Home Depot Inc Q4 2024 Earnings Call Transcript

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

Question: Simeon Gutman - Morgan Stanley - Analyst : It's Simeon Gutman from Morgan Stanley. My first question is on the macro housing backdrop and the ingredients to a 1% comp. So existing home sales, look like they're set to grow mid-singles. And if that's the case, home improvement demand could arguably be a little stronger than maybe a 1% comp, or whatever assumption you're using. What's your take on that? I know Richard said we're not assuming any improvement in turnover. Is there anything changed about -- any change about your forecast due to people staying in their homes longer and rates being stubborn?

Question: Simeon Gutman - Morgan Stanley - Analyst : Okay. That's helpful. The follow-up, if comps do end up being a little stronger than one, does each point flow through at this 10 points of leverage to the margin? Or is there a scenario whether it's better DIY, more Pro, more complex project? Or do you spend more? Is there a mix shift that could alter that relationship above 1?

Question: Christopher Horvers - JPMorgan - Analyst : I wanted to go at a similar kind of question maybe on a different angle. Appliances were up, paint was up. Was that volume driven? And to what extent do you think the category was up versus Home Depot continuing to gain share? Because as you look forward, the replacement cycle dynamics should get better from 4Q levels. You'll be five years out. Ted, you've talked about in the past, every wall was painted in the US in 2020, but we're getting further from there. So doesn't that replacement part of the business further accelerate? And curious if you you're going to say like, well, X percent of the business is replacement versus Y percent, is more like big ticket remodel, which would -- we expect to continue to be an anchor?

Question: Christopher Horvers - JPMorgan - Analyst : Got it. And then, Richard, can you talk about the monthly US comps adjusting for the for the holiday shift? There's been a lot of questions, I think, over the past five, six weeks on what's going on with the consumer. You saw F&D talk about a slowdown relative to what they saw in the fourth quarter, and they talked about weather. So can you talk about, do you think that the weather had any influence on the business in January? And any comment on exit rate?

Question: Michael Lasser - UBS Securities LLC - Analyst : What market share assumption have you embedded into your 2025 outlook? And why wouldn't it be reasonable for us to assume that Home Depot's market share gains still accelerate from here and be above where they've been historically in light of you now having SRS as well as many more capabilities given the investments that have been made over the last several years. Is that a sign that you think your DIY market share is starting to peak and that could have an impact on the overall share gains for the enterprise?

Question: Michael Lasser - UBS Securities LLC - Analyst : My follow-up question is on what's been happening as of late. There's been a lot of focus on the impact that the government efficiency measures, and/or immigration policy implementation could have on the US consumer. How did you factor that in those considerations into the guidance? And while you just indicated that weather was really the underlying cause of some of the results in January, are you seeing any evidence that these factors are having an impact on the business? There's been talk about housing inventory in the Mid-Atlantic starting to creep higher. So anything you can provide that would be very helpful.

Question: Scot Ciccarelli - Truist Securities - Analyst : Ann talked about $1 billion of incremental sales in the 17 markets where you start to build out complex grow capabilities. How do you actually measure that? And then what kind of ramp would you expect in those markets in '25 as you continue to phase in order management, credit expansion, et cetera, some of the other capabilities that you've discussed? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 25, 2025 / 2:00PM, HD.N - Q4 2024 Home Depot Inc Earnings Call

Question: Scot Ciccarelli - Truist Securities - Analyst : Appreciate that. What's the biggest sticking point as you roll this out? Is it building the specialty sales force? Is it the recognition from your complex Pros, et cetera? Like what's the toughest piece that you've kind of learned that you'd have to -- what's your top the hurdle you have to clear?

Question: Karen Short - Melius Research - Analyst : So I had one question regarding guidance, and another totally related. So actually intangible in terms of operating margin guidance, so should we look at that as the right way to think about the relationship between sales growth and operating margin growth, i.e., excluding intangible impact from SRS on your guidance? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 25, 2025 / 2:00PM, HD.N - Q4 2024 Home Depot Inc Earnings Call

Question: Karen Short - Melius Research - Analyst : So how should we --

Question: Karen Short - Melius Research - Analyst : Okay. So how should we think about the relationship on total sales growth versus operating margin -- or operating profit growth on the way you define it?

Question: Karen Short - Melius Research - Analyst : Okay. And is 2.5% of sales, the rate -- run rate to think about on CapEx going forward?

Question: Steven Zaccone - Citi Investment Research (US) - Analyst : I actually want to follow up on Karen's question there and maybe dig into the SRS contribution a bit more. Can you help us understand how that's impacting the bottom line for 2025? As you give the organic mid-single-digit growth for the business, maybe how is the bottom line tracking versus expectations?

Question: Steven Zaccone - Citi Investment Research (US) - Analyst : Okay. The follow-up question I had was just on maybe the pricing environment. In the past, I think you've talked about prices kind of settling. Do you feel like we're at a point now where we should see sort of a natural return to a normal environment for pricing? And then how does the potential for tariffs kind of fit into that view?

Question: Seth Sigman - Barclays - Analyst : I do want to follow up on that last point around the flow through. If you step back and look at your sales over the last several years, I think since 2019, sales were up maybe 45%. SG&A is actually up a similar percent. Along the way, there have been investments and plenty of cost pressures. I guess the real question is, to the extent that comps start to improve here, they progress throughout 2025, are we at that point where sales should grow faster than expenses, and you can really start to see that flow through come through?

Question: Seth Sigman - Barclays - Analyst : Okay. Great. And then just on that point around the gross margin. You are guiding flat in '25. You still have some SRS dilution wrapping into this year. Can you talk about some of the underlying assumptions for core Home Depot and speak to the offsets that would be helping mitigate that SRS dilution?

Question: Zhihan Ma - Bernstein Institutional Services LLC - Analyst : Just a final quick one. How does your complex Pro initiatives impact your long-term ROIC expectations, taking into account that you are extending more trade credit and potentially holding more inventory with a broader assortment from here?