- Revenue: $43.2 billion, an increase of 0.6% from the same period last year.
- Comp Sales: Declined 3.3% from the same period last year; US stores had negative comps of 3.6%.
- Adjusted Diluted Earnings Per Share: $4.67, compared to $4.68 in the second quarter last year.
- Gross Margin: Approximately 33.4%, an increase of 40 basis points from the second quarter last year.
- Operating Margin: 15.1%, compared to 15.4% in the second quarter of 2023.
- Adjusted Operating Margin: 15.3%, compared to 15.5% in the second quarter of 2023.
- Interest and Other Expense: Increased by $61 million to $489 million.
- Effective Tax Rate: 24.5%, compared to 24.4% in the second quarter of fiscal 2023.
- Diluted Earnings Per Share: $4.60, a decrease of approximately 1% compared to the second quarter of 2023.
- Store Count: Opened three new stores, bringing the total to 2,340.
- Inventory: $23.1 billion, down approximately $200 million compared to the second quarter of 2023.
- Inventory Turns: 4.9 times, up from 4.4 times last year.
- Capital Expenditures: Approximately $720 million.
- Dividends Paid: Approximately $2.2 billion.
- Return on Invested Capital: Approximately 31.9%, down from 41.5% in the second quarter of fiscal 2023.
- Updated Fiscal 2024 Guidance: Total sales growth between 2.5% and 3.5%, including the SRS acquisition and the 53rd week.
- Comparable Sales: Expected to decline between negative 3% and negative 4% for the 52-week period.
- New Stores: Expected to open approximately 12 new stores.
- Gross Margin Guidance: Expected to be approximately 33.5%.
- Operating Margin Guidance: Expected to be between 13.5% and 13.6%; adjusted operating margin between 13.8% and 13.9%.
- Effective Tax Rate Guidance: Targeted at approximately 24%.
- Net Interest Expense Guidance: Expected to be approximately $2.2 billion.
- Diluted Earnings Per Share Guidance: Expected to decline between negative 2% and negative 4% compared to fiscal 2023, with the extra week contributing approximately $0.30.
- Adjusted Diluted Earnings Per Share Guidance: Expected to decline between negative 1% and negative 3% compared to fiscal 2023, with the extra week contributing approximately $0.30.
Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total sales for the second quarter were $43.2 billion, an increase of 0.6% from the same period last year.
- The recent acquisition of SRS contributed $1.3 billion to the total sales, showing positive integration.
- Gross margin increased by 40 basis points to 33.4%, driven by lower transportation costs and reduced shrink.
- The company continues to invest in its pro ecosystem, enhancing tools and capabilities for better customer service.
- Online sales leveraging digital platforms increased approximately 4% compared to the second quarter of last year.
Negative Points
- Comparable sales declined 3.3% from the same period last year, with US stores showing a negative 3.6% comp.
- Higher interest rates and macroeconomic uncertainty pressured consumer demand, leading to weaker spend on home improvement projects.
- The company is now guiding to a comp sales decline of approximately 3% to 4% for fiscal 2024.
- Operating margin for the second quarter was 15.1%, down from 15.4% in the second quarter of 2023.
- Big ticket comp transactions over $1,000 were down 5.8% compared to the second quarter of last year, indicating softer engagement in larger discretionary projects.
Q & A Highlights
Q: Can you provide examples of the incremental hesitancy on consumer spending patterns?
A: Edward Decker, Chairman of the Board, President, Chief Executive Officer: The change we saw this quarter was further pressure in larger projects, particularly in building materials and lumber categories tied to construction. This reflects broader macroeconomic concerns, including political and geopolitical noise, unemployment, and inflation impacting disposable income.
Q: How is Home Depot's HD Supply performing compared to core Home Depot retail and SRS?
A: Richard McPhail, Chief Financial Officer, Executive Vice President: HD Supply has had an exceptional track record, generating positive sales growth in the second quarter. SRS, which we acquired recently, grew in the high single digits in the first half of the year, demonstrating strong performance in roofing, pool, and landscape verticals.
Q: What is the impact of the 30-year fixed mortgage rate on Home Depot's business?
A: Edward Decker, Chairman of the Board, President, Chief Executive Officer: While it's hard to pinpoint a specific rate, we saw increased housing activity when rates dropped below 6.5% last year. However, broader economic and geopolitical concerns might still cause consumers to pause on larger projects.
Q: How does Home Depot plan to manage promotional activity in a prolonged downturn?
A: William Bastek, Executive Vice President - Merchandising: We will continue to drive innovation and create value for consumers without increasing promotional activity. We are in a rational environment and focus on everyday low prices rather than promotions.
Q: What are the capital spending needs for SRS to fund both greenfield and acquisition-related expansion?
A: Edward Decker, Chairman of the Board, President, Chief Executive Officer: SRS's greenfield operations are reasonably capital-light, with leased facilities and high-turning inventory. Acquisitions are quickly integrated into their ERP system, allowing for rapid profitability and earnings expansion.
Q: How should we think about the new high watermark for Home Depot's structural margins post-SRS acquisition?
A: Richard McPhail, Chief Financial Officer, Executive Vice President: SRS impacts our gross margin by about 35 basis points for 2024 and 45 basis points annually. Our operating margin is adjusted by about 40 basis points for the full year of 2024, reflecting a new mix of products.
Q: What is the current status of Home Depot's share repurchase program?
A: Richard McPhail, Chief Financial Officer, Executive Vice President: We plan to deleverage to a 2.0 times debt to EBITDA ratio before restarting share repurchases, likely taking us into 2026.
Q: How is Home Depot's pro customer segment performing compared to DIY?
A: Ann-Marie Campbell, Senior Executive Vice President: Pro customers outperformed DIY in the quarter. We continue to invest in our pro ecosystem, including distribution, supply chain capabilities, and expanding our outside sales team, which has shown positive growth in all invested markets.
Q: What drove the slowdown in comps from June to July?
A: William Bastek, Executive Vice President - Merchandising: The extreme heat in July shifted sales in weather-related categories like ACs and fans to June. Additionally, there were signs of general weakness, influencing our guidance range.
Q: What are the growth prospects for SRS in 2025?
A: Edward Decker, Chairman of the Board, President, Chief Executive Officer: SRS will continue its balanced growth strategy through comping existing branches, opening greenfield branches, and making infill acquisitions. We support this growth profile and expect continued robust performance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
