Home Depot 1Q15 Earnings Call Notes

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A more normal spring. Strength across the country

“We saw a more normal spring across much of the country in the first quarter. All three of our U.S. divisions posted mid-single-digit comps or higher, our Western division was our best performing division with strength in key markets, including San Francisco, Sacramento, Colorado and Seattle. All 19 of our U.S. regions saw positive comp growth in the quarter. Both tickets and transactions grew during the quarter with particular strength in transaction growth.’

GDP growth was slow but housing remains positive

“While it’s early in the year, our view of the macro environment has not changed much. The U.S. GDP growth was below consensus estimates for the first quarter, but housing data remains positive and supportive of the housing recovery, and the growth that we see in our business also supports the view of a continued recovery in the U.S. housing market.’

Plenty of strength in big ticket items

“I would say that we’re seeing really strength across many departments, water heaters, appliances, our tools, riding mowers, walks, all of our outdoor garden categories, grills, et cetera had just a terrific quarter and those wouldn’t be Pro-focused items.”

Have a customer with a higher average home price than the national average

“Since 2009 spending in high income households has grown faster than low income households, driven in part by higher end homes recovering faster than lower end homes, and when we say higher end homes, we are talking of homes of $200,000 and up. Interestingly as we look at our consumer base, over 50% of our customers have homes of $200,000 or more, and you compare that to the national average, which is more like 40%, so we think just the nature of our customer base is helping drive this big ticket growth.”

Interest rate increases shouldn’t have an effect on our business

“The analysis would suggest that interest rates, and these would be mortgage interest rates, could rise 200 basis points and the Affordability Index would still be north of 100%. So even in the face of potentially higher rates and who knows when that might occur, but even in the face of potentially higher rates, we don’t see any near-term pressure on our business. And in fact, to your point, that could suggest a little inflation in the economy and that would be a good thing.’

Q1 will be the easiest comp for the year

“We still expect the first quarter to be the best quarter and that the halves to be similar.”

Nearly 1/3 of 18-34 year olds live with parents

“it looks like there’ll be 1 million households formed this year, which should be awesome. In fact I’m always fascinated by this statistic. If you look at people between the ages 18 and 34, nearly a third of them are at home with their parents. And if they were all to leave their home nest, like my nephew just did, thank goodness, that’s 4 million households that would be created. So I’m just really excited about what the future may be for our business.”

Not forecasting an improvement in commodities

“we’re not forecasting an improvement against commodities, copper prices and lumber prices are down meaningfully on next year and we’re anticipating it staying as is.”

Inventory is light thanks to west coast ports

“the West Coast ports have been a very challenging situation for us. The team hI would say that’s a tough one to call out. There is the theory of the case that in some cases there was a delayed spend. Clearly during the economic downturn and people focused strictly on maintenance of their homes. If you recall our maintenance categories were strong throughout the economic downturn. And when a home moves to a positive growth in terms of value, what was once an expense now becomes potentially an investment.ere has done a great job in terms of working together to mitigate the issues there. Having said that, we have had negative impact on our in-stock, particularly for our direct import items, but we’ve also seen some hits to our fill rates from vendors, and that has led to lower in-stock than we would like to see. So our inventory probably is a little lower than we would like it to be given where it’s at” sv

No sign of impact on texas

We have 178 stores in the State of Texas. We’ve seen no visible impact whatsoever in that State at this point. Matter of fact all our major markets in that State posted mid-single-digit comps. It’s something that we’re keeping our eyes on very closely and we’ll adjust accordingly if need be, but have not seen it at this point.”

Can’t really explain why people are shifting dollars to home goods

“I would say that’s a tough one to call out. There is the theory of the case that in some cases there was a delayed spend. Clearly during the economic downturn and people focused strictly on maintenance of their homes. If you recall our maintenance categories were strong throughout the economic downturn. And when a home moves to a positive growth in terms of value, what was once an expense now becomes potentially an investment.’