The Home Depot (HD)

Q4 2011 Earnings Call

February 21, 2012 9:00 am ET

Executives

Diane S. Dayhoff - Vice President of Investor Relations

Francis S. Blake - Executive Chairman and Chief Executive Officer

Craig A. Menear - Executive Vice President of Merchandising

Marvin R. Ellison - Executive Vice President of U S Stores

Mark Holifield - Senior Vice President of Supply Chain

Analysts

Colin McGranahan - Sanford C. Bernstein & Co., LLC., Research Division

Christopher Horvers - JP Morgan Chase & Co, Research Division

Wayne L. Hood - BMO Capital Markets U.S.

Eric Bosshard - Cleveland Research Company

Dennis McGill - Zelman & Associates, Research Division

Laura A. Champine - Collins Stewart LLC, Research Division

Alan M. Rifkin - Barclays Capital, Research Division

Brian W. Nagel - Oppenheimer & Co. Inc., Research Division

Gregory S. Melich - ISI Group Inc., Research Division

Scot Ciccarelli - RBC Capital Markets, LLC, Research Division

Matthew J. Fassler - Goldman Sachs Group Inc., Research Division

TJ McConville

Michael Baker - Deutsche Bank AG, Research Division

David Gober - Morgan Stanley, Research Division

Presentation

Operator

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Good day, everyone, and welcome to today's Home Depot Fourth Quarter 2011 Earnings Conference Call. Today's conference is being recorded. [Operator Instructions] Beginning today's discussion is Ms. Diane Dayhoff, Vice President, Investor Relations. Please go ahead.

Diane S. Dayhoff

Thank you, Dave, and good morning to everyone. Welcome to The Home Depot Third Quarter Earnings Conference Call. Joining us on our call today are Frank Blake, Chairman and CEO of The Home Depot; Craig Menear, Executive Vice President, Merchandising; and Carol Tomé, Chief Financial Officer and Executive Vice President, Corporate Services.

Following our prepared remarks, the call will be open for analyst questions. Questions will be limited to analysts and investors and as a reminder, we would appreciate it if the participants would limit themselves to one question with one follow-up. This conference call is being broadcast real time on the Internet at earnings.homedepot.com. The replay will also be available on our site. 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 Frank, 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, those factors identified in the release and in our filings with the Securities and Exchange Commission. Today's presentations also include certain non-GAAP measurements. Reconciliation of these measurements is provided on our website.

Now, let me turn the call over to Frank Blake.

Francis S. Blake

Thank you, Diane, and good morning, everyone. Sales for the fourth quarter were $16 billion, up 5.9% from last year. Comp sales were positive 5.7%, and our diluted earnings per share were $0.50. Our U.S. stores had a positive comp of 6.1%.

From a geographic perspective, we saw positive comps in all of our top 40 markets. The unseasonably warm weather helped customer traffic and clearly was a factor in our sales performance. We've also seen the steady recovery of some of the hardest hit markets like Florida and California. Our major Florida markets all outperformed the company average, and California was in line with the company average. Both states have posted positive comps for 8 consecutive quarters.

As Craig will detail, we saw strength in our core merchandising areas, as well as in our holiday Gift Centers and we had strong growth in customer transactions with sequential comp transaction improvement each quarter this year.

On the international front, our Canadian business had positive comps for the quarter and our Mexican business had another quarter of positive comps, making it 33 quarters in a row of positive comp growth. Operationally, Marvin and his team are making progress on our customer service initiatives. Based on the changes we've made throughout the year, we now have approximately 53% of our store labor hours dedicated to customer-facing activity. Just 4 years ago, we were at 40%. So this is a significant improvement in a short period of time. It's required a lot of detailed planning and focused execution at the regional district and store level to make this happen, and this speaks to the alignment of our store operations and support teams.

We are also very excited about a new service offering our operations team is in the process of rolling out. This year, our stores will be offering in-store repair services for power equipment and powers tools. Previously, we had an off-site third-party service that would provide equipment repair. We can provide that service ourselves now, leveraging our tool rental centers and reverse logistic centers, customers can have tuneups another maintenance completed at our stores. We think this will be a significant improvement and convenience for our customers and will enhance the overall value of our power tool and equipment product offerings.

On the merchandising front, Craig and his steam continue to develop our merchandising tools. The most significant recent activity was the upgrade of our dot-com platform. This upgrade enhances the layout, visual appeal and responsiveness of our site and gives us a best-in-class platform for future interconnected retail development.

Our supply chain investments continue to deliver benefits for the business, improving our in-stock rate and asset efficiency, as we again improved inventory turns this year. As of the end of 2011, we handled approximately 70% of our cost of goods sold through central distribution in the U.S. This compares to approximately 25%, 4 years ago.

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