Home Depot, Inc. (The)

When it comes to getting job supplies fast, nothing beats the Home Depot. We're always thinking of new ways to get things done quicker. Whether you're buying online for a quick in-store pickup, using image search to find exactly what you need, rapidly locating products with store mode, or getting supplies delivered same day.

Greetings and welcome to the Home Depot fourth quarter 2024 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 fourth quarter and fiscal year 2024 earnings call. Joining us on our call today are Ted Decker, Chair, President, and CEO, Ann Marie Campbell, Senior Executive Vice President, Billy Bastic, Executive Vice President of Merchandising, and Richard McPhail, 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 Investor Relations at 770-384-2387. Before I turn the call over to Ted, 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 most recent annual report on Form 10-K and our other filings with the Securities and Exchange Commission. Today's presentation will also include certain non-GAAP measures, including but not limited to adjusted operating margin, adjusted diluted earnings per share, and return on invested capital. For a reconciliation of these and other non-GAAP measures to the corresponding GAAP measures, please refer to our earnings press release and our website. Now, let me turn the call over to Ted.

Thank you, Isabel, and good morning, everyone. Sales for fiscal 2024 were $159.5 billion, an increase of 4.5% from the same period last year. Comp sales declined 1.8% from the same period last year, and our US stores had negative comps of 1.8%. Adjusted diluted earnings per share were $15.24 compared to $15.25 in the prior year. In the fourth quarter, comp sales increased 0.8% from last year, and comps in our U.S. stores were up 1.3%. Adjusted diluted earnings per share were $3.13 compared to $2.86 in the prior year. In the quarter, we saw broad-based engagement across our geographies, as 15 of our 19 U.S. regions delivered positive comps. In addition, both Canada and Mexico reported positive comps in local currency. Our fourth quarter results exceeded our expectations as we saw greater engagement in home improvement spend despite ongoing pressure on large remodeling projects. Throughout the year, we remained steadfast in our investments across our strategic initiatives despite uncertain macroeconomic conditions in a higher interest rate environment that impacted home improvement demand. Our strategic priorities remain creating the best interconnected shopping experience, growing our pro wallet share through a unique ecosystem of capabilities, and building new stores. We are always improving our interconnected shopping experience. We know that our customers want faster delivery than ever before. Recall that last quarter I shared the progress we made with our investments in our downstream supply chain, including an expanded assortment in our DFCs to allow for faster delivery speeds across more products. We also began leveraging our stores to offer more delivery options. Our delivery speeds are now the fastest they've ever been, and customers are increasing their spend. Billy will take you through these results in a moment. Growing our share of wallet with our pro customers is a key part of our growth strategy. We've continued investing in our store experience, fulfillment options, and sales teams. These investments are delivering incremental sales growth, And Anne will discuss this in detail shortly. In June, we completed the acquisition of SRS. And while we've only owned them for seven months, we could not be happier with the business. The capabilities that SRS brings are both additive and complementary to our strategic efforts. As expected, for fiscal 2024, SRS contributed $6.4 billion in sales for the seven months we owned them. And since we acquired them in June, They have opened over 20 greenfield locations and completed four tuck-in acquisitions. We're also focusing on many cross-sell opportunities with SRS. As an example, we've talked about the opportunity with QuoteCenter, our platform that provides real-time quote pricing and different fulfillment options for larger job lot quantities. SRS was already in QuoteCenter, but not in all markets. Today, they are in nearly every market with their roofing products. And since making this change, we have seen SRS's sales and quotes center more than triple. Going forward, we will continue to support SRS's momentum, and we expect their organic sales to grow mid-single digits in fiscal 2025. Our real estate footprint remains one of our distinct competitive advantages. We are expanding that footprint by investing in new stores in areas that have experienced population growth or where it makes sense to relieve pressure on existing high volume stores. In fiscal 2024, we opened 12 new stores, 10 in the US and two in Mexico. We are seeing great results from these stores, which are outperforming our expectations. For fiscal 2025, we plan to open 13 new stores, For fiscal 2025, we expect total sales growth of approximately 2.8%, comparable sales growth of approximately 1%, and adjusted diluted earnings per share to decline approximately 2%. We remain excited about all our growth opportunities, and we feel confident that the investments we are making will set us up for continued success. 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. Our results reflect strong execution by our stores, merchants, and supply chain teams, as well as our vendor partners, as they remain focused on delivering value and service to our customers. With that, let me turn the call over to Ann.

