Greetings, and welcome to The Home Depot third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Isabel Janci. Please go ahead. Thank you, Christine, and good morning, everyone. Welcome to Home Depot's third quarter 2022 earnings call. Joining us on our call today are Ted Decker, Chair, President, and CEO, Jeff Kinnaird, Executive Vice President of Merchandising, and Richard McPhail, Executive Vice President and Chief Financial Officer. Following our prepared remarks, the call will be open for questions. Questions will be limited to analysts and investors. As a reminder, please limit yourself to one question and one follow-up. If we are unable to get to your question during the call, please call our Investor Relations department at 770-384-2387. Before I turn the call over to Ted, let me remind you that today's press release and the presentations made by our executives include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the release and in our filings with the Securities and Exchange Commission. Today's presentations will also include certain non-GAAP measures. Reconciliation of these measures is provided on our website. Now, let me turn the call over to Ted. Thank you, Isabel, and good morning, everyone. We appreciate you joining us on our call this morning. Sales for the third quarter were $38.9 billion, up 5.6% from the same period last year. Comp sales are up 4.3% from the same period last year, and our U.S. stores had positive comps of 4.5%. Diluted earnings per share were $4.24 in the third quarter, compared to $3.92 in the third quarter of last year. From a geographical perspective, each of our 19 U.S. regions delivered positive comps versus last year, while Mexico posted comps above the company average and Canada below the company average, both in local currency. The team has done a fantastic job serving our customers while continuing to navigate global supply chain disruptions, inflation, and a tight labor market. This quarter also marked another active hurricane season. As they always do, our associates and suppliers did an incredible job supporting those in the path of both Hurricane Fiona and Hurricane Ian, and our thoughts continue to be with those impacted by these storms. Our results in the quarter reflect continued solid demand for home improvement projects. While we did see some deceleration in certain products and categories, as Jeff will detail, the project business remained strong across most of our departments. We also saw year-over-year growth with both our Pro and DIY customers in the quarter. While the business performed very well and our consumer remains resilient, we are navigating a unique environment. We can't predict how the evolving macroeconomic backdrop will impact our customer going forward. However, we continue to closely monitor elasticities and trends across our business and believe we have the tools, team, and the experience to effectively manage in any environment. Despite near-term uncertainties, we believe the long-term underpinnings of demand for home improvement remains strong, and we are well-positioned to leverage our distinct competitive advantages to capitalize on compelling growth opportunities in our space. We are pleased with the traction we are seeing in our interconnected business as we continue to build on our momentum with both our Pro and DIY customers. For example, as we add better functionality and capabilities in our Home Depot App, we see greater engagement. In fact, throughout the year, we have seen strong double-digit growth in monthly active users versus last year. The growth is attributable to several enhancements we have made, including an improved online experience for our Pro loyalty program, the seamless connectivity we've provided for our military program, and the launch of our new Store Mode feature, which makes navigating the store and interacting with products much easier. These enhancements translate to less friction of our customers as they navigate the digital world and connect to the physical world. We also remain focused on driving continuous improvement in productivity within the four walls of our store to enhance both the associate and customer experience. We are currently launching a new application on our in-store mobile devices called Sidekick, which is an in-aisle tasking tool designed to direct associates to the highest value tasks in real time. The tool will direct associates to key bays where on-shelf availability is low or outs exist. By simplifying our operations, we can generate productivity, enhance both the customer and associate experience. For the Pro customer, we remain focused on investing in an ecosystem of capabilities, including enhanced fulfillment, a more personalized online experience, as well as other business management tools to drive deeper engagement with these customers. While we are focused on removing friction from the shopping experience, we are also onboarding capabilities to help our Pros run their businesses more efficiently. Our Pros tell us that finding qualified skilled labor is a pain point in their business. To that end, we recently announced our Path to Pro platform, connecting skilled tradespeople with hiring trades professionals. This unique and proprietary platform is available at no cost to all Pro Xtra members. It already contains thousands of candidates, and Pros have begun posting their open jobs. Our team remains focused on what is most important, our associates and customers. Our merchants, store and net teams, supplier partners, and supply chain teams did an outstanding job delivering value and service to our customers throughout the quarter. I'd like to close by thanking them for their dedication and hard work. With that, let me turn the call over to Jeff. Thank you, Ted, and good morning, everyone. I wanna start by also thanking all of our associates and supplier partners for their ongoing commitment to serving our customers and communities. As you heard from Ted, during the third quarter, we continued to see solid demand for home improvement projects and strong execution from our teams and supplier partners. Turning to our comp performance during the third quarter, 11 of our 14 merchandising departments posted positive comps. Building materials, plumbing, lumber, millwork, paint, and hardware had comps above the company average. All other departments, with the