Craig MenearYes, that\'s right.
So, 42% of the online orders are received in the store, 90% of the returns are processed in the store, and then one of the great benefits of comp\'s launch is that we are now following what we call BOFDS, purchase an online delivery service from the store.
We always deliver goods from the store.
The difference now is that you can execute the transaction online and choose a shorter delivery time for your delivery.
We are now in about 700 + stores and have purchased an online delivery service from the store very early.
By the end of this year, we will complete this deployment, and we are very good to see customers and reuse, especially our professionals, who used the second and third time to buy an online delivery service from the store.
Therefore, we believe that when we include BOFDS deliveries in this figure, the number of performance of 42% will increase. It\'s just --
It\'s early now.
Greg melidge is amazing. Thanks a lot. Good luck.
Thanks, Craig mennier.
Carol tommeilong, we still have time to ask a question.
Operators from Roe Champine will conduct Roe stock research.
Good morning, Laura.
I want to know more about the professional players.
Do you think you are benefiting from the growth of the market or are you actually sharing market share with professionals?
Then let\'s say you\'re sharing with professionals, do you see more power for smaller professionals, larger professionals, and what categories do you dominate to drive sharing revenue?
Craig MenearI definitely believes that at least when you talk to professionals, the market is generally busier than they are a year --ago.
So the growth of the market is positive.
When we see the advantages in our career categories, we believe in based on all the data we have or what we share in those categories.
Carol Tomé, if you think about it, Laura, this is a [according to the census [indiscernible]
We grew year on year. on-year.
Since Pro is more than DIY growth, it has to be shared from--
In the professional field.
The market is obviously growing, but we are also sharing.
Laura ChampineGot.
Any comments on the strength of smaller Pro and larger Pro? Craig MenaresWhat ---
As I mentioned earlier, what we have seen is that in terms of growth rates, the gap between the large expenditure Pro and the high expenditure Pro has narrowed, which is a very healthy sign.
Laura ChampineGot. Thank you.
Craig MenearYou bet.
Diane DayhoffWell, thank you for joining us today.
We look forward to your participation in our next quarterly earnings call in November.
Operator at the end of the conference call today.
You may disconnect at this point.
Thank you very much for your participation.
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