Home Depot, Inc. (The)

Greetings and welcome to the Home Depot first quarter 2023 earnings conference 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. Welcome to Home Depot's first quarter 2023 earnings call. Joining us on our call today are Ted Decker, Chair, President, and CEO, Billy Bastic, Executive Vice President of Merchandising, Anne Marie Campbell, Executive Vice President of U.S. Stores and International Operations, and Richard McVale, 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 Ted, let me remind you that today's press release and 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 Ted.

Thank you, Isabel, and good morning, everyone. Over the past three years, we grew our business $47 billion, or 43%. After this period of unprecedented growth, we expected demand would moderate in fiscal 2023, which our first quarter results reflect. Sales for the first quarter were $37.3 billion, down 4.2% from the same period last year. Comp sales declined 4.5% from the same period last year, and our U.S. stores had negative comps of 4.6%. Diluted earnings per share were $3.82 in the first quarter, compared to $4.09 in the first quarter last year. Our sales for the quarter were below our expectations, primarily driven by lumber deflation and unfavorable weather, particularly in our western division, as extreme weather events in California disproportionately impacted our results. As you will hear from Billy, where weather was favorable, we saw strength in key spring-related categories, such as live goods and other garden-related categories. As we looked beyond weather and lumber deflation, our underlying performance in the quarter was mixed. We saw more pressure across the business compared to what we observed when we reported fourth quarter results a few months ago. While there was relative strength in project-related categories like building materials, plumbing, and hardware, We had many departments with negative comps in the quarter and continue to see pressure in a number of big-ticket discretionary categories. DIY customers outperformed the pro in the quarter, but both were negative. While internal and external surveys suggest that pro backlogs are still healthy and elevated relative to historical norms, they are lower than they were a year ago. Additionally, recent external data points suggest that the types of projects in these backlogs are changing from large-scale remodels to smaller projects. Though we are only one quarter into the year, we believe the underperformance this quarter relative to our expectations, lumber deflation, and continued uncertainty around underlying demand warrant some more cautious sales outlook for the remainder of the year. Richard will take you through the details in a moment, but we are now guiding to a comp sales decline between 2% and 5%. Reflecting this updated comp guidance, we now expect our operating margin rate to be between 14.3 and 14%, and earnings per share to decline between 7 and 13%. We continue to navigate a unique environment. We remain agile and respond to evolving customer dynamics while always being an advocate for value. In addition, we feel confident in the investments we have made in wage are driving the intended results. As Anne will discuss, in the short time frame since our most recent wage enhancements took effect, we are attracting a greater number of qualified applicants, and attrition is down. Lastly, and as you would expect, we will continue to focus on driving productivity and efficiency across the business. While the near-term environment is uncertain, we remain bullish on the medium- to long-term outlook for home improvement and our ability to grow share in this large and fragmented market. We look forward to sharing our perspective on the many opportunities ahead when we meet at our Investor and Analyst Conference coming up on June 13th. Our team continues to focus on what is most important, our associates and customers. Our merchant, store and met teams, supplier partners, and supply chain teams did an outstanding job delivering value and service to our customers throughout the quarter. I'd like to close by thanking them for their dedication and hard work. I'd also like to introduce Billy Bastic, who was recently named EVP of Merchandising. Billy is a 33-year veteran of the Home Depot and brings tremendous experience to the role, having spent his entire career with us in various roles of increasing responsibility throughout the merchandising organization. Not only is Billy a world-class merchant and leader, he's also a fantastic steward of our culture, and it's my pleasure to welcome him to the call today.