Good morning. We're gonna start our next fireside chat session. It's my pleasure to introduce the members of management team for Home Depot. Morning. Good morning. We have Ted Decker, Chairman, President, and Chief Executive Officer, and Billy Bastek, Executive Vice President of Merchandising. Morning. Thank you so much for joining us. I know when we were talking to investors about what they wanted to hear today from Home Depot, obviously the macro is a big piece of it. You know, obviously it's been a challenging environment for housing- Mm-hmm Specifically. But also the consumer is dealing with a lot as well, separate from the housing environment. So I wondered if you could maybe start talking through what you've seen this year in terms of consumer behavior. How much do you think is housing influenced versus maybe the macro being influenced? Right. So, the consumer generally has hung in there, right? I mean, I think that's been the surprising thing of the post-COVID dynamic, when everyone was questioning, you know, not if we were gonna have a recession, but when, and what kind of landing we'd have. And PCE, you know, continued to perform, personal consumption expenditure, which we look at very closely. We think that was largely driven two things, the wealth effect of the last several years in terms of people's equity portfolios have been robust. And in our business, housing in particular, house values have gone up 50% since the end of 2019, and that translates to about $18 trillion of incremental value in the U.S. housing stock, which is pushing +$45 trillion. So there was a great wealth effect in people's equities portfolios and the value of their homes, which led to reasonably low savings rate. You know, their savings rate's, I think, under 3% now. So all that translated into more spending. People also had, you know, good jobs with raises. Our customer in particular tends to have, you know, good employment, wage growth, own their home, so participated in that value creation. So that's what really kept the consumer powering, which, being 70% of the U.S. economy, kept the U.S. economy powering, and we haven't seen this recession. What's happened in our business, there were a few things to work through. One was just the amount being spent on goods and the shift, the PCE dynamic from services to goods during the pandemic. A lot of that was spent in home improvement. So we've tracked that largely back to pre-pandemic levels, the share of PCE in goods and services. You look at durables in particular and housing-related segments that are reported, again, more or less back to 2019 levels. So we think that's largely played out. There's still, as you all know, when you go to airports and hotels, you know, a lot of people are still traveling. So not only did you have a lot of home improvement activity played out, but people are still off traveling quite a bit, and you've definitely pulled forward some projects and some durable items. We've cited things like grills and patio sets as examples, but we think most of that has played out. The dynamics that was a bit of a headwind for our sector in the last couple of years, in addition to that dynamic playing out, was with the higher interest rates. Housing really has struggled on the turnover side. So we've seen a dramatic fall off in housing turnover in the last 18 - 24 months, and it's something we don't traditionally talk a lot about is the demand base on housing turnover, because it's been relatively stable at 4% - 5% of homes. Call it 5-6 million homes turnover every year. The spend on a home when it turns is multiples of an average housing unit that isn't turning over, and we saw about 1.5 million units drop off in a very short period of time. So if you do the math, sort of... I mean, pick any number, $10,000 incremental a unit, that's $15 odd billion a year that's out of our space. So that's been a bit of a headwind. Everyone's expecting interest rates to come down at some point, and hopefully housing turnover would return to more historic levels. But then the last thing that we saw, more in the first, second quarter, in addition, and I'll put weather aside, we had a strange, you know, cold, wet, and then very hot weather dynamic. But more telling was, for the first time, just some general uncertainty has put people off larger projects. And that was just, you know, when are rates gonna go down? When are mortgage rates gonna go down? Are we gonna get this recession? Even things like the election, just sort of some general uncertainty that people said, "You know, I'll just put that larger project off." Larger bathroom remodel, larger kitchen remodel, basement remodel, adding square footage to the house. Many of those projects would be financed... So while there's this incredible store of value in the home, as I said, the equity values have gone up nearly $18 trillion. Tappable equity for HELOCs and the like is $11 odd trillion. People, we just saw a pause to say we just. You can see these numbers, right? The cash -out refi and the HELOC activity is way down. But, you know, we're optimistic all things revert to the mean, and things will get back to normal, and that housing turnover and remodel activity will pick up again. So we're just controlling what we can control in the meantime, and focus on taking share and satisfying our customers. And just kind of drilling down into a couple of things you said, obviously, housing turnover is the big headwind, and that is affecting more of remodel, but what about repair? So if housing turnover does kind of bump along the bottom here, and we don't see any relief over the next year, is there some combination of needed repair and maybe even pent-up demand, because transactions have been negative for quite some time now- Mm-hmm ... where you could return to growth in a scenario where housing turnover doesn't fully unlock? Sure. Absolutely. First of all, I mean, if you just, you know, lap the headwind- Yeah ... which, you