Home Depot 1Q16 Earnings Call Notes

The Home Depot (HD) Craig Menear on Q1 2016 Results

Housing data indicates continued tailwinds

” Though it is early in the year, our view of the macro environment remains consistent. We believe that housing data indicates continued tailwinds for our business.”

Response to question about weak consumer

“We see the consumer continuing to engage in big ticket sales with transactions above $900, growing at 9.5% in the quarter. So while our Pro business was strong, and we’re pleased to see that, we’re also very pleased to see the growth in our DIY business.”

Our research shows that millenials have the same aspirations but are acting with a six year delay

“We actually have done a fair amount of research here and it was part of our strategic planning last summer, where we had several groups of millennials work on what Home Depot looks like 8 to 10 years out as well. What our research tells us is that basically this is a delayed cycle, that the millennial generation has many of the same desires that generations prior to them have, we’ve seen as household formation goes up roughly a third or so of those formations are happening with millennials at the tail end of that age group. It appears there’s about a six year delayed cycle here. But our research indicates that in many ways they’ll act the same as previous generations.”

Ted Decker

Spring has not yet arrived in many of our markets

“While weather positively impacted our sales performance in the first quarter, spring has not yet arrived in many of our markets.”

Strength in pro heavy categories

“Pro heavy categories continue to show great strength, as we saw double-digit comps in fencing, pressure treated decking, boards, fasteners, doors and conduit. In addition, the core of the store continue to perform well and we saw strength in maintenance and repair categories across the country. Tool storage, commercial and industrial lighting, portable power, power tool accessories, hand tools and wiring devices had double digit comps in the quarter.”

Carol Tome

Home equity values have increased by 94% since 2011

“we’ve seen home equity values increase 94% since 2011. How is that possible? Because home prices are up 25% and people have been continuing to pay down our mortgages. So there’s a wealth affect that’s occurring with home owners. And this wealth effect as we’ve talked at length, if you feel like your home as an investment and no an expense you spend differently in your home, anything set in our big ticket categories.”

The average age of a new home buyer last year was 33

“Yeah, the average age of new home buyers last year was 33 years old, that’s the edge of the millennials. So that another proof of age that at some point they want to own a home.

Expecting 5% home price appreciation

“We factor that in to our longer term forecast, and now this year we believe home prices will be up around 5%. It’s important to note that if not fully recovered even with that 5% and it’s certainly different in different parts of the country. So if we take 5% this year and then we take next year maybe 3%, the year on after that, and so it continues to crack the point because it is just ongoing home price appreciation.”