Home Depot, Inc. (The)

Greetings, and welcome to the Home Depot first quarter 2019 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If you would like to ask a question, please press star 1 on your telephone keypad. As a reminder, this conference is being recorded. If anyone should require operator assistance during today's conference, please press star 0 on your telephone keypad. It is now my pleasure to introduce your host, Isabel Chansey. Please go ahead.

Thank you, and good morning, everyone. Joining us on our call today are Craig Minear, 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 with 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.

Thank you, Isabel, and good morning, everyone. Before I begin, let me take a moment, if you would, of personal privilege. As you've read, at the end of April, we announced that Carol has decided to retire as our Chief Financial Officer and EVP of Corporate Services, effective August 31st, after 24 years of service to the Home Depot. This month, in fact, marks her 18th anniversary as our CFO, making her one of the longest tenured CFOs in the Fortune 100. And while I have more to say about Carol's numerous contributions to the Home Depot as we get closer to her actual retirement, I did want to note on today's call Carol's extraordinary financial stewardship of our company. Richard McPhail, who will become our CFO in September, will indeed have big shoes to fill. And Carol, I can't thank you enough for your service to our company and to our shareholders. Thank you, Craig. Sales for the first quarter were $26.4 billion, up 5.7% from last year. Comp sales were up 2.5% from last year with U.S. comps of positive 3%. Diluted earnings per share were $2.27 in the first quarter. Our sales performance came in below our expectations in the quarter as a result of two factors. First, the month of February was the second wettest on record for the U.S. lumber prices continued to decline in the quarter, resulting in a negative impact of sales growth of approximately $200 million. Looking at our results geographically, all of our U.S. divisions posted positive comps. Two of our 19 U.S. regions posted mid-single-digit negative comps as they faced difficult compares due to hurricane-related sales a year ago. Internationally, Mexico posted another quarter of positive comps in local currency, while Canada's comps were slightly negative. This, no doubt, was a noisy quarter. But when you look through the noise to the core business, we are pleased with the underlying performance. We saw growth in both ticket and transactions in the quarter, and 10 of our 14 merchandising departments posted positive comps. Ted will provide additional details around departments that were negative in the quarter as hurricane compares and price deflation impacted several categories. What I remain excited about is the progress we're making with regards to our strategic investment priorities. These investments enable us to continue to grow share in a highly fragmented $600 billion addressable market. We are making these investments from a position of strength. as the number one retailer in home improvement. Every investment was formed using a customer-back approach to create a truly seamless, frictionless customer experience that will drive results not just over the next several years, but for the long term. Our strategic efforts to drive an enhanced, interconnected customer experience through investments in both the physical and digital worlds are yielding solid returns. Online traffic growth was healthy. and first quarter online sales grew 23% from the first quarter of 2018. We continued to use our digital platforms to lean into adjacent categories like HD Home, Pool, and even Workwear, where the customers told us that we have the right to compete for an additional share of their wallet. For the consumer, we are investing in new category experiences that make it easier for a customer to shop their full project needs online. If a customer is redoing a bathroom and decides on a particular type and finish of faucet, chances are they probably want to see the full suite of matching bath faucets for vanity, shower, and tub. In order to take friction out of this process, we are now rolling the ability to shop a collection using minimal clicks. While we are investing to address the unique demands of the digital customer experience, We know that our customers continue to value the relevancy of our stores as seen in increased number of customer transactions in the quarter. Additionally, approximately 54% of our online U.S. orders were picked up in our stores during the quarter, a testament to our interconnected strategy. During the quarter, we continue to make progress enhancing this interconnected customer experience by investing in our stores to improve our front-end checkout experience, continuing to roll out automated lockers, streamlining our customer service desks, and simplifying tools for our associates. This is translated to reduce wait times and increase customer satisfaction, as our customer service scores and checkout time satisfaction have increased over 500 basis points versus last year. Not only do these front-end investments have customer service and productivity benefits, they are also helping us to optimize store layouts to maximize merchandising space productivity and high traffic event and lay-down areas. Another key focus area from an investment standpoint is our pro-customer, which once again outpaced the DIY customer in the quarter. Pros tell us that they are busier than ever. This is why investing in a portfolio of offerings to help them manage their businesses efficiently and remove friction from their shopping experience are critical. Having the brands that pros care about in stock with job block quantities is table stakes. You have to have that to serve them. But the value proposition that we are creating for the pro through various investments over the next several years is, as we believe, unique to the marketplace. We continue to onboard pro customers to our new B2B website experience, adding 35,000 customers in the quarter for a total of 135,000 customers that have been migrated to this experience so far. Our plan is to onboard over a million customers by the end of this year. Though it is early days, we are seeing increased engagement, which translates into increased steps. We also continue to make traction with the investments in other capabilities like tool rental, for example. We know that 90% of pros rent tools, but several years ago, only about one out of 10 pros rented from us. Today, that number has improved to one out of four, yet there remains opportunity for further growth as we continue to invest in our tool rental experience. We know that when pros rent tools from us, their spend increases. Again, the theme here is about driving engagement. The more dimensional the relationship is with our pro customers, the more they spend. This is a time of transformational change in the business as we execute our One Home Depot strategy. Our team continues to focus on what is most important, our customers. We hired 80,000 new associates for spring And thanks to our new in-aisle mobile training solution, Pocket Guide, they had product knowledge at their fingertips to help them get up to speed quickly. Our merchants, store met teams, supplier partners, and supply chain teams did an outstanding job of delivering value and service to our customers throughout the quarter. I'd like to close by thanking them for their dedication, hard work, and commitment to our customers. And with that, let me turn the call over to Ted.