know, if a somewhat near-term normal is this level of housing turnover, well, once you lap that, and that is the level, you don't, you don't have the drag. We've talked a lot about our AUR. It was about a hundred and fifty basis points of pressure in the first half, dissipating as the year goes on. So all that sort of price stabilization that happened following the crazy supply chain dynamics during COVID, all that sort of played out. We don't see deflation. So the absence of headwinds, in and of itself, when you have a GDP, and, you know, we're north of two- Mm-hmm ... just your normal activity with, you know, normal pricing and normal repair activity would. You know, that would be sort of a base case of comp for us. Billy, I don't know if you'd add to the- Yeah, no, the break-fix part of our business continues to be strong. Some of the pieces that Ted mentioned have been more challenging. The-- Certainly, the finance piece is bigger projects, and that certainly, you know, weighs on the AUR piece of 150 basis points. We kind of call it down the middle of the store. We're really pleased with what we see down the quote, "middle of the store." Houses are getting older, so there is that repair maintenance that needs to be done, and we feel very good about the portions of our business and our pro engagement in those businesses as well, as it relates to that. We'll just cycle through some of the things in the macro, and then, you know, we'll see on the bigger, larger projects. But on break-fix, we feel very good about that. Obviously, if you've got you know, you might repair a faucet versus buying a new faucet. There's some of that in there, probably, but we're really pleased with kind of the middle of the store and how that's performing versus some of the things that are a little more maybe out of our control. We've got to continue to focus on operational excellence. You go through, you know, the demand curves that we've had the last four years, and it's taken some muscle memory for us to get back to some of the operational excellence things we're doing, both in merchandising and on the operations side. So feeling good about the controllables and what we can control as it relates to that. And then if I can just kind of round up the macro, conversation that I think in the past, you've talked about the sweet spot for mortgages maybe coming down to the 5%-6% range- Mm-hmm ... to maybe see that housing turnover unlock. But what kind of lag would you expect from that? Would you expect to see business come back right away, or would there be some kind of lag? Yeah, there'll definitely be a lag. And we referenced the 6% rates, I think, toward the end of last year, came down toward that level. We instantly saw mortgage application and housing transaction respond, and then rates quickly went back up towards 7%. So we're now six and a half, six point four-ish. Rates have come down 50-odd basis points the last several weeks in expectation of this cut. But this won't be an immediate thing. When you think of, you know, buy the home, get the mortgage, close in two-three months, move into the home, you know, hang some pictures, figure out what project you might want to do, there's definitely a lag for projects, when you buy a new home. There's some things that are instant, right? I mean, it's. I kidded about hanging pictures. Mm-hmm ... but, you know, go to Home Depot and go to the hardware department and get, you know, picture-hanging hooks. So there's things that are immediate. Yeah. But projects like, "Okay, we want to change a bathroom, change a kitchen, remodel, add some square footage," that will be a bit of a lag. But anything to get housing turnover back to historical rates would be, obviously, a super positive for the business. Okay. Could we maybe talk about the dynamics around DIY and DIFM? DIY has remained challenged. I think pro is still outpacing DIY. Can you talk about the dynamics there and why you're seeing more pressure in one versus the other? And Billy, I wondered if there were any category differentials between the two categories in terms of performance and strengths when- Yeah, I mean- Yeah. Yeah, and I'll take the first part of your question up front. You know, if you think about the pro business, which is still strong, and you talk to pros, and we do our intercepts. While above historical norms, there's certainly been a reversion, you know, backwards a little bit. But that pro is also, in many cases, the arm of the consumer. So we kind of see them, you know, as. ... you know, closely tied together, that project that a consumer's going in and hiring a contractor for. So they kind of go hand in hand. As it relates to categories, and we talked about this a little bit on the earnings calls, you know, we've seen great performances in vinyl plank flooring, as example, paint, outdoor power equipment, which, you know, you talk about a category that had a lot of pull forward, as part of the, you know, as part of the pandemic, and we're starting to see that minimize. And we're really, and Ted mentioned a couple other businesses earlier, but we're really seeing, you know, we're probably not all the way through it from that standpoint, but really seeing some performance there. So we've got, you know, a fair amount of green shoots as it relates to that. Those aren't financed projects, where we're continuing, you know, not to beat that drum, but continue to see that pressure. And even in a category like vinyl plank, great engagement from both the consumer, you know, and the pro. We've seen great share gains across those categories and some others. And so again, not to beat that drum, but that finance piece is still creating some pressure. But, you know, that pro, you talk to pros, they're still engaged. They've got a book of business that's come down some, but from a historical norm standpoint, our pros are still have plenty of business. You've mentioned market share gains a couple of times. I think, you