exception of appliances, flooring, and indoor garden, were positive, but below the company average. During the third quarter, our comp average ticket increased 8.8% and comp transactions decreased 4.4%. The growth in our comp average ticket was driven primarily by inflation across our product categories, as well as demand for new and innovative products. Inflation from core commodity categories positively impacted our average ticket growth by approximately 200 basis points during the third quarter, driven by inflation in building materials, lumber, and copper. Big-ticket comp transactions, or those over $1,000, were up 10.1% compared to the third quarter of last year. We saw big-ticket strength across many Pro-heavy categories like fasteners, pipe and fittings, and gypsum. During the third quarter, both Pro and DIY sales growth were positive, with Pro outpacing DIY. We're encouraged by the continued momentum we are seeing with both our Pro and DIY customers. In addition, our Pros tell us their backlogs remain strong. During the quarter, our project business remained healthy. This can be seen in the double-digit comp performance of our building materials, plumbing, lumber, and millwork departments, as well as in other categories like fencing, siding, conduit boxes and fittings, tubs and showers, and cabinets. We're also encouraged by the momentum we continue to see with our larger Pro customers. These medium to large repair or remodel Pros continue to post strong double-digit comps. We believe we are building a unique, interconnected Pro ecosystem that will increase our ability to grow share in a $450 billion addressable Pro space. To serve the Pro, it's about removing friction through a multitude of enhanced product offerings and capabilities. We feel confident that the investments across our Pro ecosystem are resonating and that we continue to gain share with this important customer. As you know, we've been on a journey to remove friction from our interconnected shopping experience. A great example of this was our announcement in December of 2017 to own more of the appliance delivery end-to-end. In the third quarter, we achieved an important milestone. We now have 100% of our appliance delivery volume managed through our market delivery operations. This has significantly improved the customer experience. On-time and complete deliveries have increased meaningfully, and customer satisfaction metrics have increased by approximately six percentage points compared to the third quarter of last year. Turning to total company online sales. We are very pleased with the performance of our digital assets. Sales leveraging our digital platforms increased nearly 10% compared to the third quarter of last year. This was driven by our continued investments, which are resonating with our customers. For example, during the quarter, lead times improved across different fulfillment capabilities, which drove greater conversion. For those customers that chose to transact with us online during the third quarter, approximately 50% of our online orders were fulfilled through our stores, a testament to the power of our interconnected retail strategy. We're excited about the holiday season. During the third quarter, we hosted our Halloween event and could not be happier with the result. 2022 was a record sales year for our Halloween program, both in-store and online, as our customers continued to add to their collection with our unique and exclusive assortment. As we turn our attention to the fourth quarter, we intend to continue this momentum with our annual holiday, Black Friday, and gift center events. Our teams have sourced the most compelling artificial tree assortment we have ever had, which makes it easier for our customers to find the perfect tree for their holiday. In terms of our decorative holiday program, we couldn't be happier with our industry-leading assortment with extraordinary features and functionality that looks great and also reflects exceptional value. In our gift center, we continue to lean into brands that matter most to our customers with our assortment of Milwaukee, Ryobi, Makita, DeWalt, RIDGID, Husky, and more. Earlier this fall, we launched the next generation of the Milwaukee drill and drive M18 Fuel lineup, offering more power, runtime, and increased safety for our customers. In our gift center, we are featuring this innovation in combo kits with four tools and two tools. We have our exclusive RIDGID 4-tool 18-volt brushless combination kit with two free tools, all backed by our lifetime service agreement. In appliances, we have exciting offers on LG, Samsung, Bosch, Whirlpool, GE, and Frigidaire. We have multiple exclusive offers, including the LG side-by-side refrigerator with Craft Ice, a great innovation in ice making. As with prior years, we've extended these events over several weeks, and we believe we are well positioned with the right brands, the right inventory, and a great customer experience. With that, I'd like to turn the call over to Richard. Thank you, Jeff. Good morning, everyone. In the third quarter, total sales were $38.9 billion, an increase of $2.1 billion or 5.6% from last year. During the third quarter, our total company comps were positive 4.3%, with positive comps of 7.1% in August, 4.4% in September, and 2.1% in October. Comps in the U.S. were positive 4.5% for the quarter, with positive comps of 7.2% in August, 4.2% in September, and 2.5% in October. On a three-year basis, monthly comps were consistent across the quarter. In the third quarter, our gross margin was approximately 34%, a decrease of approximately 10 basis points from last year, primarily driven by supply chain investments. We continued to successfully offset significant transportation and product cost pressures while maintaining our position as a customer's advocate for value. During the third quarter, operating expense as a percent of sales decreased 18 basis points to 18.2%. Our operating expense performance was in line with our expectations, which reflected continued wage investments as well as planned investments designed to drive efficiency in our store environment. Our operating margin for the third quarter was 15.8% compared to 15.7% in the third quarter of 2021. Interest and other expense for the third quarter increased by $80 million to $406 million, due primarily to higher long-term debt levels