The Home Depot, Inc. (HD) CEO Craig Menear Presents at Goldman Sachs 27th Annual Global Retailing Virtual Conference Call Transcript

The Home Depot, Inc. (NYSE:HD) Goldman Sachs 27th Annual Global Retailing Virtual Conference September 10, 2020 11:40 AM ET

Corporate Participants

Craig Menear – Chief Executive Officer

Ted Decker – EVP Merchandising

Conference Call Participants

Kate McShane – Goldman Sachs

Kate McShane

Everyone thank you for joining us for our Virtual Lunch Presentation. My name is Kate McShane, I’m the hardline, broadline analyst here at Goldman Sachs. It’s my pleasure today to introduce the members of the management team from the Home Depot.

Home Depot reported second quarter results recently with comps up over 23% with broad based strength throughout the quarter, all month for over 20% in every region comps double-digit and strong demand was carried through to the first two weeks of August with comps still at similar levels, 13 of 14 merchandise departments posted double-digit comps with DIY still outperforming but Pro accelerating meaningfully versus Q1.

We’re very happy to introduce Craig Menear, CEO of the Home Depot, and Ted Decker, EVP of Merchandising. We’re also joined by Isabel Janci, VP and Treasurer, as well as Tim Walsh and Lyndsey Burton from the Investor Relations team.

Craig and Ted, thank you so much for joining us today.

Craig Menear

Glad to be here and thank you.

Kate McShane

If we could maybe just level set and talk about the navigation of the current environments. As I mentioned in the opening comments, Home Depot sales grew over $7 billion in one quarter or 23%. And just keeping pace with that level of demand seems very, very tough and unprecedented. So I was hoping you could talk a little bit about how the company has navigated through some of the uncertainty over the last six months, I pivoted to meet this demand and what are some of the bigger challenges you’ve overcome?

Craig Menear

Sure. So, Kate, thank you again for having us.

To the point to grow $7 billion in the quarter was an interesting feat when you hit $9 billion for the year and we started our thought process around 2020. We thought for the year we grow somewhere in the 4 billion-ish range. So it is certainly presented its challenges. And then you layer COVID on top of that, and no doubt it put pressure in places.

So when you think about the important elements is, the complexity that it put into the supply chain pushing that kind of incremental volume through the supply chain. Taking that all the way back into the vendor community by the way, so there were raw material planning, efforts that needed to happen. Certainly that has presented challenges. We’d like to be in a better in-stock position than we are today. We’re down year-over-year. But we’re gaining ground on that and improving as we sit here today.

I think, when you think about the tremendous growth in the digital space, having the flexibility to be able to adjust to handle that kind of volume, particularly the volume we’re seeing not only through the stores with [indiscernible] but direct to customer having the flexibility to adjust and deal with that volume was pretty important as well. We did that by shifting a fulfillment center that we had opened in the Chicago area that was going to be a market delivery center in a matter of couple weeks we converted that temporarily to a direct fulfillment center, shipping product direct to customers from our dot com business so that we could support the triple-digit growth.

Kate McShane

Okay. Thank you for that. And I guess within the last six months, we saw a real change in dynamic with regards to the DIY customer for a long time we thought about the Pro customer as the bigger driver of growth for the home improvement industry. But this year, DIY is kind of leading the charge. And while some of this DIY might be driven primarily by people being home more, it does raise the question about whether we’re going to see a new level of engagement with that customer. And whether taking on a project here and there during this time is sticky, and that will be behavior that you see for a longer period of time. So how are you thinking about the activity longer term from the DIY shopper? And is there any category maybe you were under invested that you can lean into a little bit more to take advantage of a longer term trends?

Craig Menear

Sure. I think I’d start with the Pro customers always an important customer at the Home Depot. But we never lose sight of the fact that we have $60 billion-ish DIY business that has been pretty important to the company for its 41 year existence. And so we’re excited about seeing the engagement of the DIY customer in our space. And over the years, I’ve been asked a lot about what does this look like and the mix look like long-term at the Home Depot with all this focused on the Pro customer? And my answer to that always is that today we have kind of a 55, 45 DIY mix. And at the end of the day, if we end up with an 80:20 Pro, we haven’t really done our job because we want to grow the DIY business at the same time, we’re growing the Pro business and that’s been our focus all along.