know, before the pandemic, I remember the comp build to be something, like, in line with GDP, plus a little for- Mm-hmm ... market share. How are you thinking about market share contribution to the comp today? Has it accelerated, and how are you gaining that share, and from where? Yeah, so I mean, that's always a tough one- Mm-hmm ... to triangulate the market share when we think about a trillion-dollar TAM, and, you know, that's broken out between, you know, chains such as ours and hardware stores and distribution and a lot of private companies in the space, so hard to pinpoint share. But, you know, where we're confident we're taking share, we do look at the reported industry associations. You know, most every sector has their industry association, whether how many squares are being produced and sold in roofing, you know, water heaters, et cetera. There's industry data, so we look at how we perform against that. We look at our manufacturer partners and what, you know, they report is selling into the market and how we compare what our purchases are from those suppliers. Then, of course, we look at like companies' reported sales growth. So if you look at all those, you'd say, "Yes, Home Depot is absolutely taking share," and the goal is to take share in any environment. When you look at the huge demand boost in 2021, 2022, you know, we grew $43 billion, $45 billion. I mean, just you look at the nominal growth, no one even came close to that. And then, in this period of moderation, you know, our down hasn't been as steep as others. So on the down, we're taking relative share. And then with something like the SRS acquisition, in their model of driving same branch sales, Greenfield, and then Infill M&A, they continue to perform. You know, we reported they grew 8% in the first half of their year. We didn't own them that whole period of time, but they're taking share. They operate in three verticals: roofing, pool, and landscape. They have three mirror-image publicly traded companies. We're not going to segment report, but we're clearly internally looking at that and feel very good and outperformed each of those segments in the first half of the year and in the second quarter. So we're not gonna, Kate, ever put a, like, "Hey, we're gonna get this many dollars and this many basis points from share gain," but every single regional vice president operating their hundred-odd stores, every one of Billy's merchants, I mean, we wake up every day: How do we put the best value and customer service in the marketplace, satisfy the customers, and take share? We talk about the trillion-dollar TAM. We have 17% share, so we are laser-focused, almost healthy paranoia, I'd say, on how do we go get share, and how do we continue to look at all the data Ted mentioned, but we only have a 17% share at the end of the day. So there's lots of opportunity for us in the market that we're in today. You mentioned SRS, and that's probably, I think, with regards to our investor questions, where we're getting the most questions. So I wondered if we could maybe back up a little bit because I think, you know, the SRS acquisition was done in an effort to grow your complex pro business. And I think we started to hear more about the complex pro at your June Analyst Day. Mm ... 15 months ago or so. Right. Could you maybe level set us and just talk to us about who the complex pro is and what you're trying to accomplish with this specific customer, and the role SRS is playing in going after the complex pro? Sure. So if you go back to just take the complex purchase occasion, we look at this enormous TAM, and the really good news is virtually every customer set in that TAM is a current customer of Home Depot. So everyone in Handyman, in electrical, plumbing trades, small home builders, while we don't service the scaled home builders, I mean, they're even going into Home Depot store for an emergency pickup. So we have the customer set. It's a matter of on what purchase occasion are they shopping at Home Depot? And the smaller repair modelers and Handyman, they are spending the vast majority of their wallet in our channel, and fortunately, the majority with Home Depot. The overall trillion-dollar TAM is about 50/50, consumer-driven and pro-driven. As Billy said, the consumer, the homeowner, writes the check in all instances, but whether you're gonna do it yourself or have someone do it for you, that market's about 50/50. Our business is about 50/50. So pros always been super important in our satisfaction of the pro needs in terms of everyday value, brands, assortment, service, depth of inventory, job lot quantities, et cetera. But what we realized is, while we have virtually 100% of share of wallet of the smaller pro, or our channel does, the larger pro is using Home Depot for an emergency purchase, an infill, a convenience, because we're open later at night, we're open weekends, but their principal material purchase for their jobs is coming from distribution. And we've always known this. It's no secret, and it's no mystery of what you need to build to satisfy that customer. So, I mean, I've been at Home Depot almost 25 years, and, I mean, I can't tell you the number of strategy decks, you know, that we've written that says, "This is what you need to do to capture more share of wallet." And if I went and pulled the strategy deck from 25 years ago, it would say the same thing. You need a sales force. You know, this is a relationship business. It's a solution-selling business. These customers, these pros, you know, want a point of contact. So you need a field sales force that's knowledgeable, that can solution sell with that customer. You need order management, so these are more complex projects. They cover more categories of goods. They are sequenced over a period of weeks, if not months, to do a job. You need to sell on open credit, and it's not even so much open credit as to bill when shipped. So when we take even a special order that will be