Home Depot Inc at JPMorgan Retail Round Up Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Christopher Horvers - JPMorgan - Analyst : So address the elephant in the room. (laughter) We'll kick off with tariffs first. I don't know if anyone has asked you about that recently.

Question: Christopher Horvers - JPMorgan - Analyst : I was going to bring the board [to Malaysia.] What's that? (laughter)

Question: Christopher Horvers - JPMorgan - Analyst : Great. Maybe some -- I think in the past, you've provided some more direct specificity around source and exposure. So anything that you could share there? And can you talk about your pricing strategy and how we would approach tariffs.

Question: Christopher Horvers - JPMorgan - Analyst : Like China versus Mexico, right?

Question: Christopher Horvers - JPMorgan - Analyst : And maybe a little bit around how you think about a portfolio approach, having 35,000 SKUs doing projects provides an opportunity on elastic versus inelastic items, you did when there was a lot of inflation in the sort of mid the post-covid period, you did pass along price. So to what extent do you think that inflation is coming in the space? And to what extent would you anticipate any gross margin pressure around it?

Question: Christopher Horvers - JPMorgan - Analyst : Excellent. Maybe dovetailing back to your momentum comment since you introduced it. There's been a lot of questions about what's going on with consumer, funny weather period. It's flu season, there's been a marked level of uncertainty that's happened since the beginning of February, and even there's some consumer-packaged goods companies are like, oh, something sort of changed in the beginning of February. How do you think about the health of the US consumer and the potential for the momentum and the engagement in the category that emerged in the back half of last year to continue.

Question: Christopher Horvers - JPMorgan - Analyst : That's great. Dovetailing off that, can you talk a little bit about replacement cycles and what you're seeing from some of those early COVID winning categories, whether it's paint, whether it's some big ticket outdoor type categories, do you think some of that emergent momentum is, in fact, just structural because things are breaking, and walls need to be painted.

Question: Christopher Horvers - JPMorgan - Analyst : Is that share there?

Question: Christopher Horvers - JPMorgan - Analyst : Excellent. So maybe we think about the Home Depot long-term growth strategy. It's changed a lot, I think, in the past 10 years. Could you maybe narrate that? My impression was if we went back to Frank post-GFC, it's the 3-legged stool, it's e-commerce, it's driving productivity of the existing box. It seems like in the past five years, you've created an effort to expand the TAM. Can you talk about that transition and how you're thinking about market share?

Question: Christopher Horvers - JPMorgan - Analyst : You might have to explain that to some people.

Question: Christopher Horvers - JPMorgan - Analyst : Yes. I guess the question there is -- a two-part question. One is, where do you exit this year from a capabilities perspective ? Do we have to base the pyramid in place to grow from. And then on the other side, how does -- I think you're in 17 markets now? How is the -- how are you thinking about the pace of that expansion and the ultimate goal?

Question: Christopher Horvers - JPMorgan - Analyst : Great. So I'll have about five more minutes of prepared questions, and then we'll open it up to the audience for Q&A. So definitely welcome questions. On the -- as -- so a follow-up question to that is that business -- how is that going to affect the cyclicality of the Home Depot business relative to the core retail box?

Question: Christopher Horvers - JPMorgan - Analyst : So it's a great dovetail to the SRS side. So large Pro versus trade Pro you've acquired a great asset, a very scalable asset. Could the trade Pro opportunity to be bigger than the large Pro opportunity? And as you think about category expansion in SRS. Like is the environment inhibiting going into a new category? Is it finding the right bolt-on asset onto SRS to build from, right, inhibitor.

Question: Christopher Horvers - JPMorgan - Analyst : Fantastic. So any audience questions that we can entertain for Richard? Everyone looking at how great the market is trading this morning at 9:45. Questions? Unidentified Participant You talked a lot about home prices. Maybe it feels like we're in a slightly different world now than we were a few months ago, even from a risk perspective with all these tariffs. Can you maybe just talk about home prices as it relates to demand, any risks you see there, any correlation within your own business? I'm sure you guys look market by market, you see that there are some markets where you still see appreciation, some where there's depreciation. Can you maybe just talk about that and how we can contextualize how that might affect what things look like going forward?

Question: Christopher Horvers - JPMorgan - Analyst : Is that another way a deferral?

Question: Christopher Horvers - JPMorgan - Analyst : So its [action] is if like normally, category grows in line with wage growth. Wage grows 3%, 4%, consumption grows 3% to 4%. How does the share of wallet and deferral impact? How do you think about in an environment that's weaker? Like does normally like, I can defer these projects, but now are you -- is it less so in a tough outcome because of the cycle that we just came through.

Question: Christopher Horvers - JPMorgan - Analyst : So I follow up. So as you think about -- because I think everyone's in this very dark mindset right now. Maybe can you talk about cost. And I think we'll put the question in terms of upside and downside, saying that you're in the best cost position since 2010, having called Home Depot since '03 is a very, very, very strong statement because that flow through from 2010 to 2017 was pretty breathtaking against the comp base. So can you talk about, let's say, you get back to something more of a normalized comp, how you think about flow through and your willingness to pass that through? And then to the extent that we do have an accentuation of the deferral, is there enough levers in the business to protect the margins?

Question: Christopher Horvers - JPMorgan - Analyst : And then what about if this deferral accentuates and we have two years of negative comps traffic-driven labor model, like at some point, fixed variable costs become more fixed. So if we enter a tougher environment, do you still have that Home Depot flexibility to manage the expense structure?

Question: Christopher Horvers - JPMorgan - Analyst : Any questions? I have another one. And so going back to the price, I think the consumer has really digested a lot of price in a lot of categories, durables prices came back down. But for core everyday needs, think about the consumer food is somewhere between 20%- to 40%-something of the average spend per month. And those prices haven't really come down. And a lot of that -- you can say that about all needs. Needs generally don't deflate consumption -- those products, that are needs. So consumers absorbed a lot of inflation. The consumer has been hyper value-seeking still for the past couple of years. You did managed price very well. You did pass along price in the last cycle. Do you think it's different this time? Does Home Depot have to eat a little bit more this time because of the environment, the potential environment?

Question: Christopher Horvers - JPMorgan - Analyst : Great. Any other questions? Fantastic. Richard, we really appreciate your time.