Home Depot 2Q15 Earnings Call Notes

Online sales +25% led by BOPUS and BOSS

“‘We had another quarter of strong growth in our digital assets with dotcom sales growing approximately 25%, led by online orders picked up in the store through Buy Online, Pick Up In Store, BOPUS; and Buy Online, Ship to Store, BOSS. At the same time, our operations team remains focused on improving the interconnected customer experience in the store. And as a result, we saw another quarter of year-over-year improvement in customer satisfaction scores for our BOPUS and BOSS offerings in the second quarter.”

Increasing sales and EPS guidance

‘We’re pleased with the performance in the first half of the year, and while 2015 consensus U.S. GDP growth projections are moderate, housing data remains supportive of the continued growth in home improvement industry. As Carol will detail, we are increasing our sales and earnings per share guidance for the year to reflect the outperformance of the quarter and the expected benefit from the anticipated completion of the Interline acquisition in the third quarter.”

Weather impacts to outdoor categories

“Outdoor project categories like soils and mulch, live goods and fertilizers were pressured during the quarter specifically from weather that impacted certain areas of the country like the drought in California and record rainfall in parts of Texas and the Midwest.”

Sales per sqft were $420

“Total sales per square foot for the second quarter were $420, up 4.1% from last year.”

Continue to see positive signs in the housing market

“we continue to see positive signs in the housing market. Home prices continue to appreciate and housing turnover and household formation are now slightly ahead of the assumptions we use to build our plan.

See stores as extension of distribution capabilities

“in addition to the three direct fulfillment centers, we have 2,000 stores that are conveniently located, and we’re working on delivery capability from the stores. So we look at the stores to really be the expedited capability to put product in the hands of customers.”

Drought leading to change in merchandise in affected areas

“What we’re doing in the live goods category specific, we’ve definitely shifted the assortment into water-tolerant or drought-tolerant species, so a lot more cactus and succulents. We’re also diminishing the size of live goods in a number of stores and expanding pavers and the like, as we see people definitely taking grass, diminishing the size of their lawn, and putting in more pavers and succulents.”

People act differently when they see their home as an investment not an expense

“We get a little bit from the economy too. Home price appreciation continues to progress nicely, prices are up 4% and as we talked about, when consumers believe their home as an investment and not an expense, they spend differently and we’re seeing that spend pattern.”

Not seeing any regional differences that inform shape of housing recovery

“we’re not seeing any regional differences that really help us inform the shape of the housing recovery”

1.6m households were formed in 2Q

“1.6 million households were formed in the second quarter. This is something that we have been hoping for. Now, not all those households are going into single-family units. They’re going into rental units, but that’s okay because we can serve those rental units. It’s really interesting to note that of the 135 million housing units in the United States, 44 million of those are rental units; and of those, 13 million are single-family homes.”

We look at wage on a market by market basis

“We look at wage obviously on a market-by-market basis. We are constantly and have been for years adjusting based on the market dynamics. We’ve made thousands and thousands of adjustments this year, as we would in previous years. We pride ourselves on trying to make sure that we have compensation overall that is above market, and that’s something that we will continue to focus to do. But clearly, there are markets where we’ve had to make adjustments, and we’ve done so.”

Ad spend flat but shifting from print to digital

“So our ad spend is pretty flat year over year. And we have been for numerous years now in an effort to shift our spend to new mediums and platforms. As an example, if you step back, several years ago we had on average over 50 print pieces that hit the street in a year. I think this year we’ll do something like 11. So we’ve made a pretty hard shift to new platforms in the digital space.”