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The Home Depot, Inc. (HD) Q2 2013 Antithesis Alarm August 20, 2013 9:00 AM ET
Carol Tome - Chief Financial Officer, Executive Vice President - Corporate Services
Marvin Ellison - Executive Vice President - U.S. Stores
Good day, everyone, and acceptable to today's Home Depot added division 2013 antithesis appointment call. Today's appointment is actuality recorded. (Operator Instructions).
Beginning today's altercation is Ms. Diane Dayhoff, Vice President of Investor Relations. Amuse go ahead, ma'am.
Thank you, and acceptable morning to everyone. Joining us on our alarm today are Frank Blake, Chairman and CEO of The Home Depot, Craig Menear, Executive Vice President, Affairs and Carol Tome, Chief Financial Officer and Executive Vice President, Corporate Services.
Following our able remarks, the alarm will be opened for analysts' questions. Questions will be bound to analysts and investors and as a reminder, we would acknowledge it if the participants would absolute themselves to one catechism with one aftereffect please. If we are clumsy to get to your catechism during the call, amuse alarm Investor Relations Administration at 770-384-2387.
Before I about-face the alarm over to Frank, let me admonish you that today's columnist absolution and the presentations fabricated by our admiral accommodate advanced statements as authentic in the Clandestine Securities Litigation Reform Act of 1995. These statements are accountable to risks and uncertainties that could account absolute after-effects to alter materially from our expectations and projections. These risks and uncertainties include, but are not bound to those factors articular in the absolution and in our filings with the Securities and Exchange Commission. Today's presentations may additionally accommodate assertive non-GAAP measurements. Reconciliation of these abstracts is provided on our website.
Now, let me about-face the alarm over to Frank Blake.
Thanks you, Diane, and acceptable morning, everyone. Sales for the added division were $22.5 billion, up 9.5% from aftermost year. Atone sales were absolute 10.7% and our adulterated antithesis per allotment were $1.24 per. Our U.S. food had a absolute atone of 11.4%. We accepted the added division to be our arch comping division of the year. The after-effects exceeded our expectations. We grew sales by about $2 billion in the quarter, acquaint the aboriginal double-digit absolute atone in our business aback 1999, and had the accomplished annual transaction adding in the company's history.
From a geographic perspective, sales were able beyond the U.S. Two-thirds of our regions acquaint double-digit comps. All of our top-40 markets acquaint absolute comps and 98% of all of our markets were positive. So, the backbone in the business was broad-based geographically. This was additionally accurate beyond our affairs categories. Every one of our affairs departments exceeded plan for the quarter. As Craig will detail, we saw accurate backbone in our bounce melancholia categories.
As you know, we had a weaker than accepted affairs division for alfresco categories in the aboriginal division because of the backward spring, but that was counterbalanced by backbone in this division as the acclimate angry added favorable. The bulk categories in our abundance remained able and we were admiring with the advance in our apparatus business area we accept added key brands and with the advance in the bulk categories like bendable flooring, vanities and appropriate adjustment cabinets.
With account to our chump base, we connected to see backbone in our pro-business. In the aboriginal quarter, our pro chump advance outpaced our chump growth. For the added quarter, the advance ante were comparable. This reflects beneath of arrest in pro than a auto in our chump sales. And as in the aboriginal quarter, our beyond pros were our fastest growing chump group, but we additionally saw connected advance in our abate lower spending pros.
On the all-embracing front, our Mexican business absolutely comped for the division authoritative it 39 abode in a row of absolute comps. And, our Canadian business, had absolute comps for the seventh division in a row. This division activated our adeptness to acknowledge and be adjustable cogent outperformance to plan acutely presents some absorbing operational and affairs challenges.
On the operational front, Marvin and his aggregation were able to acclimatize abundance staffing and handle abrupt aggregate and transaction advance while advancement chump achievement levels. Earlier in the year, Marvin alien activity Simple into abundance operations, badly abbreviation the authoritative tasking aural the stores. This played an important role in absolution up our abundance administration to acknowledge to afflicted circumstances.
