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    Home Depot Inc (HD)

    Q2 2025 Earnings Summary

    Reported on Jan 10, 2025 (Before Market Open)
    Pre-Earnings Price$345.81Last close (Aug 12, 2024)
    Post-Earnings Price$341.87Open (Aug 13, 2024)
    Price Change
    $-3.94(-1.14%)

    What went well

    • Home Depot's acquisition of SRS is expected to accelerate sales and earnings growth, with SRS delivering high single-digit percentage sales growth driven by both organic initiatives and acquisitions, enhancing Home Depot's growth potential.
    • The company's diversified business model, including HD Supply and SRS, is showing strong performance, with HD Supply posting positive sales growth even in a challenging environment, contributing to Home Depot's overall strength.
    • Investments in the Pro customer ecosystem are yielding positive results, with Pro customers outperforming DIY, and expansion into 17 markets driving positive growth and increasing share of wallet with Pro customers.

    What went wrong

    • Increased pressure on larger projects due to higher interest rates and macroeconomic uncertainty, leading to decreased sales in categories tied to big projects such as building materials and lumber.
    • Housing turnover is down approximately 40%, approaching 40-year lows, impacting customers' interest in financing larger projects and leading to deferrals.
    • Signs of general weakness and softening consumer demand, with comparable store sales decreasing (-3.7% in May, -0.9% in June, and -4.9% in July), leading to a cautious sales outlook and negative comp sales guidance (-3% to -4% for fiscal 2024).

    Q&A Summary

    1. Impact of SRS Acquisition on Margins
      Q: How does SRS affect gross and operating margins?
      A: The acquisition of SRS impacted our second-quarter gross margin by about 35 basis points and will reset our margin profile by about 45 basis points annually due to their different product mix, which carries a lower gross margin rate. SRS also lowers our base operating margin profile by about 40 basis points for the full year 2024.

    2. Consumer Hesitancy in Large Projects
      Q: What examples show increased consumer hesitancy?
      A: We observed further pressure in larger projects, particularly in building materials and lumber tied to construction of larger projects. This change occurred as macroeconomic concerns grew, including political and geopolitical noise, rising unemployment, and inflation affecting disposable income.

    3. Impact of Mortgage Rates on Business
      Q: What mortgage rate level boosts Home Depot's sales?
      A: As mortgage rates trend down towards 6%, we expect increased housing activity and customer engagement, similar to the uptick seen when rates previously dipped below 6.5%. However, broader economic concerns may cause some customers to pause.

    4. Pricing Environment and Inflation
      Q: Are product prices deflating or changing?
      A: No, we're not seeing any broad step down in costs or retails. The cost environment is neutral, and we're not observing significant deflation or promotional pressure in non-commodity products.

    5. Plans for Promotions and Pricing
      Q: Will you invest more in price to gain market share?
      A: We don't see the need to be more promotional. We're focused on driving innovation and creating value rather than increasing promotions, and we feel good about our position in the market.

    6. SRS Growth and Strategy
      Q: What's driving SRS's strong revenue growth?
      A: SRS achieved high single-digit growth, split roughly equally between organic growth and acquisitions. They continue to be robust share-taking growers, employing a balanced strategy of comping existing branches, opening greenfields, and pursuing roll-up M&A.

    7. Share Repurchase Plan Timing
      Q: When will share buybacks resume?
      A: We aim to reduce our debt-to-EBITDA ratio from 2.6x to around 2.0x before restarting share repurchases, likely in 2026.

    8. Category Performance and Gaps
      Q: Which categories show widening performance gaps?
      A: Despite pressure on financed projects, we saw strong performance in vinyl plank flooring with positive sales and unit comps, water heaters, paint, and power equipment. Larger ticket one-time purchase categories like riders also showed good engagement.

    9. Pro vs DIY Performance
      Q: How did Pro sales compare to DIY?
      A: Pro sales outperformed DIY in the quarter. Investments in the Pro ecosystem, including expanded distribution and outside sales teams, led to positive growth in markets where we've invested.

    10. Comps Trend and Guidance
      Q: Why did comps slow from June to July?
      A: The extreme heat in July shifted sales in weather-related categories like ACs, fans, and watering products to June, causing softer July comps. August comps started better than July and are consistent with expectations for a negative 3% comp result for the year.

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