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The Home Depot Inc Earnings - Analysis & Highlights for Q4 2024
Overview
PositivesNegativesOutlook
- The company is excited about all its growth opportunities and feels confident that the investments it is making will set it up for continued success.
- The company saw broad-based engagement across its geographies in Q4, with 15 of 19 US regions delivering positive comps. Both Canada and Mexico reported positive comps in local currency.
- The company is expanding its footprint by investing in new stores in areas that have experienced population growth or where it makes sense to relieve pressure on existing high-volume stores. In fiscal 2024, it opened 12 new stores, 10 in the US, and 2 in Mexico.
- The company's delivery speeds are the fastest they've ever been, and customers are increasing their spend.
- The company is still seeing pressure from SRS mix.
- The company is not expecting a meaningful increase of the 40-year low in turnover.
- The company is continuing to see softer engagement in large discretionary projects where customers typically use financing to fund the project such as kitchen and bath remodels.
- The company expects continued pressure on larger remodeling projects.
- Gross margin is expected to be approximately 33.4%, flat compared to fiscal 2024.
- Operating margin is expected to be approximately 13%, and adjusted operating margin of approximately 13.4%.
- SRS is expected to deliver mid-single-digit organic growth.
- The company expects continued pressure on larger remodeling projects.
- The company expects a base case of 3% to 4% top line growth once the market normalizes.
Q&A Highlights from The Home Depot Inc Earnings Call Q4 2024
- Analyst asked about the impact of stronger comps on the margin, specifically if each point of improvement flows through at a 10-point leverage.
- Richard V. McPhail stated that the 10 basis points is a good rough estimate of leverage from that point, and that the company does not expect a significant change in margin based on stronger comps.
- Richard V. McPhail stated that the 10 basis points is a good rough estimate of leverage from that point, and that the company does not expect a significant change in margin based on stronger comps.
- Analyst asked about the monthly US comps adjusting for the holiday shift, specifically regarding the impact of the consumer.
- Richard V. McPhail explained that the monthly progression was influenced by holiday shifts, with December benefiting and November and January suffering, but that weather was also a significant factor, with two years of tough January weather. The company does not read too much into the exit run rate due to the impact of weather, but acknowledges that it had an impact on the results.
- Richard V. McPhail explained that the monthly progression was influenced by holiday shifts, with December benefiting and November and January suffering, but that weather was also a significant factor, with two years of tough January weather. The company does not read too much into the exit run rate due to the impact of weather, but acknowledges that it had an impact on the results.
- Analyst asked about the market share assumption embedded in The Home Depot's 2025 outlook.
- The company's market share assumption for 2025 is based on a flat market, with expectations of slight growth. The company's plus 1% comp growth is a continuation of underlying strength in the business and initiatives that have resulted in incremental sales. The company's market share gains are driven by capabilities such as interconnected and Pro ecosystem, as well as investments in SRS, which are taking share in their three verticals.
- The company's market share assumption for 2025 is based on a flat market, with expectations of slight growth. The company's plus 1% comp growth is a continuation of underlying strength in the business and initiatives that have resulted in incremental sales. The company's market share gains are driven by capabilities such as interconnected and Pro ecosystem, as well as investments in SRS, which are taking share in their three verticals.
- Analyst asked about the impact of weather on January's results and whether there is evidence of any impact on the business.
- The company has not seen any specific evidence of the factors mentioned, including tax policy, tariffs, immigration, and government efficiency, having an impact on the business. The company has a diversification strategy to manage through any tariff environment and believes it has the best team to manage through any tariff environment. The company also believes that there is a shortage of skilled-trades folks in the country and has been working to address this issue.
- The company has not seen any specific evidence of the factors mentioned, including tax policy, tariffs, immigration, and government efficiency, having an impact on the business. The company has a diversification strategy to manage through any tariff environment and believes it has the best team to manage through any tariff environment. The company also believes that there is a shortage of skilled-trades folks in the country and has been working to address this issue.
- Analyst asked about how The Home Depot measures the success of its initiatives in the 17 markets, and what kind of ramp they expect in those markets in 2025 as they continue to phase-in order management, credit expansion, and other capabilities.