Thanks, Ted, and good morning, everyone. Our thoughts continue to be with everyone impacted by Hurricanes Helene and Milton, as well as the devastating fires in Los Angeles. We are here as these communities rebuild with our associates and suppliers who consistently go above and beyond to serve our customers, and I want to thank them for all that they do. As you heard from Ted, Growing our share of wallet with the pro is a key part of our growth strategy, and I'd like to take a moment to talk more about the progress we've made. For the quarter, all our pro cohorts positive comp, and it is clear that our initiatives are working. Over the last few years, we've made investments in our stores as well as through our pro ecosystem to improve the shopping experience for all of our pros. regardless of their purchase occasion, whether they are shopping in-store, online, or getting delivery from stores or our distribution centers. We know that nearly all pros shop our stores. Over the years, we have been investing across our stores to simplify and enhance the in-store shopping experience through investments in our freight flow process and technology to increase on-shop availability, Investments in inventory to provide a deeper assortment and job lot quantities in core SKUs. Enhancements in our labor model and the introduction of CXMs or dedicated customer experience managers. And the development of selling tools to provide better insights for our associates to help serve the pro. In addition to these in-store investments, our investments in the FDC network have improved the in-store experience by taking many deliveries out of the store, which reduces clutter in the aisles from staged orders. As a result, our in-stock have improved and our associate availability is higher. The FDC has also enabled faster delivery, expanded fulfillment options, and more consistent on time and complete delivery of larger orders directly to the job site. We also continue to build out a more comprehensive set of capabilities in our pro ecosystem. These capabilities include a broader and deeper assortment of products in the FDC, dedicated sales teams that provide a higher level of service, enhanced selling tools with CRM capabilities to better serve our customers, additional digital capabilities through a B2B website, loyalty, and preferred pricing programs. It is all of these capabilities, as well as enhancement in-store, that have really allowed us to win a greater share of wallet with all our pros. Our initiatives are resonating with pros, and not only are we gaining traction with the larger pro that works on complex projects, we're also seeing meaningful lift in sales with all pros across all purchase occasions. In fact, these investments have driven over $1 billion in incremental sales on an annualized basis in 17 markets. Even in these 17 markets, we are in different stages of maturity, and there's still a lot to do to better serve all our pros. From improving our delivery experience, to building new capabilities like trade credit and order management, to leveraging SRS and improving connectivity with our stores. We know that as we invest across all of our assets, it will allow us to more uniquely serve the pro. We have a lot to be proud of this year. We continue to focus on delivering the best customer experience in home improvement. We've seen great associate engagement and historically high retention rates. Our safety performance was exceptional and we've made significant progress in shrink driven by our company specific initiatives. All of these efforts are positioning us well and will allow us to continue to grow with all of our customers. Thank you, and with that, let me turn the call over to Billy.

Thank you, Anne, and good morning, everyone. I want to start by also thanking all of our associates and supplier partners for their ongoing commitment to serving our customers and communities. As you heard from Ted, Our performance during the fourth quarter exceeded our expectations as we saw broader engagement across home improvement-related projects. In addition, we also saw incremental sales as a result of the ongoing hurricane recovery efforts. However, the higher interest rate environment continues to pressure larger remodeling projects. Turning to our merchandising department comp performance for the fourth quarter, 10 of our 16 departments posted positive comps, including appliances, indoor garden, lumber, power, building materials, paint, outdoor garden, storage, hardware, and plumbing. During the fourth quarter, our comp transactions increased 0.6% and comp average ticket increased 0.2%. Inflation from core commodity categories positively impacted our average ticket by approximately 20 basis points, driven by inflation in lumber and copper wire. Additionally, during the quarter we continue to see our customers trading up for new and innovative products. Big ticket comp transactions or those over $1000 were up .9% compared to the fourth quarter of last year. We were pleased with the performance we saw in categories such as appliances, building materials and lumber. However, we continue to see softer engagement and larger discretionary projects for customers typically use financing to fund the project, such as kitchen, and bath remodels. During the fourth quarter, both pro and DIY comp sales were positive, with pro outpacing the DIY customer. In the fourth quarter, we saw strength across many pro-heavy categories like gypsum, decking, concrete, and fencing. Turning to total company online sales, excluding the impact of the extra week in the quarter, sales leveraging our digital platforms increased approximately 9% compared to the fourth quarter of last year. There are a lot of drivers to our online success, from the focus on continuously improving the shopping and browsing experience, to enhancing the delivery and post-delivery experience, to leveraging AI to enhance our chat features, product descriptions, and creating rating summaries for our customers. This quarter, I'd like to talk more specifically about delivery. As you heard from Ted, we remain focused on continuing to improve our interconnected retail experience and have made significant progress on the delivery experience for our customers. We have invested in a broader assortment across our 19 DSCs, established partnerships with third party last mile providers, and made technology improvements across our 2,000 plus stores to better utilize all of our assets for the benefit of our customers. Today, we have the fastest delivery speeds across the greatest number of products in company history. Our customers also have more fulfillment options than ever before. They can choose what they want, when they want, including same day and next day delivery. We know that driving a superior customer experience, including speed of delivery, drives greater customer satisfaction, higher engagement, higher conversion, and ultimately more sales. We've seen these customers who are engaging in our delivery capabilities meaningfully increase their overall spend with us across all purchase occasions and channels. During the fourth quarter, we hosted our Appliance, Gift Center, Decorative Holiday, and Black Friday events. We saw strong engagement across all of these events with our Appliance and Gift Center events posting record sales years. We're looking forward to the year ahead, particularly with the spring selling season right around the corner, and we have a great lineup of new and innovative products from live goods to outdoor power equipment. We continue to see an industry wide shift from gas powered to battery powered tools, and we have been leaning into this trend for some time. We have the brands that matter most to our customers, including Ryobi, Milwaukee, DeWalt and Makita. In our spring gift center event, we will provide our largest assortment of battery-powered products with longer run times and enhanced performance across a number of battery platforms, including Ryobi One, Milwaukee M18 Forge, DeWalt XR Power Pack and Power Stack, and Makita LXT, to name a few. We're also excited about our live goods program. Each year, our merchants partner with a wide network of regional and local growers to ensure that our customers have new and improved varieties and the right localized assortments to enhance the overall garden experience. Investing in our relationships with our growers will allow us to continue to drive innovation to meet our customers' needs and improve their shopping experience while building loyalty to the Home Depot. As we look forward to spring, we are excited about continuing to provide a broad assortment of best-in-class products that are in stock and available for our customers when and how they need it. With that, I'd like to turn the call over to Richard.

