It's my pleasure to introduce the members of the management team for The Home Depot and to moderate this fireside chat. Today we have with us Richard McPhail, Executive Vice President and CFO of The Home Depot, and we have also with us Billy Bastek, Executive Vice President of Merchandising. Thank you so much for being here today. Thanks for having us. Thank you. Yeah, thanks for having us. I wondered if we could maybe start out. Obviously, we know very well the state of the housing environment. I wondered if we could maybe talk to more of the areas of strength that you've seen in the context of a more difficult backdrop. During the second quarter, you experienced broad-based demand in 13 of your 16 merchandising categories, posting positive comps. Can you maybe talk about what you're seeing within those categories, where the strength is coming from, and how you position yourselves to continue to take advantage of that over the longer term if the macro backdrop stays the way it is? Let's turn to Billy for specifics on that, and then we'll open it up a little bit to the broader macro. Yeah. No, we were real pleased with the Q2 results. Actually overperformed what we had originally forecasted. Saw great balance across our business, 13 of 16 categories, as you mentioned. Positive comps and I'd say more broadly, there was a lot less of our top 20 categories that made up the sequencing of that. Really only a couple of them were related to the seasonal business. Really core down the middle, think plumbing, electrical, hardware, tools, really had a great performance, both in-store and online. So we're really happy with the balance across the entire portfolio. There's some pressure related to some of the categories that we didn't call out, but really pleased with the performance and think the maintenance categories and really the core home improvement business has really held up terrifically well, not only in Q2, but in the first half overall. And Kate, we think that we're accelerating our share gains. Right. When you look at the broader macro, it's really hard to see any points of inflection in the stats that we look at. We know the consumer has become more pressured over time over the last six quarters. If you look at consumer sentiment, consumer confidence, and other factors, I'm sure you'll want to get into. Our job in this environment is to control what we can control and to continue to lean into investment because those investments are really the driving force behind the share capture we're seeing. Right. Given the share gains that you have been so successful in gaining, again, you're seeing growth. There are others where you've seen double-digit declines in the environment. Have you seen much change in the competitive landscape, with smaller players and just the overall environment in terms of what's driving that share? In an environment like this where the whole sector is pressured, we think it's a great opportunity for us to use our advantages of scale to take share. We are building off of a foundation that's been in place for the entire history of The Home Depot. Our real estate footprint will never be replicated. Our incredible associate base and our culture will never be replicated. There are investments that we are making that we think differentiate us, whether it's tools that we're putting in the hands of our associates to make sure that it's easier for them to spend time serving customers rather than just doing tasking, from the product authority that Billy and his team bring every single day, to gains in delivery, that our supply chain and our dotcom business are leaning into. Our great pro teams and our great pro subsidiaries that are leaning in. It's not just one thing that's leading to all these share gains. Some of these are really more sort of very recent as opposed to others. Billy, maybe we can talk a little bit about delivery and how much of an advantage that's given us. Yeah, certainly, delivery across whether it's FDC delivery model we rolled out, ship from best location about 16 months ago at scale. We recently rolled out more expedited delivery out of the stores. We're seeing 65% of our parcel shipments are shipped same day, next day. Then exciting for us is using our network both in stores and in our broader network through our MDOs. 55% of our big and bulky products are delivered within two days, which we think has been a great competitive advantage and a great customer experience as well. So we're really pleased with the delivery aspect, both in stores as we've lit our stores up and now with expedited delivery, two hours or less. We're really pleased with the results we've seen across the board. The engagement from customers that have used that service both in store and online and what we see from that basket from them, more go forward. That penetration of same day, next day delivery is increasing at an exponential rate. The thing that we love about it, though, is this reflects a strategy we set over 10 years ago. Yep When we said, look, what are going to be the two main growth drivers of The Home Depot? It's going to be figuring out interconnected retail, which includes e-commerce, but begins in the store, and then winning with the pro, with the common denominator being exceptional delivery. So we're now bearing the fruits of many years of investment. It's exciting to finally be able to call out. More directly and more bluntly, if you've looked at our marketing campaigns, if you just watch over the last 12 