- The company measures the success of its initiatives in the 17 markets by comparing the incremental sales in those markets to what they see in the top 40 markets. They have generated $1 billion in annualized sales in those 17 markets, which is an impressive growth rate. In 2025, they plan to focus on maturing the existing capabilities and rolling out new capabilities, such as delivery and expanding their sales force. They also plan to continue to grow in 2025 by driving cross-selling opportunities across the SRS portfolio and expanding their FDCs.
- The company measures the success of its initiatives in the 17 markets by comparing the incremental sales in those markets to what they see in the top 40 markets. They have generated $1 billion in annualized sales in those 17 markets, which is an impressive growth rate. In 2025, they plan to focus on maturing the existing capabilities and rolling out new capabilities, such as delivery and expanding their sales force. They also plan to continue to grow in 2025 by driving cross-selling opportunities across the SRS portfolio and expanding their FDCs.
- Analyst asked about the toughest piece of the ecosystem that The Home Depot has had to learn and what their toughest hurdle has been.
- The toughest piece of the ecosystem is the need to balance speed and outcome while also focusing on perfecting the capabilities within the market. The company wants to avoid creating failure points by rushing into new relationships with their Pros. They saw some great progress in 2024, and they are excited about what they will do in 2025 and beyond.
- The toughest piece of the ecosystem is the need to balance speed and outcome while also focusing on perfecting the capabilities within the market. The company wants to avoid creating failure points by rushing into new relationships with their Pros. They saw some great progress in 2024, and they are excited about what they will do in 2025 and beyond.
- Analyst asked about the impact of SRS on The Home Depot's bottom line for 2025.
- The company reported that SRS has contributed to both the top and bottom line, and is expected to be cash accretive within the first year of ownership. The company also mentioned that the pro forma impact of SRS is about a 40-basis-point full-year mix impact on The Home Depot, but that's a mix effect and they are happy with that.
- The company reported that SRS has contributed to both the top and bottom line, and is expected to be cash accretive within the first year of ownership. The company also mentioned that the pro forma impact of SRS is about a 40-basis-point full-year mix impact on The Home Depot, but that's a mix effect and they are happy with that.
- Analyst asked about the potential for a return to a normal environment for pricing and how tariffs fit into that view.
- The company stated that the pricing environment is rational and promotional activity is similar to pre-COVID levels. They also mentioned that they have been through this before and will continue to assess how tariffs impact their business going forward. They have diversified their sourcing for several years and are well positioned to navigate the environment going forward.
- The company stated that the pricing environment is rational and promotional activity is similar to pre-COVID levels. They also mentioned that they have been through this before and will continue to assess how tariffs impact their business going forward. They have diversified their sourcing for several years and are well positioned to navigate the environment going forward.
- Analyst asked about the year-over-year comparison of SRS's impact on operating margin.
- The company explained that the 40-basis-point decrease in adjusted operating margin is due to a natural deleverage of 20 basis points, a 15-basis-point impact of the inclusion of 12 months of ownership of SRS compared to 7 months, and a 5-basis-point comparison of a 53-week year. They also mentioned that they are leaning into investments and paying for them through productivity.
- The company explained that the 40-basis-point decrease in adjusted operating margin is due to a natural deleverage of 20 basis points, a 15-basis-point impact of the inclusion of 12 months of ownership of SRS compared to 7 months, and a 5-basis-point comparison of a 53-week year. They also mentioned that they are leaning into investments and paying for them through productivity.
- Analyst asked about the company's plan for sales growth and expense management as the market normalizes.
- The company expects a base case of 3-4% top-line growth, with flat gross margin and operating expense leverage, leading to mid to high single-digit EPS growth once the market normalizes.
- The company expects a base case of 3-4% top-line growth, with flat gross margin and operating expense leverage, leading to mid to high single-digit EPS growth once the market normalizes.
- Analyst asked about the impact of SRS dilution on core Home Depot and the offsets that would help mitigate it.
- The company has seen benefits from supply chain productivity and improvements in shrink, driven by the outstanding supply chain and merchandising teams and the store operations team. These benefits are expected to continue into 2025, offsetting the SRS dilution.
- The company has seen benefits from supply chain productivity and improvements in shrink, driven by the outstanding supply chain and merchandising teams and the store operations team. These benefits are expected to continue into 2025, offsetting the SRS dilution.
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