Home Depot, Inc. (The)

Greetings, and welcome to the Home Depot third 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 anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Isabel Jancy. Please go ahead.

Thank you, Christine, 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 Richard McVail, Executive Vice President and Chief Financial Officer. 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 by 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 Chris.

Thank you, Isabel, and good morning, everyone. First, let me start by welcoming Richard to his first earnings call. Sales for the third quarter were $27.2 billion, an increase of 3.5% versus last year. Comp sales were up 3.6% from last year, and our U.S. comps were positive 3.8%. Diluted earnings per share were $2.53 in the third quarter. From a geographic perspective, all of our U.S. divisions posted positive comps. Internationally, both Canada and Mexico posted positive comps. Overall, we continue to see a strong and engaged customer. As Ted will detail, both ticket and transactions grew in the quarter. With the exception of lumber and electrical, all of our merchandising departments posted positive comps. We saw a healthy balance of growth between both our pro and DIY customers, with pro sales outpacing DIY sales in the US. While our third quarter results largely demonstrate broad-based growth across geographies and merchandising departments, our sales performance was below our expectations, driven primarily by the timing of certain benefits associated with our strategic initiatives. At the beginning of the year, we shared with you our expectation that these initiatives would collectively contribute approximately 100 basis points to our comp performance in 2019. As the year has evolved, we have learned a great deal and have shared with you that some of these initiatives have progressed more quickly, while others are taking more time. These investments are significant and long-term in nature, and we expect that the momentum we've seen will continue to build. Our rollout is largely on track and we are realizing benefits. It's just taking a little longer than our original assumptions. In a moment, Richard will walk you through the implications this has for our 2019 guidance. But let me first provide more context. We have foundational IT workstreams supporting many of our strategic initiatives that will significantly enhance our ability to serve our customers in an interconnected way. Much of this IT work requires unwinding our legacy systems, and that has proven to be more complex than originally anticipated. Take the B2B website experience, for example. Our investments in a personalized B2B website experience is a significant component of the unique value proposition we are creating for our pros. As you would expect, the most engaged customer cohort is 135,000 pros that we onboarded at the beginning of the year. And we are seeing meaningful lift in spend as these customers become more familiar with the new experience. The rollout of the B2B site experience itself is on track. but underlying IT work must be completed before turning on additional elements of personalization and functionality for our larger pro customers. Other investments are yielding results in line with or in some cases above our expectations. For example, HomeDepot.com continues to be a source of strength. Online traffic growth was healthy, conversion is up, and third quarter online sales grew approximately 22% from the third quarter of 2018. Customers continue to respond to the ongoing investments and enhancements we are making to drive a frictionless, interconnected experience, including faster fulfillment options. We also continue to leverage our digital platforms to drive incremental growth from adjacent categories like HD Home, Pool, and Workwear, and are seeing good traction across all of these categories. We're seeing healthy growth in our online sales and online shoppers continue to see the relevance of our stores as more than 50% of our online US orders were 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 pickup of an online order easier and more convenient. Today, approximately 1300 stores have lockers. and we've been very pleased with the customer response. As approximately 95% of customers rating their Lockout Experience pickup give us 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. Over 60% of our US stores have a new look and feel, and customer response has been very positive. Customer service scores in the category of neat and clean have increased 120 basis points versus last year, while scores for checkout time satisfaction have increased over 280 basis points versus last year. As we approach the end of the second year of our transformative One Home Depot investments, we have even more conviction today that we are making the right long-term investments for the business to extend our competitive advantage in the marketplace. As with any transformation, the work we are doing is complex, and I'm proud of the way our team is consistently up for the challenge. Our associates continue to focus on what's most important in our business, our customers, and I want to close by thanking them for their hard work and dedication. And with that, let me turn the call over to Ted.