So we’re super excited to see the engagement from the DIY customer. I think that customers spend a lot of time around their home, they see a lot of things that they want to do. And at the same time, there’s more wear and tear in the home. Our customers tell us from surveys that home is never more important than it is today. And so, we’re super excited about the opportunity that we see today. Ted, I don’t know, if you want to comment on some of the categories.

Ted Decker

Yes. So that the DIY business is clearly led over these past several months with COVID and really all categories across the store have seen tremendous growth as we reported. In Q2, we had double-digit growth and 13 of our 14 departments as you said in bath is just shy of double digits. So the installation business has been — are slower performing we’re starting to see that comeback as customers get more comfortable having people in their home in our pros and permitting and the like to do larger installed businesses.

But you talked about the engagement that we’ve seen with the DIY customer and that is clearly a focus of ours to track that engagement and maintain that engagement into the future. There’s so many good things going on in our segment with the DIY customer engaging. You’ve heard us talk a lot about Pro over the years and the things we’re doing with Pro but as Craig just said, DIY is a hallmark of the company and still the majority of sales and we need to keep that business growing and the engagement we’re seeing with DIY customers and with the engagement and interconnected in digital, it’s allowing us to know that customer better than we have in the past, we’ve always known our Pro customer with much fewer number of customers driving that 45-odd percent of our Pro business we have field sales, we have a Pro loyalty program and lots of ways with that Pro customer. But the DIY customer had traditionally been sort of a mass anonymous. But with the advent of interconnected and digital, we have a lot more signals now that we can start to know the customer to a much greater extent.

So we’ve been working a lot on personalization in audiences so if we might not know you to the end individual certainly know you as a segment in an engagement model, if you’re engaging garden department more or you’re painting or you’re more of an interior project and decor [indiscernible] customer. Then we can get our whole marketing message in our whole product in a way going. New product as you enter our sites and engage with the Home Depot. There’s just vast opportunity with COVID increase that engagement.

So as we build out abilities to track engagement, we’d like to see new customers, we’d like to see customers talk about in a shopping one aisle over, they shop in two aisles over. For the engagement projects, how many items for basket per transaction are they purchasing at Home Depot? We’d like to and our now increasingly capable of tracking their use of the capabilities we’re building out.

One of the big strategic reasons behind our change and our marketing tagline to how do doers get more done. Home Depot has always been known for product authority and know-how. So we helped a generation of — at the time baby boomers engaged in DIY and gained that confidence of that first project, the second project, increasing the scope of what type of project they were working on. But now as we build out more capabilities digitally, we wanted to signal that with how doers get more done. So we have our app. And we have planning tools, and we have project tools and calculators and way finding, so you can pinpoint exactly where in the store your product is located or buy online pick up in-store, buy online deliver from store, buy online have the product put in a locker for pickup. So all these capabilities that we are building, we are also able to attract the engagement levels.

And as you can imagine, as people start to engage with more capabilities as they start to shop one and two aisles over as they start to gain the same confidence of the newer DIY-er, that is the millennials launched on their journey. We’re starting to see that same behavior as the baby boomer back 30 and 40 years ago, and as they engage their spend and share wallet, goes up with a Home Depot. So huge opportunity, as you said with this new — great number of customers and their increased engagement with the Home Depot.

Kate McShane

Helpful. Thank you. I wanted to ask, just in the same context of category drivers before the pandemic, you had cited quite often the amount of innovation that was coming through your different merchandising categories. And just with such a wide assortment of SKUs that you carry, it’s a little tough for us to totally, fully appreciate, I think how much innovation really is taking place. So I wondered if you could maybe talk a little bit more recently about some of the innovation that you’re seeing from your vendors? What new trends do you think can emerge post the last six months in terms of what you’ve seen demand for innovation? And I assume innovation means people are trading up, so if you can comment on that as well.