On the affairs side, abounding of the improvements that Craig, our merchants, Mark Holifield and accumulation alternation aggregation accept fabricated in our forecasting and bushing systems that helped business acknowledge to and antithesis from sales pipes while befitting account beneath control.
On commutual retail, we are at the point area about one out of every three online orders are completed in the abundance either through Buy Online Auto in Store, or buy online address to store. This is important to us, because we accept our added than 2,000 abundance locations throughout North America are admired accessibility for barter and can and should be a aggressive advantage for us. Of advance barter accept the befalling to buy added items aback they appear into our abundance and acknowledgment or auto a artefact as today one out of bristles barter do.
We are additionally admiring with the improvements we are authoritative to the chump acquaintance in our casework business as we advance new activity and advice accoutrement online. In the added quarter, we connected the rollout of a functionality we alarm MyInstall, that will accommodate customer-specific accession information, activating tracking to accumulate them abreast on the cachet of the installation, e-mail notifications for accessories and a point of acquaintance to action adjustment changes and alike. This provides both, a bigger chump acquaintance and a bigger foundation for us to administer the business that is growing at a double-digit pace.
As we attending appear the aback bisected of the year, accord GDP anticipation abide to alarm for alone bashful growth. Apartment abstracts about are encouraged, clandestine anchored residential advance or PFRI as a percent of GDP bigger to 3.1% in the added quarter, but it's account canonizing that above-mentioned to the apartment crash, this would accept been beneath the antecedent 60-year low for PFRI.
As Carol will detail, we are adopting our sales and antithesis advice for the year. The apartment accretion should be a absolute for our market, but we accept difficult sales comparisons in the aback bisected of the year as we ceremony blow contest from 2012 and 2011, and actual able ceremony seasons in both of those years.
Let me abutting by thanking our assembly for their adamantine assignment and dedication. It is accessible to allocution about a adjustable business archetypal but the beheading of that requires bodies accommodating to acclimatize to afflicted affairs and accord with business challenges while putting the chump first. Our assembly did that. Based on this facts after-effects 100% of our U.S. food able for Success Sharing, our profit-sharing affairs for our alternate assembly and we will accept our accomplished anytime Success Sharing payout. We are actual appreciative of that result.
With that let me about-face the alarm over to Craig.
Craig Menear
Thanks, Frank, and acceptable morning, everyone. We are admiring with our achievement in the added quarter, announcement absolute comps in all departments. There were four key factors that collection our performance, able summer events, a convalescent melancholia business, article aggrandizement and backbone beyond the butt of the store. The departments that had double-digit absolute comps were kitchens, calm garden, lumber, alfresco garden, lighting, tools, electrical and flooring. Bath, plumbing, decor, architecture materials, paint, accouterments and millwork performed absolutely but were beneath the aggregation average.
Our melancholia business exceeded our plan, as Frank assuredly kicked into accessory in the added quarter. We were able to antithesis all the absent sales we projected from exoteric activity categories in the aboriginal division and again some. In calm and alfresco garden, our added division success resulted in absolute comps in both departments for the aboriginal bisected of the year.
The bulk of the abundance delivered solid sales advance throughout the added quarter. In aliment and adjustment categories, we saw connected atone achievement in ablaze bulbs, base devices, cleaning, accouterments repair, fasteners, builder’s hardware, barricade and adhesives. We additionally saw absorption in adornment categories area comps aloft the aggregation boilerplate in appropriate adjustment carpets, appropriate adjustment cabinets, attic asphalt and lighting as able-bodied as able comps in faucets.
Our abundance assembly did a abundant job active our summer contest and creating an excitement. Our Memorial Day, Father's Day and Fourth of July appropriate buys and abundant ethics were able-bodied accustomed by our barter and collection double-digit comps in categories like accessories and benumbed mowers. Our after-effects were accomplished through a accommodating accomplishment amid our accumulation chain, our merchants, our food and our vendors. The investments we accept fabricated over the accomplished several years gave us the adaptability and adequacy to acknowledge bound and accommodated spikes in demand.
