Home Depot 4Q14 Earnings Call Notes

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Each week I read dozens of transcripts from earnings calls and presentations as part of my investment process. Below are some of the most important quotes about the economy and industry trends from the transcripts that I read this week. Full notes can be found here.

Big comps

“Sales for the fourth quarter were $19.2 billion, up 8.3% from last year. Comp sales were positive 7.9% and our diluted earnings per share were $1.05. Our U.S. stores had a positive comp of 8.9%.”

3.3-4.5% comp growth this year

Based on this outlook, we expect comp growth in the U.S. of approximately 4.5%. As Carol will detail, we expect similar growth in our international businesses but currency headwinds could result in lower total company growth; therefore, we expect total company comp growth of approximately 3.3 to 4.5% and corresponded diluted earnings per share of $5.11 to $5.17.”

Small ticket vs. large ticket breakdown

“Transactions per ticket under $50, representing approximately 20% of our U.S. sales, were up 3.1% for the fourth quarter. Transactions per ticket over $900, also representing approximately 20% of our U.S. sales, were up 10.3% in the fourth quarter. The drivers behind the increase in big ticket purchases were appliances, water heaters, and several installation service categories such as windows, roofing, and sheds”

Q: are you guys planning on raising wages

“Chris, we have prided ourselves on paying above the market as a company for a number of years. That’s our intent going forward. We continually look at the market on a market-by-market basis and make adjustments where it’s appropriate.”

Can’t say that gasoline is driving increased sales. We think it’s more likely because we’re awesome

“as it relates to the gasoline, we’ve looked hard over the years to try to look at the correlation gas prices to sales, and we have not been able to draw that correlation. Clearly it is a positive thing when a customer has more disposable income in their pocket, so even though we can’t draw that correlation, that is a good news thing for us. I’d also say that we were very pleased with the level of transaction growth that we had in the quarter. Matter of fact, it was above what we had anticipated. I think in large part that’s a strong response to the great programs that Ted called out in terms of the events that we put together and just awesome execution by our store associates as well.’

Q what was driving sales?

Pro customer was strong

“On our pro customer for known data sets, and this would be looking at private label credit card sales for our pros as well as pros who are managed accounts, so our growth in those pros, that was above the company average, and that then is supported by the merchandise strength that Ted called out in his comments.”

Housing was ok, not that great

“On the housing front, the data is really pretty interesting. Relative to what we thought would happen, home prices came in the year, I think around 4%. We thought they’d be in the 5 or 6% area, so they were up, not as much as we thought, but pretty much in line with what we thought. Turnover actually was down slightly, which was really interesting. We thought we’d get a boost from turnover in 2014, and actually it was down slightly”

Maybe it was lagged effect from 2013 home price appreciation?

“here is this research that was done 10 years ago about a wealth effect on home price appreciation and how it might be a six to nine to 12-month lag. If that were to be true, then you could attribute some of the benefit in the fourth quarter to the home price appreciation that occurred in 2013.’

There are a lot of homes that need remodeling

‘There have been 3.6 million single family homes added to the rental stock between 2006 and 2013. That 3.6 million homes, they are under-maintained. As those homes are moving out of rental into home ownership, they badly need remodels, and in fact the Harvard Joint Center for Housing Studies said that 2014 was the first year since 2005 where remodel dollars are up.’

Mortgage lending still very tight

“As we think about the recovery and the steepness of the recovery, it could be accelerated if mortgage underwriting standards were to be loosened up. We’ve looked at surveys of bankers, and there has been a small, small percentage of them who have said they are loosening up on underwriting standards, but it’s still very tight.’

Third brutal end to winter in a row

“Yeah, this is our third now brutal end to the winter, and in each of the prior two we had excellent recovery. It’s still very early this year.”