than one year ago. In the third quarter, our effective tax rate was 24.4%, down from 24.5% in the third quarter of fiscal 2021. Our diluted earnings per share for the third quarter were $4.24, an increase of 8.2% compared to the third quarter of 2021. During the third quarter, we opened three new stores, one in the U.S. and two in Mexico, bringing our total store count to 2,319. Retail selling square footage was approximately 241 million sq ft. At the end of the third quarter, inventories were $25.7 billion, up $5.1 billion compared to the third quarter of 2021. Inventory turns were 4.3x, down from 5.4x last year. Our inventory growth primarily reflects product cost inflation and strategic decisions in response to continued global supply chain disruption. Turning to capital allocation. After investing in our business and paying our dividend, it is our intent to return excess cash to shareholders in the form of share repurchases. During the third quarter, we invested $770 million back into our business in the form of capital expenditures. During the quarter, we paid approximately $1.9 billion in dividends to our shareholders, and we returned approximately $1.2 billion to shareholders in the form of share repurchases. Computed on the average of beginning and ending long-term debt and equity for the trailing twelve months, return on invested capital was approximately 43.3%, down from 43.9% in the third quarter of fiscal 2021. Now I will comment on our guidance for fiscal 2022. As you heard from Ted, we are very pleased with the solid performance we saw during the third quarter. Today, we are reaffirming our guidance for 2022. We expect comp sales growth of approximately 3% for fiscal 2022. We expect comp sales to be positive for the fourth quarter. We expect our fiscal 2022 operating margin to be approximately 15.4% for the year. We expect mid-single-digit percentage growth in diluted earnings per share compared to fiscal 2021. As we've said throughout the year, we find ourselves in a unique environment with many crosscurrents. We're operating in a broad-based inflationary environment not seen in four decades while managing through constrained global supply chain conditions, all against a backdrop of monetary policy shifts intended to moderate demand. To date, our customer has proven resilient. We feel confident that we will continue to manage with flexibility through a dynamic environment while growing faster than our market and delivering exceptional shareholder value. Before opening the call for questions, we are pleased to announce that we will be holding an investor conference on June 13, 2023 in New York City. We will share more details in the near future, but for now, please hold the date. Thank you for your participation in today's call. Christine, we are now ready for questions. Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Thank you. Our first question comes from the line of Michael Lasser with UBS. Please proceed with your question. Good morning. Thanks a lot for taking my question. The sentiment and narrative around your stock is so heavily focused right now on factors that are out of The Home Depot's control, like the state of the housing market and its ultimate impact on home improvement demand. Can you help frame what is in your control? If home improvement demand, for example, was down 5% next year, is the state of your initiative such that The Home Depot could gain a couple of hundred basis points of market share, and in that environment, you'd only be down, call it 3%. If your comps were only down 3%, given the flexibility that you have with your cost structure, coupled with your current capitalization that affords you to buy back a lot of stocks, you could actually grow earnings in that sort of scenario. Hey, good morning, Michael. Thanks for the question. A lot of detail there that I won't get into specifics, but I assure you that, you know, we look forward to taking share in any environment. There is a lot of noise around housing and home improvement. You've heard some of this before, but if I can just step back a minute and lay out the environment the way we see it. I mean, we still feel very good, Michael, about our business. We just reported another strong quarter and reaffirmed our guidance for the year. Remember, we've grown this business $47 billion in the last two or three quarters a year. From our core customer, we think our customer is still healthy. I mean, our customer tends to have a good job, growing wages, strong balance sheets. They own their home and have seen increased home equity. However, as Richard said in his prepared notes, I mean, it is a unique environment, lots of cross-currents, inflation and rising interest rates, et cetera. Given all that, our customer has remained resilient and engaged. As we said, both our Pro and DIY customers grew again in this past quarter. Project demand, in particular, is very strong. Our Pro sales are strong, and our Pro intercepts with our customers indicate that their backlogs are still very healthy. Customers are still spending lots of time at home. We're not all back at work five days a week. These homes continue to age, and they're worth 40% more than they were pre-pandemic. Now, I'm sure we'll get into some housing questions, and housing values may go down a bit, but we're still gonna be up meaningfully on a two-year basis. We did see some deceleration in certain products and categories. Again, that's difficult to get at a root cause. Is it a consumer pulling back in general? Is there a reaction to price inflation? Do we have some pull forward in certain categories that people bought so much of during the pandemic? Or are they moving on to other projects? Our transactions have been stronger than initially thought with this inflation. I mean, that's why we have raised guidance throughout the year, is that the price sensitivity wasn't as strong as we thought it would be. However, our guidance implies that fourth quarter comps will be the lowest for the year, albeit positive, and we have tougher comps from Q4 last year. With all that as a backdrop, I mean, as I said in my comments, we believe we have the team, the strategy, the initiatives with each of our consumer and Pro that we'll continue to take share in any operating environment. While there may be some of these cross-currents in this next few quarters in housing, we