weeks for, say, a special order window package, we're taking payment today. No pro is gonna pay distribution upfront for something they're not gonna take delivery of for weeks in advance. So you need order management, and then you need delivery, and delivery is probably the critical piece. This is all job site delivery, and it needs to be done, you know, at scale, repeatable fashion, on time, and complete. So these building blocks, we've always known that what we have to, the capability set we need to build to capture that purchase occasion. And you might say, "Well, that's great, Home Depot, even if you do that, I mean, that pro's being satisfied today, every share dollar, every dollar you get in revenue is gonna be taking share from someone else." The value prop that we're offering is, in deep research on this, in what we're seeing with the pros that we're working with today, is we can simplify their project. They are dealing with so many different people on their job sites. They're dealing, you know, every trade distribution vertical that they are working with have their version of those capabilities I went through. So they're getting multiple salespeople on a job site. They're getting multiple bills. They're getting multiple delivery trucks. Very, very complicated. Our value prop is, if we can give you that same service level, make your job easier, we're never gonna get 100% of the spend or all the different, categories of goods. But if we can take your 15 down to 12- Mm. or your 15 down to 10, make your life easier. You have one sales representative, we understand your entire project. You have one billing department to work with, et cetera. Will that make your business run better and simplify, you know, your go-to-market strategies? The answer is a resounding yes, and as we build out these capabilities, as they mature, and as our larger pros engage with them, they are the highest comping customer in our portfolio. So those are the green shoots of the strategy coming to life, but not saying it's not challenging. Mm-hmm. It's a lot of technology to build. It's a lot of distribution, delivery, last mile, sustainable capability to build. It's a lot of salespeople to hire and train and make sure they live the Home Depot values. You know, these are incentivized sales forces, but at the end of the day, you need to, you know, live by the Home Depot culture and values and what we think makes our company special. So all this is coming together. We don't wanna get ahead of ourselves because you cannot disappoint this customer. They have a crew on job site, and they're waiting for the material, and it doesn't show up. That's not a good day for anybody. So we don't want to disappoint them, and we'll continue to build this out and drive incrementality. The prize here is, as we've identified, $200-odd billion dollars of TAM that we really don't meaningfully address today. As Billy said, we have 17 share. You pick up, you know, each share point, you know, is a lot of revenue for Home Depot. Mm-hmm. And then Kate, if I could just add one thing. Mm-hmm. To the SRS piece, because I think it's important to note, we took our TAM up $50 billion when we acquired SRS, and while they have a tremendous amount of capabilities that service what we call complex pro for what we're going after there. They're in the, as I said, the capabilities they have that we can bring to market with our other avenue here is really distinct difference than what we outlined last year in June and what we've been, you know, it really is a distinct opportunity on the SRS side, which is why we took that TAM up $50 billion after the acquisition. And then for my last question, before we get into the lightning round of questions, is: How does the supply chain work into the complex pro strategy? You had made a very high level. So now that that is completed, how do you see that working with to accomplishing what you need to do with the complex pro? And is there a lot more room for efficiencies and innovation when it-- I'm sorry, automation- Yeah. When it comes to the supply chain? There's loads of room for productivity, 'cause we're still reasonably new at this- Yeah ... in having this type of supply chain. We've largely completed the bulk of that initial build-out that we articulated. We've put up +150 facilities around the country. Different type facility for different type product. But the one that really has a very powerful sort of productivity flywheel are our bulk distribution facilities. Because there are really three phases in what they do or three distinct capabilities that they do. First and foremost is they replenish the stores. Yeah. So each of these buildings is, you know, daily full truckloads of building materials, virtually every day to each of our two thousand stores in the United States. So there's tremendous productivity loop and scale of product movement from replenishment. The second thing they're doing is taking existing delivery business out of the stores. So we've run delivery with third party, you know, think of large flatbed, eighteen-wheel trucks that are circulating on, you know, kind of milk runs, using our stores as the distribution point to deliver to consumers' homes and job sites today. Think how inefficient that is, how many times you're touching the product, going from the suppliers manufacturing, to the suppliers distribution, to our warehouse distribution, our bulk distribution facilities to the store, maybe going up in the overhead with a forklift, then being pulled down again, staged in the aisle, blocking customers, only to be loaded back on a truck again to go to a job site. Now we're pulling that delivery volume, existing delivery volume, out of the store using these same replenishment assets, so again, getting that scale. Then the third capability is, you know, incremental new complex purchase occasion that we've chatted about, that will go directly from those distribution centers to the job site. And