Thank you, Billy, and good morning, everyone. In the fourth quarter, total sales were $39.7 billion, an increase of $4.9 billion, or approximately 14% from last year. Fiscal 2024 included a 53rd week, which added approximately $2.5 billion in sales for the quarter and the year. During the fourth quarter, our total company comps were positive 0.8%, with comps of negative 1.7% in November, positive 6.6% in December, and negative 2% in January. Comps in the US were positive 1.3% for the quarter, with comps of negative 2% in November, positive 8% in December. and negative 1.4% in January. It is important to note that holiday shifts positively impacted December while negatively impacting November and January. Our results for the fourth quarter include a net contribution of approximately $220 million in hurricane-related sales, which positively impacted total company comps by approximately 65 basis points for the quarter. Additionally, foreign exchange rates negatively impacted total company comps by approximately 70 basis points for the quarter. For the year, our sales totaled $159.5 billion, an increase of $6.8 billion, or 4.5%, versus fiscal 2023. For the year, total company comp sales decreased 1.8% and US comp sales decreased 1.8%. In the fourth quarter, our gross margin was approximately 32.8%, a decrease of 25 basis points from the fourth quarter last year, reflecting a change in mix as a result of the SRS acquisition which was in line with our expectations. For the year, our gross margin was approximately 33.4%, an increase of approximately five basis points from last year, which was in line with our expectations. During the fourth quarter, operating expense as a percent of sales increased approximately 30 basis points to 21.5% compared to the fourth quarter of 2023. Our operating expense performance was in line with our expectations. For the year, operating expenses were approximately 19.9% of sales, representing an increase of 75 basis points from fiscal 2023. Our operating margin for the fourth quarter was 11.3% compared to 11.9% in the fourth quarter of 2023. Excluding intangible asset amortization in the quarter, our adjusted operating margin for the fourth quarter was 11.7% compared to 12.1% in the fourth quarter of 2023. Our operating margin for the year was 13.5% compared to 14.2% in 2023. Excluding intangible asset amortization, our adjusted operating margin for the year was 13.8% compared to 14.3% in 2023. Interest and other expense for the fourth quarter increased by $150 million to $608 million due primarily to higher debt balances than a year ago. In the fourth quarter, our effective tax rate was 22.9% and for the year was approximately 23.7%. Our diluted earnings per share for the fourth quarter were $3.02, an increase of approximately 7% compared to the fourth quarter of 2023. Diluted earnings per share for fiscal 2024 were $14.91, a decrease of 1.3% compared to fiscal 2023. Excluding intangible asset amortization, our adjusted diluted earnings per share for the fourth quarter were $3.13, an increase of approximately 9.4% compared to the fourth quarter of 2023. Adjusted diluted earnings per share for fiscal 2024 were $15.24, essentially flat compared to fiscal 2023. During the year, we opened 12 new stores, bringing our store count to 2,347. at the end of fiscal 2024. Retail selling square footage was approximately 243 million square feet, and total sales per retail square foot were approximately $600 in fiscal 2024. At the end of the quarter, merchandise inventories were $23.5 billion, up approximately $2.5 billion versus last year, and inventory turns were 4.7 times up from 4.3 times last year. Turning to capital allocation. During the fourth quarter, we invested approximately $1.1 billion back into our business in the form of capital expenditures. This brings total capital expenditures for fiscal 2024 to approximately $3.5 billion. And during the year, we paid approximately $8.9 billion in dividends to our shareholders. Today, we announced our Board of Directors increased our quarterly dividend by 2.2% to $2.30 per share, which equates to an annual dividend of $9.20 per share. And finally, during fiscal 2024, we returned approximately $600 million to our shareholders in the form of share repurchases. Computed on the average of beginning and ending long-term debt and equity for the trailing 12 months, return on invested capital was approximately 31.3%, down from 36.7% in the fourth quarter of fiscal 2023. Now I'll comment on our outlook for 2025. As you heard from Ted, we feel great about the investments we made in 2024, the progress we've made throughout the year, and the significant opportunities we have as we look ahead. And while there are signs that the home improvement market is on the way towards normalization, uncertainty still remains. As we look ahead to fiscal 2025, we expect the underlying momentum in the business that we saw in the back half of 2024 to continue into 2025. We are not assuming any meaningful changes to the macroeconomic environment. We expect our consumer will remain healthy. We are not assuming a change in the rate environment nor improvements in housing turnover. As a result, we would expect continued pressure on larger remodeling projects. Given these factors, our fiscal 2025 outlook is for total sales growth to outpace sales comp with sales growth of approximately positive 2.8% and comp sales growth of approximately positive 1% compared to fiscal 2024. Total sales growth will benefit from the SRS acquisition, the new stores we opened in fiscal 2024 and plan to open in fiscal 2025. And for the year, we expect SRS to deliver mid-single-digit organic growth. Our gross margin is expected to be approximately 33.4%, essentially flat compared to fiscal 2024. Further, we expect operating margin of approximately 13% and adjusted operating margin of approximately 13.4%. This primarily reflects natural deleverage from sales and continued investments across the business as well as reflecting the mixed impact from the SRS acquisition. Our effective tax rate is targeted at approximately 24.5%. We expect net interest expense of approximately $2.2 billion. We expect our diluted earnings per share to decline approximately 3% compared to fiscal 2024 when comparing the 52 weeks in fiscal 2025 to the 53 weeks in fiscal 2024. And we expect our adjusted diluted earnings per share to decline approximately 2% compared to fiscal 2024. On a 52-week basis, it would be essentially flat compared to fiscal 2024. We plan to continue investing in our business with capital expenditures of approximately 2.5% of sales for fiscal 2025. We believe that we will grow market share in any environment by strengthening our competitive position with our customers and delivering the best customer experience and home improvement. Before opening the call for questions, we are pleased to announce that we will be holding an investor conference on December 9, 2025, in New York City. We will share more details in the future, but for now, please hold the date. Thank you for your participation in today's call. And Christine, we are now ready for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Laura Eng with Morgan Stanley. Please proceed with your questions.