Craig Menear

Let me make one comment around innovation in general and then I’ll give it to Ted to give you the specifics. So when you think about innovation, what the merchants are focused at Home Depot, it is how do you bring product to market that makes it easier for the consumer to be able to do a project and/or how do you bring product to market that allows the Pro to be more efficient. It gives them confidence and no callbacks. And that innovation is hugely important in the business.

Ted Decker

So in product authority is what we stand for in merchandising at Home Depot and innovation is the hallmark of that. So we’re working with our supplier partners, customer back deep into their product development of what should we be focused on in innovation, and it really goes across the whole store. You’ve heard us talk a lot lately about cordless battery technology in power tools that is now exploding in outdoor power equipment. So categories that were exclusively gas for decades and decades are quickly shifting to cordless technology, the lineup of products that we have coming in our outdoor, we have great product now but the lineup of product that we have coming in the spring of 2021, what you are going to be able to do in terms of size of job and run time and power of cordless technology and outdoor power equipment is incredible.

But this type of innovation is really across the store. I mean, it goes on through building materials into core categories, certainly appliances, we just I mean something you might not get that excited about. But we do at Home Depot, we just reset our entire grout bay. And we have an exclusive relationship with custom building products, which is by far the largest share in the category and they’ve just come up with an incredible array of floor levelers large format tile, quick adhesion, grouts that are NC approved for dust emissions which is required for nursing homes and hospitals. Pre-mixed grout for either a quick job for a DIY-er or making a job easier for a pro. We have color consistency, all at great value. So we just finished resetting our entire grout in tile set material bay over the last several weeks, the performance is incredible.

So again, something you wouldn’t think a lot about innovation in tile set material but it really is remarkable for all the new products that came in that reset.

Kate McShane

Thank you. One question that we got a little bit before the pandemic but certainly has become more prevalent is the changing in migration or population, and you’re seeing big cities like New York City and San Francisco being impacted by people moving to the suburbs or just moving away. But I was wondering what you were seeing in your business currently, I know there was some dynamic in the first quarter, it seems even out in the second quarter, but longer term, how do you think about some of these population trends and how your stores are positioned in urban versus suburban markets?

Craig Menear

So I’d say first comment would be we’re actually thrilled with our overall footprint that we have throughout the country. It’s interesting, because there’s a lot of talk and a lot of dynamics. Now, it takes me back to 2015 and earlier, when there is a lot of conversation around the fact that gosh, the whole millennial generation, everybody is going to move to inner cities and the millennials, we’re never going to own anything, they are only going to rent, they would never have a car, they would never have a tool. That’s what we heard through all of this. And our research that we did — deep research in 2015 indicated that that none of that was actually — actual based on the research that we had with the millennial generation, and that they would, in fact, act the same way other generations had. It was just a delayed cycle. And we’re actually seeing that play out, by the way.

So as the millennial generation got married. kids come along, you need more space, they moved from the city centers to a more suburban environment and they need more space, it’s more affordable. We’re actually really pleased with the overall footprint and we think that that plays out pretty much the same going forward. Will there be movement from the city centers? Of course, that’s what our research said was going to happen in 2015. And so, when you think about what we’re doing right now, we’ve actually been able to finally after sometimes a decade long effort to secure new sites in urban centers to take pressure off a really high volume stores, we’ve been able to open a few of those and we’ll continue to look for those kind of opportunities. But migration is something that we’ve always deal with and that we always will, footprints accordingly in given markets, when you see migration happening, whether that’s interesting, that’s just part of what you have to do as a retailer.

Kate McShane

Craig. I think, we lost your sound.

Craig Menear

Can you hear me?

Kate McShane

I can hear you now.

Craig Menear

Okay. Kate, the last comment I was making was migration and making sure that you’re covering footprints with stores where it needs to be is something that you always deal with as a retailer.