again, with these larger pros, the volume redefinition of job lot quantity. Okay ... when you're coming from a DC. This flywheel, as these buildings mature, but again, they're new. This is new, new, capability and process that we'll get better and better at. Great. We're asking five questions for every company. Some are more applicable than others. Expectations for the environment in the second half of 2024, relative to what you've seen in your recent results, better, worse, or the same? If I had the magic eight ball. Yeah. No, it's, you know, we've had a couple factors. You know, we had AUR in the first half, as we called out on our earnings call, of 150 basis points of impact. We saw the consumer in the back half of Q2. I think Ted mentioned, you know, step back a little bit, not only the financing, but, you know, a lot going on in the macro and election and so forth. You know, we'll see what happens with rates and so forth, and again, the election. Our business is, you know, fairly normalized as it relates to what we saw in the first half. We won't be lapsing 150 basis points of AUR. There are some things that we're lapping in terms of just, you know, maybe at the bottom on some of the things, but it's still gonna take some time, and certainly, you know, through November, and we'll see kind of what the balance of the year holds for the rest of the year. But, you know, as we said on the call, similar performance so far, as we had in the first half. So part of their updated guidance, same- Same ... is, you know, that's our update. On the topic of margins, and this is more of a 25 question, but materials and labor and then maybe tariffs, would you expect these cost pressures to be the same, better, or worse next year? Yeah, I mean, we're fairly normalized- Yeah ... through the cost environment. You know, we saw some transportation, you know, flow into the P&L. We talked about that in our call. But from a cost standpoint, we've seen that fairly normalized. Along with labor, we've talked a lot about our labor investments that we've made in... And so we think that's been more normalized. Tariffs is another, you know, another discussion. We'll wait and kind of see on that. We've got some experience, you know, around how do we manage that? We've been working on diversification for some time as part of, you know, what happens, you know, post-twenty sixteen, and certainly during the pandemic and how we manage diversification. We probably got, we got hung up a little bit on just total supply. So but from a cost standpoint, it's really normalized in the environment. Okay. Do you expect to have more or less points of distribution in the U.S. next year? I feel like I can ask this now of you guys- Yeah 'Cause there's more distribution, right? There'll definitely be the 775 odd SRS branches. And while we're largely built out on supply chain, there's still some markets that we haven't built that building material distribution capability that I just described. You gotta these are big sites on rail lines, and there's still some major metros that we haven't secured that real estate. But you'll open, you know, single-digit numbers of these each year, but more or less the same, other than that big SRS branch increase. New stores too. New stores. Mm-hmm. Yeah, thank you for bringing... You know, largely in 2008, and, you know, we have a fundamental shortage in housing. So people wonder, is this 50% increase in housing gonna be a repeat of the great financial crisis that was housing-led? You know, I'd say definitively, no. That was a speculative housing boom. This is fundamental imbalance of supply and demand, 2 - 4 million housing units short in the United States, and we're not even making a dent. We're building barely to annual need. So we're gonna have a shortage of housing for a long time. So we stopped building housing, and then our sector stopped building stores. Everyone finished up whatever pipeline they had in 2007, 2008, 2009, and other than an odd store here or there, we haven't built. We took a step back and said, "You know, since the industry stopped building, the population has grown about 35, 40 million people, with tremendous migration to the Sun Belt as well." So we fired up the real estate team and said, "You know, dust off the models and take a look," and we see a very rich pipeline, modest compared to the build-out of Home Depot nationwide, when we were building as many as 200 stores a year. But we'll do 25-odd stores a year. The ones we've opened, we're starting to open these now. They're all performing, you know, better than pro forma. We feel great about the real estate site selection and the modeling. And 25 a year puts a lot of energy and positive momentum into the business. So we'll have those as well. Great. And the last quick question: You guys are EDLP, you're not very promotional, but just as you look towards the back half of this year versus last year, how do you view promotions both for Home Depot and in the industry? Yeah, it's we've often said we really do live in a rational environment. You know, when we think of promotions, we think about creating excitement and driving traffic into our stores. How do we create the best value for our customer, and like I said, drive excitement in our stores? You know, go back to pre-pandemic, we're kind of in the same cadence as it relates to creating those events and times in our stores. Labor Day, we've got a big, you know, selling season coming up with our gift center events as it relates to that and driving that excitement there. But from a promotional activity, it's really normalized to the, you know, pre-pandemic levels. You've got some challenges in the category like appliances, but other than that, it's quite, quite normalized, and we're pleased with the, you know, with kind of the going back to the levels that we were pre-pandemic. Great. Well, thank you for being with us today. Thank you. Appreciate the time. Appreciate it. Thank you. Thank you.