Good morning. It's Simeon Gutman from Morgan Stanley. My first question is on the macro housing backdrop and the ingredients to a 1% comp. So existing home sales look like they're set to grow mid-singles. And if that's the case, home improvement demand could arguably be a little stronger than maybe a one comp or whatever assumption you're using. What's your take on that? I know Richard said we're not assuming any improvement in turnover. Is there any change about your forecast due to people staying in their homes longer and rates being stubborn?

Hi, Simeon. Yes, at this point, while we've seen a little life in turnover in Q4, we're not expecting meaningful increase off that 40-year low. We've likely reached the bottom of housing turnover at about 3% of units, but we're not expecting a big rebound nor significant increases in new housing starts. However, if you just step back, I mean, if you look at our customer, they remain very healthy. We look at our customer today, we think about $110,000 average income. Those incomes have been growing. We've talked about the increase in home equity values up 50% since the end of 19, and then wealth effect through stock market and other investments. So our customer is very healthy. And as you say, if they're staying in their homes longer, they will take on larger remodeling projects as opposed to moving. Those that are locked in to lower interest rates or just not wanting to get mortgages with the higher rates. But we're not anticipating a large decrease in mortgage rates. It'll be more an issue of consumers getting used to these higher rates. And to take on a larger project, it's usually financed. And that financing is through HELOCs. And we've started to see a little increase in each of cash out refis as well as draws on HELOCs. But there's literally trillions of dollars of equity built up in U.S. housing and as homes continue to age and people are staying in those homes and realize that we're highly unlikely to see the low interest rates we saw over the past two, three years, that they'll eventually tap that equity and do the larger remodeling projects. We're just not sure that turn comes in 2025 at a dramatically accelerated pace.

