Home Depot, Inc. (The)

Good day, and welcome to the Home Depot 4th Quarter 2018 Earnings Call. Today's conference is being recorded. If you would like to ask a question during today's call, please press the star key followed by the digit 1 on your touchtone phone. At this time, I would like to turn the conference over to Isabel Jancy. Please go ahead, ma'am.

Thank you, Christine, and good morning, everyone. Thank you for joining us today on our fourth quarter earnings call. Joining us on our call today are Craig Menear, Chairman, CEO, and President, Ted Decker, Executive Vice President of Merchandising, and Carol Tomei, Chief Financial Officer and Executive Vice President, Corporate Services. Following our prepared remarks, the call will be open for questions. Questions will be limited to analysts and investors. And as a reminder, please limit yourself to one question and one follow-up. If we are unable to get to your question during the call, please call our Investor Relations Department at 770-384-2387. Before I turn the call over to Craig, let me remind you that today's press release and the presentations made by our executives include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include but are not limited to the factors identified in the release and in our filings with the Securities and Exchange Commission. Today's presentations will also include certain non-GAAP measures. Reconciliation of these measures is provided on our website. Now, let me turn the call over to Craig.

Craig Cunningham Thank you, Isabel, and good morning, everyone. Fiscal 2018 was another record year for our business, as we achieved the highest sales and net earnings in company history. Fiscal 2018 sales grew $7.3 billion to $108.2 billion, an increase of 7.2% from fiscal 2017, while diluted earnings per share grew 33.5% to $9.73. And although fiscal 2018 was a record year for our business, our fourth quarter comp sales were slightly below our expectations as the quarter experienced some unfavorable weather. Sales for the fourth quarter were $26.5 billion, up 10.9% from last year. Comp sales were up 3.2% from last year, and our U.S. comps were positive 3.7%. Diluted earnings per share were $2.09 in the fourth quarter. Internationally, Mexico posted another quarter of positive comps in local currency, while Canada was essentially flat. As we mentioned on last quarter's call, Our fourth quarter faced tough comparisons given the prior year's approximately 400 million in hurricane-related sales that would not repeat, and we planned for this in our outlook. But as Carol will detail, what we did not plan for was the extent of the unfavorable weather we experienced in all regions throughout the quarter. It was cold, it was snowy, and perhaps worst of all, it was wet. What weather delays projects, and this was evidence in our sales performance in the quarter. In fact, as Carol will detail, ex-weather, our business performed in line with our expectations. And as Ted will discuss, both ticket and transactions grew in the quarter, and we saw growth in both pro and DIY categories. Pro sales once again outpaced DIY sales in the quarter, And the work that we're doing to enhance the service capabilities for our pros continues to resonate. I am very proud of our associates for continuing to do what they do best, serving our customers. Our merchants, store teams, supplier partners, and supply chain teams did an outstanding job of delivering value and service to our customers throughout the quarter, both in stores and online. In fact, several key accomplishments took place during the quarter. We set record performances on Black Friday and during Cyber Week. Our holiday decor offering and gift center events set new all-time highs, and during the quarter, we reached a new watermark of approximately 2 billion annual visits on HomeDepot.com, with many of these visitors indicating that their next stop is a Home Depot store. In fiscal 2018, we made progress with regard to the One Home Depot investment plan, but we are still in the early days of our journey. Our strategic effort to drive an enhanced, interconnected customer experience through investments in both the physical and digital worlds are yielding solid returns. We also continue to focus on productivity as a virtuous cycle. by leveraging technology and improving processes throughout the value chain of our business. Fiscal 2018 provided a lot of great learnings and momentum that we will continue to build on in 2019. I'm particularly excited about the investments we're making for our pros. In the quarter, we announced a consolidated go-to-market approach for our pro customers under the banner Home Depot Pros. and we continue to invest in a more personalized offering for our pro customers with a new B2B website experience. We have now onboarded over 100,000 pro customers, and the reception has been positive. Our plan is for continuous enhancements with new features and capabilities. For example, in response to customer feedback, we are adding the ability for businesses to enhance account management and ordering capabilities with improved tools. Our intent is to roll out this new pro online experience to over a million pros in 2019. Beyond B2B personalization, we continue to make great strides in driving our digital experience. This year, we invested in our website and mobile applications, improving search capabilities, site functionality, and product content. This ongoing investment in our digital properties has increased traffic and conversion versus prior year on a like-for-like basis. Online sales grew 22.7% in the fourth quarter and 24.1% in fiscal 2018, now representing 7.9% of our total sales. While we are seeing significant growth in our online sales, these online shoppers see the relevance of our stores as approximately 50% of our online U.S. orders are picked up in our stores, a testament to the power of our interconnected retail strategy. We continue to roll out automated lockers in our stores to make picking up an online order easier and more convenient. To date, approximately 1,000 stores have lockers with more to come in 2019. Customer response to the lockers has been very positive as almost 94% of customers rated their locker pickup experience a five out of five stars. We fundamentally believe that when a customer comes to one of our stores, it has to be a great experience. With our investment program, approximately Forty percent of our U.S. stores now have a new look and feel, and customer response has been very positive. The store investments are not just about the customer response, as we are also seeing increased associate engagement and higher productivity. Another key component of a best-in-class interconnected shopping experience centers on enhanced delivery and fulfillment options. Fiscal 2018 was the year of the pilot as we kicked off our $1.2 billion investment journey to create the fastest, most efficient delivery network for home improvement goods. We are now alive with a number of these pilot facilities. We look to fiscal 2019 as a year to take what we have learned in pilot and begin the rollout that we expect to complete by 2022. As a demonstration of the confidence in the business going forward, today our board announced a 32% increase in our quarterly dividend to $1.36 per share. The board also authorized a new share repurchase program of $15 billion, replacing our existing authorization. We remain committed to maintaining disciplined capital allocation to create value for our shareholders. Turning to 2019 and beyond, I'm excited about the opportunities that are ahead of us. Carol will take you through the details, but we expect 2019 to be another year of growth, with sales growth of approximately 3.3%, comp sales of 5%, and diluted earnings per share of approximately $10.03. Our strong performance in fiscal 2018 also positions us well with respect to our 2020 financial targets, and today we are reaffirming those targets. It's an exciting time to be part of the Home Depot, and we look forward to the work ahead as we continue our journey to create the One Home Depot experience. There's a great deal of change being introduced throughout the business, but as they always do, our associates are rising to the occasion, meeting new challenges head-on, without losing the passion to serve our customers that has made the Home Depot what it is today. I want to close by thanking our associates for their hard work and dedication to our customers in the fourth quarter and throughout the year. For the second half of the year, 100% of our stores will receive success sharing, our bonus program for our hourly associates. We look forward to continuing our momentum in 2019. And with that, let me turn the call over to Ted.