Home Depot, Inc. (HD)

Q3 2010 Earnings Call

November 16, 2010 9:00 am ET

Executives

Frank Blake – Chairman, Chief Executive Officer

Craig Menear – Executive Vice President, Merchandising

Carol Tomé – Chief Financial Officer, Executive Vice President, Corporate Services

Marvin Ellison – Executive Vice President, U.S. Stores

Mark Holifield – Senior Vice President, Supply Chain

Diane Dayhoff – Executive Vice President, Investor Relations

Analysts

Chris Horvers – JP Morgan

Matthew Fassler – Goldman Sachs

Scot Ciccarelli – RBC Capital Markets

Deborah Weinswig – Citigroup

Gary Balter – Credit Suisse

Alan Rifkin – Bank of America Merrill Lynch

Greg Melich – ISI Group

Michael Baker – Deutsche Bank

Michael Lasser – Barclays Capital

Eric Bosshard – Cleveland Research Company

Dan Binder – Jefferies

Peter Benedict - Robert Baird

Budd Bugatch - Raymond James & Associates

Presentation

Operator

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Good day everyone and welcome to today’s Home Depot Third Quarter 2010 Earnings conference call. Today’s conference is being recorded. If you’d like to ask a question during today’s call, please press the star key followed by the digit one on your touchtone phone. Please note that any prompts entered before this time may not have registered in our system.

Beginning today’s discussion is Ms. Diane Dayhoff, Vice President of Investor Relations. Please go ahead, ma’am.

Diane Dayhoff

Thank you 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 opened for analysts’ 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, please.

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. 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 in the financial statements included with our earnings release.

Now let me turn the call over to Frank Blake.

Frank Blake

Thank you, Diane, and good morning everyone. Sales for the third quarter were $16.6 billion, up 1.4% from last year. Diluted earnings per share were $0.51. This was the fourth quarter in a row of positive comps for our business and the third quarter in a row of positive comps for the U.S., which had a comp of 1.5%.

In the U.S., over 80% of our Top 40 markets positively comped. Compared to prior quarters, the variability of performance has narrowed so that we see less dramatic swings on the positive and on the negative side. For example, in the third quarter of 2009 the spread between the best and worst of our Top 40 markets was about 35 percentage points. This year that spread is cut almost in half to about 18 points.

Our Gulf region is now exiting its year-over-year storm comparison so its negative comps have turned slightly positive. We saw strength in key markets, particularly in our central and mid-Atlantic regions, and we continue to see positive results in Florida and California. So from an overall perspective, we see a stabilizing business; and as the business stabilizes, we continue to improve our operational performance. We are exercising good control over our expenses but we’re also investing in the business to drive improvements across customer service, merchandising, and our supply chain.

Let me give one recent example. Our technology and operations teams have developed and implemented a new technology for our store associates. We call it the First Phone because its core purpose is to reduce tasking time for our associates so that they can instead focus on customer service. It is a handheld device that provides several functions – inventory management, product location, sku category, and class performance analytics; a phone, a walkie-talkie, and a mobile checkout. What makes the First Phone worth discussing are two general points: it was developed through close cooperation with our store operations and IT teams, perhaps the best collaboration we’ve ever had on a project like this; and we see it as a foundational element of improving our service for our DIY and pro customers, putting knowledge and communication closer at hand to our associates on the floor of the store.

Similarly, we are continuing the development of our new merchandising tools. As an indicator of that, we had another quarter of improved inventory turns for the Company. Our rollout of rapid deployment centers, or RDCs, remains on track to reach 100% of our U.S. store base by the end of the year; and we are continuing the significant ongoing complementary work designed to get additional leverage from our supply chain.

Beyond the supply chain, we are building out a new set of analytical tools for our merchants across assortment planning, pricing, and customer analytics. We’ll discuss those at some greater length at our upcoming investor and analyst conference in December. But just as we have a goal to better enable our associates to deliver great customer service, we also have a goal to better enable our merchants to drive category growth in our business, and in both instances technology is a critical enabler.

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