still feel the backdrop of housing, the fundamental shortage of housing in this country and the aging of homes is incredibly strong for our space in the medium to long term. That's a very helpful framework. In light of some of the deceleration that you're seeing, one might assume that that might be a prelude to what could be a more pronounced deceleration into 2023, especially as some of the material benefit from inflation that The Home Depot has experienced this year fades. Is it best to recalibrate our expectations and think and model more about a negative comp in 2023 for The Home Depot, even if it's just slightly negative? Well, we'll talk about 2023 after our fourth quarter earnings call in February. You know, again, we remain incredibly bullish. There are certainly factors outside of our control. You know, are the Fed actions gonna ultimately take us to a recession? If so, how deep that might be? Those are things that you know, we're all wrestling with, and everyone has an opinion. We're focused on what we can control, rolling out our strategies, delighting our customers, and taking share in any environment. Thank you very much, and have a great holiday. Thank you. Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question. Good morning, everyone. Focusing on housing. Housing metrics are decelerating much quicker than your comps or your comp stacks. Is this just a lagged effect? I don't know if this lag is longer than other lags. Ted, you just made the case that maybe sales decouple from these metrics. I assume it's temporary because of home equity, and we're spending more time in our home or are you suggesting that maybe it's not temporary because we're spending more time in our home? Simeon, it's Richard. Good morning. Just to maybe sort of put some further points on Ted's backdrop. You know, a lot is made of home prices and home price appreciation, the change in home price appreciation, we think has always driven home improvement demand. We've held that view for a long time. What we also really ran into, even I'd call it the middle part of the last decade, was that as home prices began to call it become more steady, price discovery, in our view, became a little bit harder. The question has always been, number one, is there a lag to spending? Are you going to spend in that specific period when you know your home price has appreciated? Is there a halo effect that lags over multiple periods? Our hypothesis is, yes, that's what we saw in the last decade. I think that just sort of holds true from an intuitive perspective. I think there's another. There are so many points that are important, I think we are all somewhat anchored to what we observed in 2008 and 2009. Many of the folks on this call, in fact, almost all of us were here during 2008, 2009. You had a situation where 25% of homeowners were underwater on their mortgages. You had really a relationship that we saw in our comp sales driven by acceleration in foreclosures. It wasn't. We were not in a period of home price depreciation that you're talking about, single digits. We had a massive price correction in 2006-2008. There was price discovery every single day on the front of the newspaper and millions of forced sellers that were creating that price discovery. When I look at the situation now, as Ted said, we have home price appreciation of essentially 40% year-over-year, over the last three years. In fact, year-over-year, home prices are up 13%. Since December, home prices are up 8%. It is decelerating, but I think if you ask or you listen to most observers, I think most people are calling for, if there is a correction, a modest one. My question is. How will the price discovery occur? Second, is that price depreciation actually meaningful enough to change folks' spending behavior? Because as Ted said, if you're a homeowner, you've done quite well from a balance sheet perspective. You likely have a job. You likely have cash in the bank. We're seeing another just interesting dynamic where with mortgage rates increasing, our customer is becoming more and more likely to stay in place and begin a project, so improve in place. Just sort of going back to the health of the homeowner back in over a decade ago, 25% of mortgages were underwater back then. Let's look at the credit standing of the housing stock in the U.S. now. Of owner-occupied households, 40% are owned outright. No mortgage. Of those 60% that do have a mortgage, 90% of those mortgages are fixed-rate, 73% of those mortgages are fixed-rate below 4%. We are now seeing a dynamic of stay in place and improve your home. That's what our customers are telling us, and that's what the Pros are telling us their customers are telling them. That's helpful. A follow-up on another very easy to forecast variable: inflation. Can you frame maybe what percentage of your sales could be at risk from disinflation? Is it 100%, or it shouldn't be 100% because some parts of your product mix aren't gonna be vulnerable? Simeon, hey, it's Good morning. It's Jeff Kinnaird. We're watching inflation very carefully. We have seen some deceleration in inflation in the recent months, which is good for our consumers. Broadly, we are still experiencing some inflation in some specific categories. I'll call it the lumber market. We have seen a deflationary market in lumber over the recent weeks. In fact, we've seen a lot of stabilization in that industry versus the prior two years. I did call out an impact from inflation in lumber for the quarter that was more representative of early days in the quarter. We're looking at it carefully. We're managing category by category. We're working closely with our suppliers in terms of managing costs and cost components. We have a very good and deep understanding of virtually all cost components of all products that we sell. Again, we're managing it very closely. Thanks very much. Our next question comes from the line of Chris Horvers with JPMorgan. Please proceed with your question. Thanks. Good morning, everybody. Maybe to summarize your comments today, I guess it's that you are incrementally more cautious because you're seeing certain categories maybe become slower or more volatile, but it's not dramatic and it's more the uncertainty of what the Fed, you know, the Fed's rate raising is gonna affect the business in the future, potentially. Yeah, I think that's a fair