Right, again, opening stores to try to take pressure off a high volume and big urban markets or doing in-fills in a suburban market that might be growing more rapidly today than what it was 10 years ago. Those are things that you just naturally do as retailers.

Kate McShane

Okay. Thank you for that. Really if I could pivot to the competitive landscape, just given the fragmentation of the home improvement market, it is difficult to have a sense of exactly what’s happening with independence and smaller players. We wondered if you can give us a sense on how the pandemic maybe has affected some of the smaller players? Is it something in which you maybe saw an opportunity for more consolidation and now you’ve had almost a second breath of life because demand has been so strong for home improvement and how do you think about that longer term?

Craig Menear

Two comments there. We’ve shared in the past that when you aggregate up independence, in pretty much any category that we play in, they own the lion’s share of the market. And so that’s always an opportunity and part of what we’re investing and to create this interconnected experience, hopefully will give us an edge to be able to gain share and grow faster than the market.

Second comment that I have is, look when you look at independence and independence that came through 2008, 2009, 2010. Right? Those are really good business operators, people that survived that environment, people that will survive this COVID environment are really good operators that you have to gain a lot of respect for. And so there’s always going to be independence and competition. But we’re investing to position the Home Depot to grow faster than the market, in any environment that we get thrown into, whether it’s good or whether it’s bad, and that’s really what we’re trying to get done.

Kate McShane

And then if I could ask about pricing and promotions. I’m sorry, Craig, if I’m talking over you, there’s just a little bit of a delay. I’m sorry.

Craig Menear

No, you’re fine.

Kate McShane

Okay. If I could ask you about pricing and promotions, if demand remains very strong, is there a possibility that you could see a further pullback on promotions in the back half of the year?

Craig Menear

Well, that’s something that, we have tried to approach the business from an everyday low price approach. Events have always been part of how you drive excitement and I’ll let Ted address that. Yes, there’s definitely changes.

Ted Decker

Yes. So again, we always strive to be everyday low price. We do have events to create excitement, it’s as much to them as whether it’s our spring sets and patio set. That’s — is our decorative holiday or our gifts center and a lot of our tool categories. So it’s as much to bring the excitement of the product in new product innovation to life, but certainly we have special buys where we work with our supplier partners to bring in product. Specific to that event and specifically sharper prices, we try as much as possible not to simply have a lot of percent offs to signal under our categories such as appliances that is hard to get away from a percent off game. But we are always looking to move our events more product centric and excitement and seasonal relevance centric than percent off. And what this environment has really forced us to do are a number of things, because we’re trying to put safety first and foremost and encourage social distancing in our store, we’ve tried to limit the amount of product we’re putting down in the walkways of the store.

So we work with our supplier partners to really focus on key items larger and deeper, buys that get you even better values on key products, leveraging our end caps in our swing areas more than the race track of our store and by winnowing down the number of SKUs that’s allowed us to do that to promote social distancing and safety.

The other thing we’re doing is, we’re expanding the timeframe. So you think of a Black Friday, well, we are not as big traditionally, as a Black Friday player. As some other retailers we’ve built up quite amount of business and foot traffic and excitement around Black Friday. We’ll try to limit that single day focus and you’ll see us having that product and those values over a much longer period of time. There’ll be a few things that we do on Black Friday but things like have to come to the store this specific period of time, very short quantities. We just think today that might not be as responsible from a safety perspective as it could be. So we’ll still have events, we’ll still have great innovative product, we will still have great values, they’ll just be shown over a longer period of time and an opportunity to really leverage their interconnected experience. So all these are available online as well for ship to home or buy online and pick up in store. So we’ll have events just slightly different going forward.

Kate McShane

And when it does come to holiday and positioning around holiday, as we kind of emerged from the March and April timeframe, was that enough time to pivot or to chase some inventory for categories in which you think will be more important for holiday as it became more clear that people wouldn’t be travelling, maybe staying home, maybe focused more on home decor?

