The Home Depot, Inc. F1Q10 (Qtr End 05/02/10) Earnings Call Transcript

The Home Depot, Inc. F1Q10 (Qtr End 05/02/10) Earnings Call Transcript
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The Home Depot, Inc. (HD)

F1Q10 Earnings Call

May 18, 2010 9:00 am ET

Executives

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

Christopher Horvers - J.P. Morgan

Eric Bosshard - Cleveland Research

Deborah Weinswig - Citigroup

Budd Bugatch - Raymond James

Jaison Blair - Rochdale Securities LLC

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

Scot Ciccarelli - RBC Capital Markets

Matthew Fassler - Goldman Sachs

Todd Duvick - BofA Merrill Lynch

Alan Rifkin - BofA-ML

Stephen Chick - FBR Capital Markets & Co.

William Truelove - UBS

Dennis McGill - Zelman & Associates

Gary Balter - Credit Suisse

Presentation

Operator

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Good day everyone and welcome to today’s Home Depot first quarter 2010 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 Dayhoff

Thank you Cindy and good morning to everyone. 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 we open for analysts’ questions. Questions will be limited to analysts and investors, and as a reminder we would appreciate 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 first quarter were $16.9 billion, up 4.3% from last year. Comp sales were positive 4.8% and our diluted earnings per share were $0.43. Our U.S. stores had a positive comp of 3.3%. This represents the first quarter of positive comps for the U.S. since the fourth quarter of 2005.

From a geographic perspective, all but three of our top 40 U.S. markets positively comped in the first quarter, and all of our regions positively comped except the Gulf region which is still impacted by hurricane related comparisons. We also had a return to positive comps in Florida and California. Overall sales were better than we planned for the quarter, and we continue to focus on improving our underlying business performance. As Craig and Carol will describe in more detail, for the quarter, we levered our operating expenses in line with our targets; improved our gross margin rate through better assortment management; and improved inventory turns.

We also made significant progress on our key infrastructure initiatives. We opened our 13

th

rapid deployment center or RDC in Columbia, South Carolina. RDCs now serve 70% of our U.S. stores and we’re on track to reach our goal of serving 100% by the end of the year. It’s important that our supply chain team is on track on the network build-out. It’s even more important that they maintain that schedule as they also improve the performance at the existing facilities.

This spring season has seen some unusually erratic weather from record snow in the mid-Atlantic to unseasonably warm temperatures in April in New England. The flexibility and responsiveness of the supply chain were critical in meeting these changing needs. We improved our inventory turns in the quarter and improved our targeted in stock levels during a challenging season.

Craig and the merchandising team continued to integrate new merchandising tools as part of the overall merchandising transformation. For example, over the last three years we have steadily increased the portion of SKUs that are on centralized, automated replenishment. This year we began the process of upgrading the tools used for the centralized forecasting systems. These tools significantly improved the accuracy of the forecasting for seasonal products during the first quarter. Based on this success, we’ll be migrating centrally automated SKUs to the new forecasting tools by the end of the second quarter.

Marvin and the store operations team worked to continue to improve the customer service levels in our stores. Last year, as we described, we re-trained every associate in the company on our customer service expectations, what we call our Customer First program. This year we repeated and refreshed that training to emphasize that this isn’t a temporary program, but part of our ongoing commitment. We’ve seen consistent improvement in our net promoter score since we initiated Customer First, and it was particularly significant that we again saw an improvement in the first quarter, 600 basis points over last year, even as our transactions increased 4.2%.

On the international front, our Canadian business delivered a positive comp and significantly improved its overall business performance. Last year’s first quarter was negatively impacted by the major ERP implementation we undertook in Canada. That is now behind us. Our Mexican business also had another solid quarter, with single digit positive comps, and our team in Mexico is helping on a number of U.S., Hispanic focused efforts. For example, our head of marketing in Mexico helped lead our review of Hispanic marketing in the U.S. In China, our business performed to plan as we continue to refine our business model for that country.

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