representation, Chris. Okay. You know, so can you talk about some of the KPIs you're watching? You know, I guess, what categories specifically are concerning you? Are you seeing DIY trade down? Are you seeing maybe unit trends in the project business slowing? It seems like, you know, the commodity inflation is driving some of your best project categories. Are you seeing a more sort of volatility from the consumer, I guess, over the, you know, past couple months that is adding that element of caution? Well, I would say, you know, the healthiest thing we see, and as you can imagine, we look at, you know, every data set and by geography and category, et cetera, that the healthiest thing about the business is the project nature of the demand. You know, we are a project-oriented business. You know, all the categories that Jeff called out that is driving that project demand remains incredibly strong. We look at it with both our Pro customers, you know, household Pros versus consumers, and that project demand remains strong with each of the Pro and the consumer. You know, some of the caution is, and again, you know, was it pulled forward? Is it finally some price sensitivity on some of these, you know, whole good items? You know, we've talked about certain appliance categories or grills. You know, those definitely have come off the boil. You know, again, is it that everyone has purchased in the last three years a lot of those categories and they've moved into more project and home improvement? Or is there, you know, a reaction to inflation? That's what's a little harder to tease out. Here's a case in point. You look at our indoor garden business. Two big categories you might say are more discretionary, grills and patio. You know, grills, you know, was down, but patio, we had one of the strongest patio quarters that I can remember. There are definitely some mixed signals. It's definitely got our attention and that's why we're cautious. I guess just following up, you talked about consistent three-year trends over the month. You know, obviously October was an incredibly strong month last year. I guess, you know, was that just, you know, we've heard a lot about the consumer shopping early last year and the holiday season is normalizing. To what extent do you think maybe the election has had an impact on the business in November? And just overall, how are you thinking about, you know, the positioning today and then into the holiday season? This is Jeff Kinnaird. Look, you know, we see some normalization back to 2019 in terms of the consumer trend. In the last couple years, we've seen pull forward in concerns of supply chain-driven shortages across retail. We do see potentially just a return back to kind of a more normal holiday spend by the consumer. As I commented in our prepared remarks, we feel very good about our Black Friday, our gift center, our decorative holiday assortments, and we're excited about the overall Black Friday season. Just in case you don't have the numbers in front of you know, Chris, you called out monthly cadence. Really, our comps were consistent across the month. Not just a three-year, but also a two-year basis. Just keeping in mind that last year's comps in August, September, and October were 3.1%, 4.5%, and 9.9% sequentially. You know, if you look at it on a two- or three-year basis, maybe smoothing some of that out, you know, the one-year months don't tell you quite as much. Got it. That's very helpful. Thanks very much. Our next question comes from the line of Steven Zaccone with Citi. Please proceed with your question. Good morning. Thanks for taking my questions, guys. Congrats on the strong results. To follow up on Chris's commentary about the recent performance, has there been any impact from the hurricane recovery spend to call out maybe the end of the third quarter and thus far in 4Q? It was relatively minimal. We think we had about a $120 million impact from hurricanes this quarter. Keep in mind, we were overlapping a similar amount from last year. These hurricanes and storm impacts extend across quarters. You know, what we're more concerned about is the health and safety of our customers and our associates and our minds and hearts are certainly with them right now. Okay, thanks. A lot of discussion around the top-line outlook, given the housing uncertainty, but I wanted to focus on margin. You know, I know there's not a target in place on a multi-year basis. Can you help us think through the levers to protect margin rate if sales growth were to weaken in the future? I guess specific to gross margin, is there an opportunity for gross margin rate improvement as supply chain costs ease? We're managing margin closely, Steven. We look at it quarter-over-quarter. There's a lot of ins and outs when it comes to margin as we look forward. You know, look, I just add that we think we have the tools and the experience and the people to manage price and cost as well or better than anyone else here. We've proven that over the last three years. There's been immense disruption right in our value chain. Yeah, I think the proof is in the pudding when you look back at our history. Great. Thank you very much. Our next question comes from the line of Scot Ciccarelli with Truist. Please proceed with your question. Good morning, everyone. I think everyone here kind of understands there's some uncertainty around the broader home improvement environment, given what's happening with interest rates. How are you guys thinking about the growth potential, prospects of the large Pro business as we roll into 2023? Because you guys will obviously have a lot more infrastructure and more relationships built at that stage. Thanks for the question, Scot. I mean, we couldn't be more excited as we've identified a $450 billion addressable market and an understanding of what capabilities we need to deliver to get a larger share of wallet with that large Pro repair remodeler. I've been here, as you may know, over 22 years, and we've always known what we needed to do to capture our share of wallet with that Pro. What's so exciting is that Hector and his team right now are actually building out the capability set to get more share of wallet with that large Pro. As we build out these capabilities, introduce them to the customers, we're seeing the engagement and the incrementality of sales growth take off. Hector, if you give