Total atone affairs rebounded from the aboriginal division and grew by 5.7% for the added division apprenticed by cartage accompanying to our melancholia business. Affairs for tickets beneath $50, apery about 20% of U.S. sales, were up 3.8% for the added quarter, principally due to our garden business. Affairs for tickets over $900 additionally apery about 20% of our U.S. sales were up 15.5% in the added division apprenticed by the backbone in appliances, benumbed mowers, attic as able-bodied as connected advance from our pro business.
Average admission added 4.3% in the added quarter. Our boilerplate admission access was impacted by article bulk aggrandizement mainly from barge and chestnut which contributed about 70 base credibility to comp.
As Frank mentioned, we had one of the best abode in our contempo history. As we attending advanced to the aback bisected of the year, we are bulging solid sales advance but we do accept several factors to overcome. First, we will face boxy sales comparisons consistent from impacts of after years of autumn storms. Second, article aggrandizement is on clue to no best be tailwind as barge and chestnut prices accept amorphous to moderate. Third, we accept began to the lap accomplished acknowledgment to our rollout of our broadcast apparatus business. As we get to the fourth quarter, the ceremony arcade season, would be a anniversary beneath due to the date on which Thanksgiving avalanche this year.
Now let me allocution accurately about the third quarter. We abide to focus on addition as a key allotment our administration strategy. In food now, Behr Premium DeckOver copse and accurate coatings brings new activity to old copse and accurate surfaces. This 100% acrylic blueprint accessible in 54 colors conceals splinters and cracks and creates a blooper aggressive finish.
We abide to be avant-garde in lighting technology. As an example, we are introducing an LED 90-watt agnate brighten from Cree, now giving us a abounding ambit of array for the top-three best accepted bulbs at market-leading values.
For our pro customers, we are introducing DAP SMARTBOND adhering cream gel that is faster and easier to use than acceptable armament adhesives allowance our pro barter to be added efficient. One armament of SMARTBOND provides eight times the advantage of acceptable adhesives. Also, new to homedepot.com for our pro customers, we are alms a band of absolutely anchored animate cabinets from Husky, which affection a array of aperture and autogenous configurations. This allows the chump to adapt their cabinets absolutely the way they want.
For our Labor Day and contest we accept an all-encompassing agenda of abundant ethics and appropriate buys. These contest forth with our above beheading in-store will accomplish a lot of action in the third quarter.
With that, I would like to about-face the alarm over to Carol.
Carol Tome
Thank you, Craig. Hello, everyone. In the quarter, sales were $22.5 billion. On a like-for-like base comps or same-store sales were absolute 10.7% for the division with absolute comps of 10.2% in May, 11.5% in June and 10.5% in July. Comps for US food were absolute 11.4% for the division with absolute comps of 11.5% in May, 11.7% in June and 11% in July.
Total sales grew 9.5% from aftermost year absorption the appulse of the agenda shift. As you will recall, budgetary 2012 had a 53 rd week, which confused our budgetary 2013 calendar. By starting budgetary 2013, one anniversary after than aftermost year, we had one beneath anniversary of bounce sales in the added division aback compared to the aforementioned aeon in 2012, which abnormally impacted absolute sales advance by about $249 actor or 120 base points.
As Frank and Craig mentioned, our added division sales achievement exceeded our expectations due in allotment to able appeal for accessories and accretion in our garden department. Further, sales accompanying to blow Sandy were about $47 actor in the added quarter. We apprehend to see some account from storm accompanying sales in the added bisected of the year, but the year-over-year account will abate as we activate lapping blow sales in the third quarter.
Our absolute aggregation gross allowance was 34.3% for the quarter, an access of 12 base credibility from aftermost year of which 13 base credibility came from our US business. We saw a ample bulk of movement in our gross allowance during the division as explained by the following. First, we accomplished about 22 base credibility of gross allowance amplification due to the appulse of gross allowance accretive businesses that were acquired in the aback bisected of aftermost year.
Second, we had 13 base credibility of gross allowance amplification due to amount advantage aural our accumulation chain. Third, our compress efforts connected to accretion absorption as we accomplished 10 base credibility of gross allowance amplification due to bigger compress achievement than one year ago. Finally, we accomplished about 32 base credibility of gross allowance abbreviating due primarily to a change in mix of articles sold.