months, you can see we now have achieved the levels of confidence in our delivery capabilities where we're calling out bluntly. Our goal here is delivery in two hours or less for a majority of the assortment in our stores, and we're working to shrink that delivery window every day. Yeah, it was pretty prophetic. I do remember that Analyst Day from almost 10 years ago. Yeah Where you've declared that you're going to be investing so much in the stores and the supply chain, all in the name of speed. Right. Here we are, and that's exactly what the customer wants. I feel that's a core tenet of all of retail now, is how fast you can get and how convenient you can be- Right -to the customer. In that regard, I think value is the other important tenet for the consumer, and I feel like the pricing environment has just been so volatile, and that's stating the obvious, where you've had this multi-year inflationary backdrop accentuated by tariffs last year. Then you've started to see these tariff refunds come in in the second quarter, and we've heard a lot about promotions and price investment and things to that nature. Could we maybe take a step back and walk through how you've approached the pricing environment, how you continue to convey value, and how do you think about the next six months to a year in terms of that value proposition for the consumer? No, go ahead. Yeah. Well, let me just give some financial guidelines and then let Billy talk about the strategy. On our second quarter call, we disclosed that we had received significant tariff refunds. We also clarified that those refunds were utilized to maintain value for the customer, and Billy will talk about that in a second. As you know, we maintained our guidance for the year. That includes maintaining our gross margin guidance for the year. You really sort of start from that footing. Billy, maybe talk about what our stance has been. Yeah. We came into the year with a lot of known things, but obviously, since we started the year, some significant input costs, incremental into the P&L that we did not have in our base case. A lot of what we did with the tariff refunds was, we're committed to EDLP and creating value for our customers every single day. We used a lot of that to, as I said, to offset some of the impacts. In terms of the promotional activity, we've been less promotional. Our focus is we've got a lot of levers that we can use, and our focus in merchandising has been to keep that value every single day. We've been less promotional. We've used some of the historical promotional activity to continue to make sure that every day we can keep our prices where they are today, even with the significant impacts of what we've seen incrementally in the first half. We'll do that into the back half of the year. We've worked closely with our supplier partners. The teams have done a great job. The merchandising team's done an incredible job. When you think about planning out promotional cadence and activity, you're doing that way in advance of what we saw into Q2. We were very rational in how we approached it with the entire mindset of keeping value for our customers and everyday low pricing day in and day out. We'll continue to do that through the back half of the year, regardless of any impacts that we might see in the P&L. I'm really pleased with the team. We've been less promotional. We've used that to fund keeping those prices where they are every day. Maybe if we can move into the Complex Pro. That's another moment in time that I vividly remember where you've made the declaration- Sure -of the opportunity of expanding the TAM and going after the Complex Pro at another Analyst Day. Now it's been a few years since you introduced your strategy. You've made several acquisitions. Maybe you could just take a step back and talk to us about the strategy, how you think it's going, and what you think are the biggest drivers going forward. We compete in a $1.2 trillion addressable market. Of that, about $700 billion represents the pro market. We have, for a long time, believed and heard from our customers that we have a greater right to win in that $700 billion market than anyone else participating in the market. We've had the right to win. We haven't necessarily had the ability to win. Our stores have been a powerhouse for the pro since we opened our doors. There is no more convenient partner that carries the product authority for the pro than The Home Depot. We're already building off of an incredible advantage, real estate positioning, brand advantage, and convenience, not to mention the service model in our stores with our associates. What we knew way back 10 years ago was we're getting a demand signal at our pro desk that is asking for delivered sales. The beginning of all this actually started where we said, we are now reaching a problem where if we say yes to more delivered sales out of the stores, we are going to become a staging warehouse. There were stores that were highly penetrated by the pro, where you literally could not shop the lumber and building materials aisles because there were deliveries being staged, and we had such limited delivery windows. The first stage was build out the flatbed distribution network so that we can send these high-cost deliveries out to a more efficient delivery model. Once we did that, we realized that there was much more demand out there than we anticipated. We could carry a broader product set, and we could carry almost infinite depth in these flatbed