us a little more insight into what you're building, would be great. Yeah, Scott, just, we continue to be super excited about the response from our Pros as we continue to enable capabilities to remove friction from our ecosystem. I'm very excited about the expansion of our outside sales resources and the growth that those customers are driving. We're seeing those customers grow not just with direct sales with our outside sales associates, but they're also engaging more on our digital platform and engaging more in our stores for that on-plan purchase. As we continue to grow around other capabilities, whether it is in the B2B digital platform or in-store platform, we just continue to be super excited about the response of our Pros. We are just removing friction. We're removing friction from all the different channels, and our customers continue to engage with us more and more. Is there a way to potentially size or at least for us to, you know, conceptually think about kind of what the potential revenue ramp is as these capabilities get built out? You know, as Ted said, we're excited. One of the reasons we're so excited is because it's such a fragmented market of suppliers. So we just think the opportunity is exciting and tremendous, and part of the excitement is it's hard to size. I can say, I mean, we don't break out these numbers, but you know, each of Pro and Consumer grew again this quarter. You know, the Pro yet again grew meaningfully faster than the Consumer. Our large Pro, the ones who are engaging with what Hector and team are developing, are growing the fastest yet. Very helpful. Okay, thanks, guys. Our next question comes from the line of Chuck Grom with Gordon Haskett. Please proceed with your question. Hey, thanks. Good morning. Great quarter. Overall transactions down a little over 4%. I was wondering if you could unpack that for us across the Pro and DIY customer base. I don't know if we break that out, but the strongest again was the large Pro. Okay. All right. No follow-up. You know what, Chuck? I'd say, I mean, maybe a way to put it too is our Pros shop across our assortment, so you're gonna sort of see similar dynamics in, you know, ticket transaction across the business, generally speaking. As Ted said, the strength is with the Pro. Okay. Makes sense. Then on the cost pressure front, as costs start to ease, how do you think about the pricing environment? Do you think you and peers are likely to hold on to prices as costs start to moderate and you retain that margin as a result? Or are you likely to lower prices and try to maintain the same gross profit margin dollars? Chuck, we watch this very closely. You know, we are the customer's advocate for value, and we watch the market and our competitors very closely. I will say that there's been an enormous shift to trading up to more innovation and more innovative products. We see that in our tool category. We see that in the outdoor garden business. We could see it across multiple categories. We still see that willingness to trade up for great value and a great innovation. On the cost side, Chuck, it's definitely easing. You look at commodities in particular, commodities have been down six, seven months in a row. You know, lumber is obviously way down from peaking at nearly $1,500 to now under $500, from peak to current during this last three years. However, we still see inflation across the store. While some will be coming down in certain categories with costs and retails, our forecast at this point is that net inflationary cost pressures continue into 2023. Okay. Thank you. Our next question comes from the line of Brian Nagel with Oppenheimer. Please proceed with your question. Hi. Good morning. Nice quarter. Congrats. Thank you. My first question, I think I wanna ask that, Chuck's question maybe a little bit differently. But I mean, well, with regard to inflation, what we've seen now for a while is Home Depot's done a remarkable job of kind of strategically passing along inflation. Ted, you know, you've mentioned a few times now you're starting to see some inflationary pressures ease. Just the question I have is, you know, are you seeing or would you expect that as inflationary pressures ease, even if pricing doesn't necessarily go down, you see some type of elasticity in demand, meaning that unit demand would pick up in that type of environment? You know, it's a great question and you could say, "Hey, if elasticities weren't as, you know, sensitive on the up, would they also likely not be on the moderation," if you will. You know, it's to be determined. I think, you know, broadly, the price sensitivity wasn't as sharp as we expected the last two years. That's why, you know, we started each year with more or less a flat forecast expectation and have beaten that each of the past two years. On certain commodities, lumber, copper, wire, where we're pricing to market weekly, you see a much more classic reaction to price and unit productivity. With other categories, and I hate to bring up grills again, but you know, there's some classic price points on some classic grills, and when we saw you know, those grills get up over $600, you know, we saw a more dramatic drop-off in engagement. When Jeff and the team worked those prices down, you know, even to the low $400s or high $400s, low $500s, you saw a response with unit productivity. Across the board, though, there has been you know, and Jeff mentioned this, there has been so much innovation across our categories. When you think of the dramatic shift of outdoor power equipment in power tools, in appliances, and what the features and benefits of these products are, the technology embedded in these products. You know, not sure it's quite an iPhone, but you know we're getting close to power tools being you know in that genre, and people love the newness and the innovation. They're albeit higher prices, but people are responding in buying. I think it's a mix, Brian, across the categories, and that's what Jeff and our merchant teams do such a great job managing every day. Okay. That's very helpful. My follow-up, and a quick one, just for Richard. You know, you gave us, like, the cadence of comps through the quarter, obviously we saw the reiteration of guidance. Any commentary, more specifically on just the trend in business here in into Q4? You know, nothing in the first two weeks of Q4 changes