To put this abbreviating into perspective, over 50% or 19 base credibility came from a college assimilation of apparatus sales than one year ago. For the aboriginal six months of the year, our gross allowance grew by 16 base points. As we attending to the aftermost six months of the year, we would apprehend our gross allowance amplification to be about bisected of what we accomplished in the aboriginal six months, so for the year apprehend abstinent gross allowance expansion.
In the added quarter, operating amount as a percent of sales decreased by 79 base credibility to 20.9%. In the added quarter, our operating costs grew at 58% of our sales growth, bigger than our expectations for the division due to able sales performance. For the year, we are assured our costs to abound at about 30% of our sales advance on a 52-week basis.
But note, like what we accomplished in the added quarter, there will be annual baloney to that aphorism of thumb, accustomed year-over-year comparisons and assertive amount items like Success Sharing. For example, in the added division of 2013, over 300 food were in college Success Sharing payout tiers than one year ago. This acquired 14 base credibility of amount deleverage in the quarter.
Interest and added amount for the added division was $172 million, a 13.9% access from aftermost year, absorption added absorption amount associated with $2 billion of incremental debt issued in April of this year. Our assets tax accouterment amount was 36.9% in the added division and we apprehend our assets tax amount to be about 37% for the year. Adulterated antithesis per allotment for the added division were $1.24, an access of 22.8% from aftermost year.
Moving to our operational metrics. During the added quarter, we opened one new abundance in Puerto Rico for an catastrophe abundance adding of 2,258. At the end of the added quarter, affairs aboveboard footage was 235 actor and absolute sales per aboveboard bottom were $383.
Now axis to the antithesis sheet. At the end of the quarter, account was $11.1 billion and account turns were 4.9 times, up from 4.7 times aftermost year. We concluded the division with $42.2 billion in assets including $3.4 billion in cash.
Moving to our allotment repurchase program. In the added quarter, we accustomed 2.1 actor allotment accompanying to the accurate up of an accelerated allotment repurchase or ASR affairs we accomplished in the aboriginal quarter. Additionally, in the added division we repurchased $2.15 billion or 25.4 actor of our outstanding share. This included 5.8 actor shares repurchased in the accessible bazaar and 19.6 actor shares repurchased through an ASR program. For the shares repurchased beneath the added division ASR program, this is an antecedent adding and we apprehend to accept an added 2.4 actor shares in August.
Computed on the boilerplate of alpha and catastrophe abiding debt and disinterestedness for the abaft four quarters, acknowledgment on invested basic was 19.1%, 310 base credibility college than the added division of budgetary 2012. We had solid aboriginal half, as apparent by able achievement beyond our store. As we attending to the aback half, we accept we will abide to address solid sales assets and that sales will be college than we originally planned.
So today, we are appropriation our 2013 sales and EPS advance advice absorption our aboriginal bisected achievement and our anticipation for the added bisected of the year. We now apprehend budgetary 2013 sales to access by about 4.5% with absolute comps on a 52 anniversary like-for-like base of about 6%. We apprehend the amount of atone advance for the aback bisected of the year to be about 50% of the amount of atone advance we accept accomplished in the aboriginal bisected of the year. Our added bisected anticipation is based on our appearance that we are in the aboriginal stages of apartment recovery, that GDP will abound beneath than 2% for the year and reflects aback bisected challenges that Craig detailed.
Finally, we, like others, are watching the absorption amount ambiance as chump spending and mortgage availability could be abnormally impacted if absorption ante were to rise. In the absence of ascent absorption amount however, if there is a bent in our added bisected anticipation today we would say there is added upside befalling than downside risk. For antithesis per share, bethink that we adviser off of GAAP. We now activity budgetary 2013 adulterated antithesis per allotment to access about 20% to $3.60. This antithesis per allotment advice includes the $4.3 billion of allotment repurchases completed in the aboriginal bisected of the year and our absorbed to repurchase an added $2.2 billion in shares during the added bisected of the year.
So we acknowledge you for your accord in today's alarm and Marquita, we are now accessible for questions.
Earnings Alarm Allotment 2:
