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The Home Depot CEO Discusses Q2 2010 Results - Call Transcript

The Home Depot CEO Discusses Q2 2010 Results - Call Transcript

The Home Depot (HD)

Q2 2010 Earnings Call

August 17, 2010 9:00 a.m. ET

Executives

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Diane Dayhoff – Vice President, Investor Relations

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

Analysts

Deborah Weinswig - Citigroup

Matthew Fassler - Goldman Sachs

Dennis McGill - Zelman & Associates

Christopher Horvers - J.P. Morgan

Michael Lasser – Barclays Capital

Stephen Chick - FBR Capital Markets & Co.

David Schick – Stifel Nicolaus.

Scot Ciccarelli - RBC Capital Markets

David Strasser – Janney Montgomery Scott

Budd Bugatch - Raymond James

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

Presentation

Operator

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Good day everyone and welcome to today’s Home Depot second quarter 2010 earnings conference call. [Operator instructions.] Beginning today’s discussion is Ms. Diane Dayhoff, vice president, investor relations. Please go ahead.

Diane Dayhoff

Thanks operator, and thank you to everyone and good morning. 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 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.

Now 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 second quarter were $19.4 billion, up 1.8% from last year. Comp sales were positive 1.7%, and our diluted earnings per share were $0.72. Our U.S. stores had a positive comp of 1%.

From a geographic perspective, 70% of our top 40 U.S. markets positively comped in the second quarter. Florida and California continued their positive growth paths with performance in line with the company average. We saw a retreat from some of the very strong numbers in the first quarter, particularly in the Pacific Northwest, where key markets like Portland and Seattle turned to negative comps. But on a year over year comparison for the second quarter, every market except the hurricane-impacted market of Houston improved.

As Craig will detail, one of the clear patterns of the first and second quarters was a shift in the timing of outdoor garden [spending]. We had something of a bathtub effect in the first half in garden. Strength in the first quarter was counterbalanced by weakness in the second quarter, but overall in garden the first half came out about where we expected.

And it’s a similar picture for the company as a whole. We anticipated that second quarter comps would decline from the first quarter. They did, but for the half we came in ahead of where we had planned. This gives us some confidence as we look into the back half. We have two quarters in a row of positive comps in the U.S. We have a continuing pattern of positive comp transactions in our stores. We’re gaining share in key categories, and basic execution across the business is sound.

We are also continuing to invest in our core initiatives. We opened our 14

th

and 15

th

rapid deployment centers, or RDCs, during the quarter in Scranton, Pennsylvania, and Phoenix, Arizona, and we just opened our 16

th

RDC in Findlay, Ohio yesterday. RDCs now serve over 80% of our U.S. stores, and we remain on track to reach our goal of serving 100% by the end of the year.

This has been a huge undertaking that has involved the entire organization, and we think it’s a very positive sign that in the midst of this build out, the company is also improving its inventory turns. For the third quarter in a row, our inventory turns have improved. This is something we hadn’t achieved in almost a decade.

Craig and the merchandising team continue to develop and use new merchandising tools. The benefits of this are most clearly seen in our reduced markdowns for seasonal categories like patio and barbecue grills, where better visibility into, and planning for, seasonal inventory has significantly reduced the markdowns necessary to effectively exit those categories.

Marvin and the store operations team are also continuing on the path of improving customer service. We have previously discussed our customer FIRST program. Marvin has now launched a version of that for our pro customers and a special version focused on our checkout process, and we continue to see improvement in our net promoter scores.

On the international front, our Canadian business had flat comps for the quarter as it experienced some of the same impacts in the western regions of Canada as the U.S. experienced in the Pacific Northwest. And our Mexican business had another quarter of positive comps, making it 27 quarters in a row of positive comp growth.

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