our view on 2022 guidance. As we said, we expect comps to be positive in the quarter. Got it. Appreciate it. Thank you. You're welcome. Our next question comes from the line of Zach Fadem with Wells Fargo. Please proceed with your question. Hi, good morning. As you think about your DIY customers specifically and the well-documented challenges in the first half of the year, is it fair to say that your DIY customer improved on a one in three year basis this quarter? As you think about consumer behavior in tighter economic and housing conditions ahead, is there a scenario where the DIY category outperforms Pro as customers trade down or maybe pull back on bigger projects? Zach, I may have to get you to repeat the second part of the question. On the first part of the question, look, we're really pleased with our consumer business through the year. You know, Q1, we had what we always refer to as bathtub effect in some respects. We had a seasonal impact to consumer in Q1 of this year. Q2 and Q3 have both been positive, and we're very happy with that business. Would you mind repeating the second part of your question? Yeah. Is there a scenario where DIY outperforms Pro as customers trade down or pull back on bigger projects? You know, I don't think that there's any way to conjecture that. I do think that what we love about this business is it's all end customer demand, regardless of the channel. You know, we don't have a target Pro penetration for the business. What we've seen through cycles is that, number one, we do very well with both. You can see some fluctuation between the two. Really what we have going right now is what we're observing, which is the Pro business is leading the company. That shows us that the demand for large projects is very healthy right now. You know, someone asked this question before, I'm not sure we answered it. We are not seeing trade down. You know, if you take my grill or appliance example, it's not that people ultimately bought and they traded down. I think it's that people have already purchased, you know, in the past few years. When people, you know, do purchase, again, they're buying innovation. Our Traeger business, for example, is incredibly strong. As they bring out innovation, customers respond. Got it. When you think about your sixth straight quarter of transaction declines and the fact that there is a more stable repair and maintenance component of your business, to what extent do you believe we fully cycled away from all the pull forward and excess discretionary category demand in 2020 and 2021? When would you expect this to translate to a more normalized positive transaction cadence? Well, you know, that's such a great question, and it's something, you know, we observe and build our theories of the case. When you go back now, what are we? We're 11 quarters of this pandemic. You know, the first five, six, we had tremendous transaction growth, right? We all know the story of what happened. Not necessarily a lot of cost inflation at that point. Then the last six quarters, you know, we start to lap that tremendous activity, but also saw, for all the reasons we know, supply chain, commodities, you know, global cost pressures. We saw significant cost in our business, and comps were driven as they were this past quarter with ticket over transactions. What we see now, as you step back approaching three years, is our transaction run rate, our sort of three-year CAGR at this point, is more or less pre-pandemic rates. You could look at that on one hand and say, "Wow, here's the slowdown." On the other hand, you know, Richard used the term hold and serve. You can look and say, "Oh my gosh, this industry erupted with demand for a year and a half." Then it cycled significant cost increases. The customer hung in there and was resilient. Your net over this three-year period up in transactions in units, despite what we believe you'll hold on to these price levels. I think that all goes back to my, you know, my opening comments of what is the dynamic of this overall industry and the health and the engagement level of this customer. If we normalize from here, you know, gosh, more than great. You know, there's obviously all these questions about, you know, recession that we can't answer any better than you all can. When you digest and look back on what's happened in the last three years, you'd say, "Wow, that's a pretty incredible market segment. Appreciate the thoughts. Best of luck. Thank you. Our next question comes from the line of Mike Baker with D.A. Davidson. Please proceed with your question. Okay. Hi, thanks. Appreciate the color you gave on the fourth quarter outlook. You've done such a great job improving your holiday business. In fact, in 10 of the last 13 years, your fourth quarter comp has been better than your third quarter comp, and by definition, that's occurring on tougher comparisons. Can you talk about, you know, what you've done to make the fourth quarter such a bigger quarter for you and why that might be different this year? Mike, hey, it's Jeff. We've had an exceptional fourth quarter. In the past years, we've built the business on the backs of decorative holiday. You know, we are the customer's advocate for value in that category, and we have great innovation and great value for our customers. Second, we've built the business of gifting in our gift centers. You look at the innovation that we're delivering to our Pro and to our consumer, it's exceptional. I spoke earlier about the M18 Milwaukee drill and driver combo kit. The innovation is just exceptional, as Ted spoke to earlier. Then appliances. Appliances is an enormous category for The Home Depot. It's been a category that we've built at an incredible rate. We're investing in capabilities, like I spoke earlier, in terms of delivery. We're investing in dot com capabilities in terms of our customers' willingness to review and purchase online. I'd also say we're building a great project and business in the fourth quarter. The fourth quarter is a great time for a project. We see a lot of consumers painting, doing smaller projects around their home and getting ready for the holidays. I'd say, you know, storage organization. We have an incredible storage event. We again are the customer's advocate for value when it comes to storage, across the business. You know, we built an incredible dot-com business. You