Home Depot Inc Q2 2006 Earnings Conference Call Transcript

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

Question: Eric Bosshard - Cleveland Research Company - Analyst : Good morning. Could you talk a little bit about the $350 million spend as we think not only about the second half of '06 but about 2007 as well and specifically what I am interested in is the incremental investments. Are those going to continue next year with form and magnitude would those take and ultimately what payback do you think we get from these?

Question: Eric Bosshard - Cleveland Research Company - Analyst : Does this suggest that it is the strategy shift is the wrong word, but if this is a changed mind set about the amount of investment that you want to make in the retail business permanently and what payback do you think that means in terms of sales growth as well as profitability?

Question: Eric Bosshard - Cleveland Research Company - Analyst : Okay. Very good. Thank you.

Question: Deborah Weinswig - Citigroup - Analyst : Good morning. In terms of initiative with redeploying additional labor to the stores can you give us additional specifics in terms of categories that we might see that labor in, or any change in terms of the staffing, thoughts on the store?

Question: Deborah Weinswig - Citigroup - Analyst : Carol, with you provide additional color on the gross margin performance in the quarter?

Question: Deborah Weinswig - Citigroup - Analyst : Okay. Bob, I was very impressed with the accelerated retail investments for the back half of year. Why do those -- how should we think about the comps in the back half?

Question: Deborah Weinswig - Citigroup - Analyst : Should we really expect, then to see the benefits of these investments in 2007 and hence I am trying from a model perspective, should we be more optimistic on '07 in light of the investments being made in the back half of '06?

Question: Deborah Weinswig - Citigroup - Analyst : Okay. In light of the economic back drop that most of us probably already had in your model, should we then think this would give an additional lift?

Question: Deborah Weinswig - Citigroup - Analyst : Okay. Great. Thank you so much.

Question: Matthew Fassler - Goldman Sachs - Analyst : Thanks a lot. Quick question on the inventory. You talked about the sequential change from Q1 levels. Can you compare that to a year ago as well and also just tell us how you think about your inventory in the context of the slowing economic environment you see but also your effort to raise Customer Service levels?

Question: Matthew Fassler - Goldman Sachs - Analyst : Understood. Just a very quick follow-up clarification on your guidance. You guided to the low end of 10 to 14%. How should we think about the $0.03 tax item? Is that included in your guidance or excluded?

Question: Matthew Fassler - Goldman Sachs - Analyst : Thank you very much.

Question: Danielle Fox - Merrill Lynch - Analyst : Thanks. Good morning. Bob, can you talk about what you're doing to develop the next generation of senior executives at Home Depot and in particular what you're doing in terms of succession planning and how close you are to filling Tom's merchandising spot?

Question: Danielle Fox - Merrill Lynch - Analyst : Okay. Great. And just a follow-up question about your acquisition strategy in the supply business. Can you revisit, we have two quarters in segment reporting for Home Depot Supply. Could you revisit your next steps and longer range plans for driving Supply to be I think a $25 billion business as your target by 2010. At the analyst meeting, Carol, you mentioned you didn't expect to spend more in acquisitions over the next five year than you did over the past five years. Is that still your latest thinking in terms of how acquisitions will contribute to achieving that goal?

Question: Danielle Fox - Merrill Lynch - Analyst : Do you feel like the 12% which was a really good number could have been even higher in a more robust demand environment or you're not really seeing the macro impact at the supply business?

Question: Danielle Fox - Merrill Lynch - Analyst : Great. Thanks very much.

Question: Gary Balter - Credit Suisse - Analyst : Thank you. Just a comment and question. I am used to being audited from Quebec, so feel good it was only $0.03.

Question: Gary Balter - Credit Suisse - Analyst : The question is for Bob, I guess. The investment back in retail effectively marks a change what we've been seeing. We've been seeing lower labor hours and if anything, lower investments in the past. What caused the change? Is it looking at your relative performance versus Lowe's? Is it just a sense that the retail businesses wasn't moving in the directions you thought? Obviously it is a pretty significant change. There has to be something behind it. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Gary Balter - Credit Suisse - Analyst : What is the do to the buyback?

Question: Gary Balter - Credit Suisse - Analyst : And asked differently given you're reinvesting $350 million back in and you're going to continue to buy back this, have you changed your thoughts about the leverage that you would like in the Company?

Question: Gary Balter - Credit Suisse - Analyst : Great. Thank you very much.

Question: Michael Baker - Deutsche Bank - Analyst : Thanks. Just a couple quick ones here. I think on the guidance originally when you gave the guidance in January of 10 to 14% earnings growth, it did exclude any impact from share buybacks and then I think you reiterated that at least off line in the first quarter to me. Is that still the case, 10 to 14%? Does that exclude your assumption of share buybacks?

Question: Michael Baker - Deutsche Bank - Analyst : You said freezing the buyback where you are today?

Question: Michael Baker - Deutsche Bank - Analyst : Not assuming any more buyback.

Question: Michael Baker - Deutsche Bank - Analyst : Thank you.

Question: Michael Baker - Deutsche Bank - Analyst : I think that was the way you said in January and very helpful. Then quickly one more on the Home Depot, you said you plan conservatively, Bob, but not at retail. Does that imply that you're planning conservatively at the Home Depot Supply business and broadly speaking the macro slowdown which I think we're all seeing here. Is that more impactful to Home Depot Supply or Home Depot retail business?

Question: Michael Baker - Deutsche Bank - Analyst : Thanks. If I could slide in one more, actually I would turn it over to someone else. Thanks.

Question: David Strasser - Banc of America Securities - Analyst : Thank you N listen to go your vendors conference calls for the second quarter, virtually all of them talked about trying to raise prices and push pricing through as a result of commodities. They talked about in a lot of different ways. How are those negotiations going and how are you sort of -- where is that level of discussion at this point?

Question: David Strasser - Banc of America Securities - Analyst : I think when you think about it, when you're going to accept them at some point, is it something you would most likely plan on passing through, or would you accept increases that you didn't think you could?

Question: David Strasser - Banc of America Securities - Analyst : Okay. Thanks a lot.

Question: Joe Feldman - Kelsey Advisory Group - Analyst : Hi, guys, thanks for taking me. One question about the supply chain. I know Mark is pretty new there, and you suggested, Bob, in your earlier comments he already had a little impact I I was wondering from his perspective if he is available what he has seen and where he think there might be some opportunities?

Question: Joe Feldman - Kelsey Advisory Group - Analyst : Got T thanks. The one last thing I wanted to ask, if on the new orange juiced program, can you describe a little more in detail on how it works and you know what type of metrics that you actually measure and how you measure them?

Question: Joe Feldman - Kelsey Advisory Group - Analyst : That's great. That's great. Thanks very much. Good luck.