distribution centers. We also realized that we had to shift our orientation from a product cash and carry orientation to a service model orientation. That's what it was going to take to more deeply penetrate the pro wallet. So we built out the FDC network. We have been consistently building out an outside sales force, building out an order management capability, offering trade credit to our pro customers. I would also say enhancing AI enablement for those pros. I'll come back to that in a second, but I think it's important for all of our investors to understand this all begins in our stores. By far, the majority of the sales volume that we generate with a pro customer is in the store every day. It starts with investments we've made at our pro desk that allow our pro desk associates to understand who the pro is, to understand what they might not be buying from us, and to be able to market on the spot and also to be able to execute orders more easily in the store at the pro desk. Then we extend that to that complex sale, which you could think of that almost as the delivered sale that requires a little bit of more assisted selling. Now, we've been building those capabilities really through time, probably in earnest since 2019, 2020. What we were a little bit worried about was if we light up delivered sales, that's going to cannibalize our stores. What we found is the more points of engagement we drive with our pro, the more they spend in our stores. The more we deliver to a pro, the more they spend in our stores. In 2023, we began talking to SRS because what we knew was while we're building all these capabilities, SRS was the most well-managed wholesale distribution company we had ever met, and we've met most of them. It gave us the opportunity to connect a best-in-class specialty trade distributor to us, not only to continue their growth in their own right, but also to give us an example of what great looks like from a delivery execution, really from a service model perspective. Now we have a best-in-class distribution service model attached to the giant of home improvement, and we see gains from that every day. We know our pros tell us that we continue to have the right to win. We have posted eight quarters in a row of positive comp sales with the pro, and we know that's not by accident. It's as a result of all the investments we've been making. Great. I think, for the longer-term algorithm, obviously the complex pro gives you the bigger TAM, it gives you more growth opportunity. But I do think the flow-through is maybe a little bit less, just given the nature of the business. How should we think about maybe the longer-term algorithm when considering the growth of the complex pro within The Home Depot enterprise? I'm glad you asked that because I do think that there's a misunderstanding on pro margin. If you think about some of the acquisitions we've made, SRS, GMS Inc., they happen to be in categories that reflect margins that are lower than the company average for The Home Depot, but that are very similar to- That's right. -our margins in the same categories we sell at The Home Depot. But if you look at our pro customer that represents more than half of our sales, their margin profile is the same as the margin profile of the consumer. The vision here is to sell across the entire project, which means that we should be able to earn margin that reflects the entire project, which would be more similar to today's margins. Acquisitions tend to have mix shifts, but again, we are every day working on that vision to be able to say yes to any product sale within the project. Also, Kate, go back to that service model orientation. If we create the superior value proposition in the market, we should be able to earn margin from that value prop in the market. We don't think that over the long term, it should necessarily be dilutive, although you might see some product mix impacts from time to time. Okay. I know there's a significant cross-selling opportunity here, too. You disclosed that 90% of The Home Depot stores have facilitated or closed a sale through SRS Distribution over the last 12 months. I think you have a goal out there to do $400 million in cross synergies this year. Could you maybe talk about that opportunity and where you see that going longer term? Sure. Well, I think you start just as at where SRS has begun to build cross-selling in its own right, where they have added GMS and then an HVAC platform. When you combine those with the power of The Home Depot, we are now able to approach customers like home builders, small, medium, even large, with the ability for them to consolidate their supplier base. That cross-selling is the majority of the $400 million that we think we will generate this year in cross-selling is that combined sales effort of the SRS platform and The Home Depot selling into the builder and very large remodeler channel. I am going to come back to the point that it all starts in the store. You mentioned QuoteCenter. QuoteCenter is our internal platform we have used for many years to farm out orders that The Home Depot could not fulfill. By adding SRS and GMS into the enterprise, we now shift all roofing orders that we cannot fulfill from Home Depot to SRS, wallboard, ceiling tile, steel stud to GMS, and the use of that, as you said, 90% of our stores have had SRS fulfill an order for them over the last year, and the growth in nominal dollars is quite exceptional. While we think it is $400 million in cross-sell in 