know, this is, we called out the performance in Q3. We're expecting a great Q4 with Cyber Monday, a big part of that is our digital performance, our app performance. I've got Jordan Broggi here, our President of Online. Jordan, you wanna make a couple comments around the App? Yeah, sure. Yeah, thanks, Jeff. I mean, Ted called out at the front, the experience is what it's all about. We love the experience improvements we've made. A lot of it's around in-store connectivity. We talked about Store Mode, we talked about military, we talked about loyalty. We've got some features coming out on Pro for in-store checkout experience. Our customers really respond. I mean, we love the ratings in the App Store, 4.8 with Apple, 4.7 with Google. But we see it in our numbers as well. Strong double-digit performance and growth in downloads and MAUs, monthly active users, in our traffic. It's our fastest-growing online property. We're doing billions of dollars in sales through the app. We couldn't be more excited. Great. If I could ask one more follow-up. Your buyback did slow a little bit this quarter. Is that maybe a function of higher borrowing costs or how should we think about buybacks going forward? Thanks. You know, we don't ascribe to necessarily a smooth cadence of buybacks, and that will typically reflect just sort of how we think about working capital investment through the year and a cash buffer throughout the year. There's really nothing to read into there. Okay. Thank you. You're welcome. Our next question comes from the line of David Bellinger with MKM Partners. Please proceed with your question. Hey, thanks for the question. Going back to some of the category comments, are you seeing some evidence that the, call it, more discretionary items are turning lower and at a faster pace? I know last quarter you mentioned some of those higher ticket, you know, $300-$400 Halloween items being pretty much as discretionary as it gets and performing pretty well. We saw some discounts on those items in the weeks preceding Halloween. Any indications that those, you know, splurge items are starting to cool off and more quickly than the rest of the business? David, you know, we had commented earlier, we had record sales both in-store and online in Halloween. That included the infamous Skelly, which has been one of our best sellers in terms of the innovation and value we offer our customers really unmatched in the marketplace. We couldn't be happier with our Halloween performance. If I turn to the fourth quarter, we're really excited about our Decor holiday assortment. We've got great innovation and great value for our customers across the assortment. If it's trees, if it's lights, if it's decorations, we feel very good about the category, and our consumers are reacting exceptionally well to it. Got it. I have a Skelly, so I know exactly what you're talking about. My follow-up, just on the inventory levels, how much of that growth is aimed at Pro customers? Is there a piece of that inventory that's not sitting in the stores? Maybe it's at facilities like in Dallas so that the number looks to be a bit more elevated to us at the store level. Just help us unpack the 25% inventory growth number and just get us comfortable that you aren't sitting on too much at this point, especially with some of the deceleration you're now seeing. Well, look, investment in inventory and our One Supply Chain facilities is certainly one of the factors in inventory growth year-over-year. The primary factor is really just inflation, as part of the inventory value. We made strategic decisions to land inventory earlier in the year than we have prior. Really just to give you some numbers around that and to reflect the fact we feel fantastic about our inventory position. In Q2, we grew our inventory 38% year-over-year. In Q3, that number dropped to 27% year-over-year. Actually, if you look throughout our history, we actually typically build inventory from Q2- Q3. In this case, our inventory actually came down by $400 million from Q2- Q3. Our inventory is healthy, and we're happy with our position. Thanks, Richard. Appreciate it. Christine, we have time for one more question. Thank you. Our final question will come from the line of Steven Forbes with Guggenheim. Please proceed with your question. Good morning. Maybe just to follow up or focus on the quarterly performance. If I look at the press release, the selected sales data, you know, obviously excludes HD Supply. Curious, Ted, if you can expand on the performance of that asset in today's backdrop as it looks like it may be driving some upside to the overall performance of the business. Yes, Steven, thanks. Yeah, another great quarter for HD Supply. We mentioned this last quarter, and they are just doing a terrific job. Shane O'Kelly and his team are running, you know, the largest and the best focused MRO business for multifamily housing and hospitality, extended living, et cetera. We remain well ahead of all our financial projections when we made the acquisition. Their integration is tracking. They're integrating sales forces, customer records, and now starting the work or on their way in the work of integrating the supply chain. That one is just been a terrific acquisition that we're super happy about. Maybe just a quick follow-up for Richard or Ted. Given the performance, can you remind us on what percentage of sales that business is today? As we look at the sort of spread between comp and net sales growth, any reason to think that the current, you know, sort of year-to-date spread doesn't hold into the fourth quarter? Well, we don't break HD Supply out, but as Ted said, we're so happy with it. On the difference between sales and comp, we've always seen a gap there. It just, you know, comp reflects sales through the POS. Sales reflects sales as they're actually delivered or installed. You're gonna see that number vary. We'll probably, through the year, sales will be a little higher than comp guide. But the important guide here is comp because that's our activity-based metric around sales. Thank you. You're welcome. Ms. Janci, I would now like to turn the floor back over to you for closing comments. Thank you, Christine, and thank you for joining us today. We look forward to speaking with you on our fourth quarter earnings call in February. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.