And to follow up on the 1%, just to to explain that, Simeon. Obviously, this is a triangulation. We look at exit run rates of the business. And as we said, keep in mind that Q4, while certainly showing signs of momentum growing from Q3, still had some benefits from hurricanes that won't fully repeat in 2025. So a slight dampening of the run rate and then the assumption of continued pressure on larger projects, with the shape of the year increasing slightly through the year, which also includes the inclusion of SRS in our comp. You'll see them in our comp for the last seven months of the year.

Okay, that's helpful. The follow-up, if comps do end up being a little stronger than one, Does each point flow through at this 10 points of leverage to the margin? Or is there a scenario, whether it's better DIY, more pro, more complex project, or do you spend more? Is there a mix shift that could alter that relationship above one?

No, I think the 10 basis points is a good rough estimate of leverage from that point.

Great. Good luck.

You're not going to have meaningful shifts in mix. Even with mix shifts, you're not going to have meaningful differences in that leverage number.

Thank you.

Our next question comes from the line of Christopher Horvers with J.P. Morgan. Please proceed with your question.

Thanks. Good morning, everybody. I wanted to go at a similar kind of question, maybe on a different angle. Appliances were up. paint was up, you know, was that volume driven? And to what extent do you think the category was up versus Home Depot, you know, continuing to gain share? Because as you look forward, the replacement cycle dynamics should get better from 4Q levels. You'll be five years out. You know, Ted, you've talked about in the past every well was painted in the U.S. in 2020, but we're getting further from there. So doesn't that replacement part of the business further accelerate And curious if you were going to say like, well, you know, X percent of the business is replacement versus Y percent is, you know, more like big ticket remodel, which would, you know, we expect to continue to be an anchor.

Sure, Chris. Let me make a broad comment, and then Billy can give some detail on particular categories. Look, if we just step back and look at this quarter, you know, we're happy with it, right? Sales exceeded our expectations, and we're happy with positive comps, obviously, for the first time in two years, and particularly happy with positive transaction comps, which has been negative for over three years. And as you say, the business is strengthened across many categories and in many geographies. In fact, we haven't seen this broader base performance in over two years and maybe even closer to three years and if you go back chris to your comment on on covid i'd say that shift of of spending back to services post covid in the pull forward of demand during the pandemic those have largely played out there may be a category here and there but but i'd say that pc shift in home improvement pull forward have largely played out. And engagement in repair and smaller updates and decor-oriented updates is strengthening. And Billy can give some detail on the categories.

Yeah. Listen, as Ted mentioned, the broader base performance, I talked about the 10 of the 16 departments that posted positive comps. We had an outperform, Chris, as you mentioned, in appliances in our gift center. business which you know we had record sales candidly you know in that in those areas across the store so we had a healthy balance of transactions and unit performance which is ted's point we hadn't seen um in a while with that said still the pressure we know in finance projects uh we had great performance across many of our pro heavy categories i mentioned gypsum and decking concrete fencing and while there was some hurricane impact in there, you know, we're pretty pleased with the broad base of performance, you know, not only across the merchandising departments, but certainly across the country. But there's just no denying the, you know, the deferral that we're still seeing. We are pleased with the pull forward that we think is largely, you know, behind us at this point from a go-forward standpoint. So, you know, all those things bode well, but still the pressure and some of the more finance projects, we're still continuing to see that exist.

Got it. And then, Richard, can you talk about the monthly U.S. comps adjusting for the holiday shift? There's been a lot of questions, I think, over the past five, six weeks on what's going on with the consumer. You saw F&D talk about a slowdown relative to what they saw in the fourth quarter, and they talked about weather. So Can you talk about, do you think, you know, that the weather had any influence on the business in January and any comment on exit rate? Thanks very much.

I think that, so, you know, the monthly progression was absolutely influenced by holiday shifts. Again, to the benefit of December to the detriment of November and January. But no doubt, weather was horrible in January. We've had two years in a row of tough Januaries, but this one didn't. was particularly tough. And so that's why we don't read a tremendous amount into it when we think about exit run rate, but no doubt weather had an impact.

Great. Thanks very much. Have a great spring. Thanks.

Our next question comes from Michael Lasser with UBS. Please proceed with your question.

Good morning. Thank you so much for taking my question. What market share assumption have you embedded into your 2025 outlook? And why wouldn't it be reasonable for us to assume that Home Depot's market share gains should accelerate from here and be above where they've been historically in light of you now having SRS as well as many more capabilities given the investments that have been made over the last several years. Is that a sign that you think your DIY market share is starting to peak and that could have an impact on the overall share gains for the enterprise?

