HOME DEPOT, INC. Q1 FY2025 earnings call

• Global sourcing: More than 50% of purchases are sourced in the U.S., aiming for no single country outside the U.S. to represent >10% of purchases in 12 months. - Associates: Invested in tools like Pocket Guide, certification for live good associates, and generative AI tools. - Merchandising: Six departments had positive comps; online sales grew 8%, Magic Apron tool engaged customers, and there was an exclusive agreement with BEHR. - Store count: Opened 3 new stores, total store count at 2,350. - Financials: Gross margin 33.8%, operating margin 12.9%, diluted earnings per share $3.45, adjusted diluted EPS $3.56.

Sales for the first quarter were $39.9 billion, up 9.4% from the same period last year. Comp sales declined 0.3% year-over-year, with U.S. comps increasing 0.2%. In local currency, Canada had comps below the company average while Mexico had positive comps. More than 50% of purchases are sourced in the U.S., and the goal is to have no single country outside the U.S. represent more than 10% of purchases in 12 months. Gross margin was 33.8%, operating margin 12.9%. Six merchandising departments posted positive comps. Online comp sales increased approximately 8%, and the Magic Apron tool saw strong customer engagement. Merchandise inventories were $25.8 billion, up ~$3.3 billion from the first quarter of 2024.

Reaffirmed fiscal 2025 guidance: Total sales growth expected to outpace sales comp with ~2.8% sales growth and ~1% comp sales growth. Gross margin expected to be ~33.4%, operating margin ~13%, adjusted operating margin ~13.4%. Effective tax rate targeted at ~24.5%, net interest expense ~$2.2 billion. Diluted EPS expected to decline ~3% compared to fiscal 2024, with adjusted diluted EPS essentially flat on a 52-week basis.

Unfavorable weather in February, unplanned pressure from foreign exchange rates, economic cycles, housing market uncertainties, and potential impact of tariffs on the global supply chain.

Q: How to characterize the overall demand environment and if sales trends in 1Q understate momentum?

A: Ted discussed macro trends, consumer confidence, but larger remodeling projects still muted due to interest rates and macro uncertainty.

Q: SG&A growth and how to think about it moving forward?

A: Richard explained SG&A variability due to legal settlement, SRS addition, and de-leverage from sales.

Q: Comp guidance and SRS catalyst?

A: Richard reaffirmed guidance, Ted talked about SRS performance exceeding expectations and its role in the pro ecosystem.

Q: Tariffs and pricing impact?

A: Billy discussed supply chain diversification and limited impact on pricing for customers.

Q: Deferred demand in home improvement and Home Depot's share opportunity?

A: Ted mentioned potential share opportunity as consumers tap equity and gain macro confidence.

Q: SRS inclusion in comp and inventory position?

A: Richard talked about SRS entering the comp base and inventory position being right where they want it.

Q: Pricing vs competitors and consumer spending?

A: Richard and Ted discussed Home Depot's price positioning and consumer resilience despite some market considerations.

Q: Consumer demand and May trends?

A: Billy and Richard talked about project sizes and positive performance in the first two weeks of May.

Q: Shrink and SRS margin?

A: Richard discussed shrink progress and SRS margin impact, noting SRS is a growth engine.

Q: Region performance and pricing?

A: Richard and Billy talked about regional weather impact and consistent pricing in the competitive environment