2026, we are looking forward to an even larger number in 2027. This also includes, we do not talk a lot about HD Supply, but HD Supply has that sales channel into multi-family opportunities. HD Supply can now introduce SRS when they see a roofing opportunity at a multi-family complex. We are really building an ecosystem of businesses that can cross-sell effectively, and we are in the very first innings of being able to actually create a streamlined process to do that cross-selling, and we are still gaining ground. Just from a strategic standpoint, do you think you are at a place now where the business has kind of been built out to what you envision it to look like, or do you think you will have to make other acquisitions along the way? Well, we have established a base in SRS that allows us to experiment with organic expansion in other categories. We have given them access to facilities, and Billy's team works hand-in-hand with SRS to allow them access to our expanded catalog. I think we're always going to push organically. What else can we put in the hands of our salespeople to sell more? Acquisitions will always likely be a part of the SRS growth algorithm. They're exceptional at what they do. We'll allow them to continue. We have a very high bar for acquisitions at The Home Depot. An acquisition needs to be a perfect strategic fit, so it has to accelerate our strategy, it has to be a perfect cultural fit, and they have to be exceptional performers. So that really kind of cuts out quite a few folks just with that screen. We also want to make sure that we have the capacity to integrate successfully. We have a great track record of integrating acquisitions successfully. We intend to keep that reputation, and so the capacity to integrate is always on our minds. But we think that a balance of organic and inorganic growth, as long as it meets our criteria, is healthy. At the same time, we've added a lot to SRS in the last 12 months, and we're busy making sure that we optimize value creation there. Great. I just wanted to make sure we touched upon it a little bit when we were talking about the pricing discussion, but just when we think about some of the good guys and bad guys with regards to margins into the back half of the year, I think shrink has been in the good guy category, and I wondered if you could maybe talk a little bit about how that's been an unexpected benefit to your margin story. Well, it's certainly been a benefit over the last several quarters as we've called out. I don't know how much additional benefit we'd see from that. We've had a number of different initiatives, including our frontline associates in technology we've enabled them with. But I wouldn't say that's a real tailwind as we go forward, but we're thrilled with the work that our cross-functional teams have done to mitigate that and actually have that as a tailwind over the last several quarters. And then just from a capital allocation strategy, again, the share repurchase program's been paused as you kind of get back to your leverage ratio, but how should we expect to see, or should we expect to see share repurchases reengage in the next year? Right now, we're on a trajectory that would take us back to a 2x debt-to-EBITDA ratio by, call it, the middle of fiscal 2027. Our capital allocation approach has not changed. It's been consistent over many years. We're going to reinvest in the business first and pay our dividends, and then return excess capital to shareholders through share repurchases. Obviously, our cash flow generation power affords us the ability to be flexible within that, but we fully anticipate we'll return to repurchases by the end of Q2 2027. Great. I wanted to make sure we asked a question about AI. You've recently rolled out innovative tools like your material list builder and AI blueprint takeoffs, which can generate a material list for your customers. Can you give us an update on pro adoption rates for some of these AI-driven features? Well, I'll answer the question, but I think there's a more important answer that I'll shift to Billy. I think one of the advantages that we are leaning into heavily is we are, I think, maybe the only scale player who can lean into AI as heavily as we can to change the way that our pro interacts with their supplier base. We have a number of developments in the works to really supercharge the digital platform that we offer to our pros, that digital experience. We've seen great adoption among our pros with material list builders and project planners. But we get press for some of the more customer-facing AI applications like Magic Apron, when I think we will be the leader in AI enablement in our space. Maybe, Billy, talk a little bit about how we see that. Certainly the customer-facing pieces, Kate, that you mentioned do get a lot of press, but we are super excited about some of the work that we are doing internally. You think around just in merchandising, think around assortment, optimization, and how to go a lot faster with utilization. You think about pricing models that you are able to get into the market. Historically, pricing tests, and we have hundreds of them going on at all times, those have to be taken into market. There is a period of time where those have to be executed in-store, so you can take those results, and some of the early learnings we have gotten from some of the pricing models that we have stood up, just enablement there to be able to really go much faster. You think about supply chain optimization