Hi, Michael. Thanks for the question. As we look at the overall market for 2025, we see it overall being flat, maybe up slightly. Those expectations have come down over the last several months. And our plus one, as Richard explained, is a continuation of some of the underlying strength in the business and our initiatives that we absolutely are gaining incremental sales for us. So that's why we peg our comp growth at 1%. Now, if you look at the combination of what's driving our share gain for both pro and consumer in the core, it is all the capabilities that we're putting in the marketplace. And we talked a lot about interconnected in all the investments we've made on the interconnected journey. And then certainly all the investments on our pro ecosystem. And I'll have Jordan spend a few minutes more on what we're doing on interconnected. And then you add what we're doing with SRS. SRS will grow faster than the core. And we believe they're taking share in each of their three verticals. So we're very pleased with what SRS is doing. So all that with our new stores, which are starting to add some meaningful dollars to our growth, gets us to the 1% comp and 2.8% overall growth in a flat market. So we wouldn't say our share has peaked by any means in DIY or pro. And then Jordan, if you could chat about what we're doing to drive share.

pro and consumer yeah with interconnected sure so i mean we billy billy shared the excitement we have had uh on dot com sales performance and that's really across both the consumer and the pro both of them up healthily online and it's been a combination of investments that we've made that have helped deliver that from the site experience and really making that journey so much better from a from a browse and search perspective and finding the right product to the fulfillment. Billy mentioned that we've had the fastest delivery speeds in the history of our company, same-day delivery, next-day delivery, whether that's concrete and lumber or whether that's a light bulb or a power tool. It's been really fast. And all of those investments have come together to really drive an improvement in conversion rate on the site. And then what we see is an increased engagement across channels with more purchases that come in store. So we're real excited about the momentum there and see the investments that we've made really, really paying off.

Thank you for that. My follow-up question is on what's been happening as of late. There's been a lot of focus on the impact that the government efficiency measures and or immigration policy implementation could have on the U.S. consumer. How did you factor that and those uh considerations into the guidance and while you just indicated that weather was really the underlying cause of some of the results in january are you seeing any evidence that these factors are having an impact on the business there's been talk about uh housing inventory in the mid-atlantic starting to creep higher so anything you could provide that would be very helpful

Michael, I don't think we've seen anything specifically. If you tick through some of the things you mentioned and some I'd add, tax policy would be one of the most important to Home Depot as a full taxpayer. So we'd be very pleased if the corporate rate stays at 21%. Tariffs is obviously a lot of discussion on what rates would be and what countries would be impacted and what categories of goods. We've been through that before, and I think we have the best team to manage through any tariff environment which would impact the industry broadly. I'd say our diversification efforts out of certain concentrations in countries has been quite good over the last six or seven years. You mentioned immigration. We've talked about having a shortage of skilled trades folks in this country for some time. We believe it's like 400-odd thousand trades folks short, and not sure how that number would change with any meaningful change in immigration. And then specifically to the government efficiency in mid-Atlantic, no, we've not seen anything there.

Thank you very much and good luck.

Thank you.

Our next question comes from the line of Scott Ciccarelli with Truist. Please proceed with your question.

Good morning, guys. Anne talked about a billion dollars of incremental sales in the 17 markets where you started to build out complex pro capabilities. How do you actually measure that? And then what kind of ramp would you expect in those markets in 25 as you continue to phase in order management, credit expansion, et cetera, some of the other capabilities that you've discussed. Thanks.

Thank you, Scott. As we mentioned, we're incredibly pleased with what we've seen so far. We're generating a billion dollars and growing, so that's been fantastic. And as we mentioned as well, it's geared across all participation. The way we measure that is the incremental sales. in the 17 markets versus what we see in the top 40 markets. So the billion dollars of annualized sales is that in those 17 markets, we have been outperforming other top 40 markets. And so when you think about 2025, we're focused on really maturing the capabilities in these 17 markets, which is really important. Not only maturing the existing capabilities, but really, really rolling out new capabilities as well. So whether it be delivery, expanding our sales force, those are key things that we'll continue to focus on, as well as new capabilities, as we talk about trade credit, order management, account management. Those are opportunities that we have to continue to grow in 2025, and Ted talked about SRS, and there's also an opportunity for us to really drive cross-selling opportunities across the SRS portfolio. Last but not least, we have more FDCs in the pipeline as well. We have three FDCs under construction. We have more in the pipeline. So we're incredibly pleased with what we've seen in 2024 when we think about the 17 markets across our company and compared to the top 40 markets, but more importantly, what we've seen with the pro ecosystem across the country as well. and making sure that we're doubling down on the opportunities that we see.

Appreciate that. What's the biggest sticking point as you roll this out? Is it building the specialty sales force? Is it the recognition from your complex pros, et cetera? What's the toughest piece that you've kind of learned that you have to What's your toughest hurdle you have to clear?

Yeah, Scott, this is, you know, what we continue to find. This is an entire ecosystem, right? So it's not just one component of the ecosystem, right? When we talk about the outside sales or we talk about delivery or we talk about order management and account management, it's all of those things working in concert. So what, you know, is always kind of difficult is as you roll these capabilities out and they're at different levels of maturity, Our focus is to refine and really perfect what we're seeing. That takes time in a market, especially when you're building relationships. We don't want to create new relationships with our new capabilities with our pros and then have big failure points. The difficult part is making sure that we're doubling down and moving at a speed that drives outcomes, but at the same time that we focus on perfecting within the market. It's incredibly complex. It is really important that we do this right. And in 2024, we saw some really, really great progress, and that's what makes us excited about what we will do in 2025 and beyond.

Thank you. Our next question comes from the line of Karen Short with Milius Research. Please proceed with your question. Hi.

Thanks very much, and good to talk to you. So I had one question regarding guidance and another totally related. So actually intangibles in terms of operating margin guidance, so should we look at that as the right way to think about the relationship between sales growth and operating margin growth, i.e. excluding intangible impact from SRS? on your guidance?

Yes. Karen, we believe that removing the non-cash amortization expense related to the amortization of intangible assets is the best way to look at our underlying operating margin. And so that's where we have guided for the last couple quarters and will continue to guide on the basis of moving forward. Karen, by the way, the operating margin is adjusted for all non-cash amortization expense at the Home Depot, not just that related to SRS.

Okay. Thank you. So how should we think about the relationship on total sales growth versus operating margin or operating profit growth on the way you define it?

De-leverage is essentially the same when you're looking at adjusted operating margin versus gap operating margin. So there's no change needed in the way that we've talked about leverage or de-leverage in the past. Cool.

Okay. And is 2.5% of sales the right run rate to think about on CapEx going forward?

So, historically, we've said 2% is sort of a rough expectation. We have increased that percentage really to reflect two things. Number one, obviously, we are happy with the investments we've made. They are generating exceptional returns. And so we're leaning into those investments. But second, a big part of that investment portfolio are our new stores. And it's worth calling our new store program out. In 2023, we announced we would build 80 stores over five years, including the year 2023. We are 25 stores into that program. So far, the results have been fantastic. We're tracking ahead of expectations. So we are going to continue and we will complete That program this year will be the third year of the program. We'll complete it by year five, which is 2027. So that 2.5% of sales is reflective of that new store program as well as leaning into investments that are working.

Okay, great. Thank you so much.

You're welcome.

Our next question comes from the line of Stephen Saccone with Citi. Please proceed. Good morning.

Thanks very much for taking my question. I actually want to follow up on Karen's question there and maybe dig into the SRS contribution a bit more. Can you help us understand how that's impacting the bottom line for 2025? Because you gave the organic mid-single digit growth for the business. Maybe how's the bottom line tracking versus expectation?

To our top line from seven months of ownership, They hit that on the button, and we feel great about their P&L top to bottom. And so as we discussed during the deal, we expected this to be cash accretive within the first year of ownership. We'll be coming up on that first year anniversary soon. They're already contributing to top and bottom line, and so we feel really happy about that. Now, just to be clear, to make sure that everyone understands this, obviously we report our results on a consolidated basis. If you think about the pro forma impact of SRS, the reflection of SRS and its mixed impact on the Home Depot, there's about a 40 basis point full year mixed impact to the Home Depot. And so think about Home Depot, you know, in total being impacted by about 40 basis points. But that's a mix effect, and we'll take that all day long. You know, they are leaders in their spaces. They're performing exceptionally well, and we're happy with that.

Okay, thanks. The top question I had was just on maybe the pricing environment. You know, in the past, I think you've talked about prices kind of settling down. Do you feel like we're at a point now where we should see sort of a natural return to a normal environment for pricing? And then how does the potential for tariffs kind of fit into that view?