and inventory and some of the work we have done there. We are super excited. We have got Fran Bell on board who is leading that for us, who has a tremendous amount of experience. She has got a great team that she is bringing in to help us more optimize. I would say less optimize, it is to go faster. We need to get more stuff done quicker, and our ability to be able to take micro spaces, another micro-macro space in our stores, and be able to do that at scale, a lot less expensive and a lot quicker, is really exciting about some of the things we are just doing around assortment and then the pricing models I talked about. Somewhat early days of what we are doing, but really pleased with the work that the team has been putting in. AI enablement in the hands of our associates in the stores, too. Just think about tasking and. Yeah, you think about, we have talked about tasking and how do we get more of our orange aprons engaging with customers, and we have a tasking group, our MET group. The enablement we have had with AI and just be able to do tasking with our tasking group, which is our MET group, more productive, faster. What that does is free up our orange apron associates to engage with customers more. We are really thrilled with the rollout of what we have done so far. It is early days in terms of moving more tasking to those folks. We are getting great customer engagement scores as it relates to the early days of that. We are putting more technology in those frontline associates that allows, again, more engagement with our customers. Again, taking that tasking team and the productivity we are seeing is really 3x. If you think about an associate in the store that's working in the aisle, and they're helping customers, and then they're on a ladder, and they get pulled down, and they're going to load mulch. They're doing a lot of different things. With tasking at the same time, to have a team to be able to do that tasking so that, again, their time can be freed up to engage with customers has been great. The productivity we've seen so far from some of that enablement is really terrific. It's one of our questions that we're kind of at that section of the conversation, but we have these four questions we're asking every company. I'm going to go a little out of order because we just talked about AI. Given the whole list of productivity and efficiency that you could see, do you expect a significant increase in efficiency by 2027 in the next year versus what you're seeing in 2026? Or is this more a multi-year opportunity? Well, I think it's probably evergreen. I do think it's multi-year. We've committed to several billion dollars of productivity in our expense base over the next few years. AI is without a doubt going to be a piece of that. We intend to see that productivity in the form of higher sales, though, right? As Billy said, AI is really about getting more things done faster, and we have a lot to get done. We intend to move faster than any of our competition in the space. The unlock really has to be shared gain compounding. That's the point of AI. It's the point of everything we're doing. What top-line benefit can we drive? That's what we're looking for from AI productivity. Great. Just to kind of wrap up with the last rapid-fire questions, we've talked a little bit about the housing environment. Just in terms of the overall consumer, do you have any expectations for the environment in the second half of 2026 relative to your first half when it comes to the health of the consumer? We don't see anything that tells us there's an inflection. If you look at the last six quarters, consumer sentiment has actually become more pressured. Our customers tell us, on the good side, our customers have the means to spend. What they tell us is there's just so much uncertainty right now. You think inflation, interest rates, fuel prices, job concerns. They're not yet ready to unleash that power of spending into large projects, but we know that the potential is there. At the same time, we don't see anything we can point to that says there's an inflection in demand. We talked again a little bit. We touched on all these questions, actually. But this one's on pricing. Would you expect your prices or average unit retail to be higher, lower, or the same in the second half of this year versus first half? Yeah. I'd expect it to be relatively what we've seen so far year to date. Again, we have those plans in place well in advance, and we are taking on more costs, as we talked about there. But I would expect our AUR to remain where it's been for the first half of the year. Okay. Also margins, but this is more into 2027. Would you expect to see more margin headwinds or tailwinds in 2027 versus 2026? I think if you took any year in the last five years and asked to predict the cost environment, that would have been tough. I mean, that's what Billy and his team do every day. Yeah. I would love to say we were in a static environment where we could predict 2027 more thoughtfully. We're in those discussions now. I think we've updated or backed up our guidance for Q2, in Q2 for the balance of the year. So we'll look at that and then see. There's a vote today, I think, on some legislation, and those all play impacts, and we'll see on the broader tariff environment. But right now, we're focused on delivering for all of you for the back half of the year. Great. Well, thanks for joining us today. I appreciate the time. Yeah, great. Thank you, Kate. Thank you, Kate.