Well, thanks, Stephen. It's Billy. Listen, as it relates to just the general pricing environment, and then I'll talk for a minute about tariffs. I mean, we are in a very rational market. just by definition. And, you know, prices, as we've mentioned on the last couple of calls, really have settled to your point. And the promotional activity is the same as it's been, you know, kind of pre-COVID as well. So no differences in that. And as I mentioned, again, the last couple quarters, pricing has settled into the market accordingly. As it relates to Two tears, and we've spoken a little bit about it this morning. I mean, listen, we've been through this before. We'll continue to assess just how these impact our business from a go-forward standpoint. We've been focused on diversifying sourcing for several years, so we'll continue to assess that going forward. But our number one job in merchandising is to be the customer's advocate for value. We have great, great vendor relationships. And with our scale, we feel that we're as well or better positioned than anyone in the marketplace to navigate the environment going forward.

And actually, I want to go back one question and just follow up on Steven's question. So Steven, just to put a year over year comparison together for you and talk about how SRS impacts year-over-year from an operating margin perspective. So as you see in our guidance, we're guiding to a 13.4% adjusted operating margin from a 13.8. That's a 40 basis point decrease. Here's how that 40 basis points breaks down. It's coincidental to the pro forma impact, but the year-over-year is different. So that 40 reflects 20 basis points of natural deleverage. And recall, we think this business levers about a 3% comp. So at a 1% comp, we're getting about two comp points of deleverage, so two times about 10 basis points per is 20 basis points. Then the inclusion of 12 months of ownership of SRS compared to seven months of ownership is reflected in 15 basis points of mixed shifts. So you've got about a 15 basis point impact of that year-over-year comparison of 12 months versus seven months. And then finally, the comparison versus a 53-week year also shifts margin by five basis points. So you've got 20 BIPs from naturally leveraged, you've got 15 from SRS impact, and you've got five from the 53rd-week comparison. Within that, I think it's worth saying, look, we are leaning into investments. We're paying for those investments through productivity. And so that's also within that operating margin guidance. There's productivity inside as well as leaning into investments. And I hope that makes it a little bit more clear.

Yeah, that answers our question. Thank you so much for that follow-up.

Our next question comes from the line of Seth Sigman with Barclays. Please proceed with your question.

Thanks. Good morning, everyone. I do want to follow up on that last point around the flow through. If you step back and look at your sales over the last several years, I think since 2019, sales are up maybe 45%. SG&A is actually up a similar percent. Along the way, there have been investments and plenty of cost pressures. I guess the real question is, to the extent that comps start to improve here, they progress throughout 2025. Are we at that point where sales should grow faster than expenses? And you can really start to see that flow through come through.

Seth, you know, I, I would point you back to our, our investor conference back in 2023, right? Once this market normalizes, we would expect a base case of three to 4% top line growth. Uh, we would expect, and within that we expect flat gross margin is kind of a base expectation. And then we do expect operating expense leverage. And so that takes you to the earnings per share expectation of mid to high single-digit growth once our market is normalized and once we're back to that level of sales growth. And that view hasn't changed since 2023.

Okay, great. Thank you for that. And then just on that point around the gross margin, you are guiding flat in 25. You still have some SRS dilution wrapping into this year. Can you talk about some of the underlying assumptions for core Home Depot and speak to the offsets that would be helping mitigate that SRS dilution? Thanks so much.

Sure. I'd point it to you're right about that. We still have a little bit of a lap. And so there's pressure from SRS mix. Just two great call outs. Number one, our outstanding supply chain and merchandising teams finding productivity. And I could go on and on about it, but the benefits we've seen in supply chain productivity alone are really encouraging. And we would call out our fantastic store operations team who have now driven improvements and shrink for about a year and a half, year over year, quarter by quarter. We expect that to continue into 2025. And so it's really a story of SRS mix being offset by supply chain productivity, some other great things the merchants are doing, and our fantastic store ops team.

Thanks. Appreciate it.

Christine, we have time for one more question.

Thank you. Our final question will come from the line of Zihan Ma with Bernstein. Please proceed with your question.

Hi. Thank you so much for taking my question. Just a final quick one. How does your Complex Pro initiative impact your long-term ROIC expectations, taking into account that you are extending more trade credit and potentially holding more inventory with a broader assortment from here? Thank you.

I wouldn't expect... meaningful impact on ROIC through capital investments. We've talked about driving incremental sales in profit dollar growth. That business has a different margin profile, but certainly incremental sales in profit growth. But it's really a reasonably asset-light investment. We lease the DCs. We lease trucks. We bring on sales teams that are commissioned sales forces that sort of earn their keep as they build their portfolios. Trade credit, you know, as we scale that, we're tiny, tiny exposure at the moment. But as we build that, it's just not going to be a meaningful balance sheet item given the scale of our overall balance sheet.

Great. Thank you. Ms. Chancey, I would now like to turn the floor back over to you for closing comments.

Thank you, Christine, and thank you, everybody, for joining us today. We look forward to speaking with you on our first quarter earnings call in May.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.