Craig Menear

One of the learnings we’ve had over the years from storm situations, in the earlier days, we used to think about — if a storm hit in a particular area that we would go in and extract like holiday decor from those markets. Thinking that the customer that’s not where their mindset was going to be and what we learned over the years is, actually it’s exactly where their head is, they want some form of normalcy in their life. And so they actually fully focus in that area. So we didn’t really pull back our thought process around the events in Q4 as it relates to holiday because we suspected that the customer would react in the same way that they do in a storm situation and that they want that kind of normalcy overall. So we’re prepared for the fourth quarter holiday events.

Kate McShane

Okay. Thank you. And I’m just going to pivot my questions to cost, you’re still in the midst of a multiyear investment plan. And we’re just wondering if this year’s surge in activity led to any big changes in the timing of what you’ll be rolling out with regards to your supply chain investments or your store remodel investments, et cetera?

Craig Menear

So the first comment, I have Kate is that, when you step back and you think about what transpired this year, and the work that we’re doing, there’s nothing that happened this year that would cause us to say we need to invest more than we had originally planned to invest. So there’s no change from that standpoint. What did happen is, as we pivoted and stopped some things that were happening in-store, because of all of that was happening, with our associates, we didn’t want to drive more people into the stores to do resets, transform front ends and so on.

We are looking at what portions of that we can begin again in the back half of the year. And so we’ll try to get some of that work done in the back half of the year, but some of that may actually end up rolling into 2021. We’ll see how much we can get done here this year, but kind of worst case scenario, it’s possible that 21 because of what we might have to push might look similar to 2020 from our capital investment standpoint, but it won’t be a dramatic shift.

Kate McShane

Thank you. And when it comes to the COVID related costs, if we think about the costs that you’ll be having in the first half of ’21. It seems like aside from cleaning costs, maybe a lot of what’s associated with the higher cost has been wages and bonuses. So even if demand throw next year as it was this year, it seems like you can grow EBIT, just given the amount of cost that likely will fall off. Is that a fair way to think about 21 without going, getting into the nitty-gritty of what you think demand would be, but just with regards to cost, it does seem like there might be some flexibility there.

Craig Menear

I think when you think about the incremental cost that we’ve incurred this year, I think there’s a couple ways to think about it. Right now, we’re continuing at this point, with our weekly bonuses for our associates, we feel that’s appropriate given everything they’re going through right now. There are the market dynamics, obviously, will determine where we’re at. We will remain competitive on a market-by-market basis. That’s how we’ve always approached our business in terms of our wages with associates. So we’ll continue to do that even after this whole COVID situation hopefully resolves itself.

As it relates to the other operational cost, we had an incremental costs that took place in Q2 because we made a decision in the quarter that we were going to require mass for all of our associates and all of our customers. Clearly, we will bring down that cost as we’ve gotten more efficient at purchasing mass and how we distribute mass. And so that will come down. The incremental costs that we saw in the second quarter also as a result of significant increase in U.S. volume at 25% comps, $7 billion worth of growth that flows, that cost will flow based on the volume that we do, because we have to have associates appropriate to the volume that we’re incurring.

So you can you can think about some of the operational costs coming down. Ultimately, I can’t imagine, the U.S. population run around with mass all the time, when we get a vaccine or we get this virus under control, totally, that costs will ultimately go away. And then what portion of the associate cost stays will be driven by the competitive market dynamics that we play against, and we do that all the time anyways.

Kate McShane

Okay. Thank you. I haven’t specifically asked about the Pro, which I should have asked a little bit earlier. So I want to make sure I get a question in on that you’ve been investing in the Pro experience for a very long time, as you mentioned earlier, enhanced delivery, credit, rentals, exclusives and then of course, all the investments that you’re making in the supply chain. We’re wondering if you can update us on a few of the enhancements that have recently gone live this year, what you’re most excited about heading into next year for the Pro?

Craig Menear

Sure. Obviously, the Pro is an important customer and we are to your point, investing in an ecosystem that encompasses a wide variety of capabilities, whether that’s product, brand, credit, delivery, all rental — tool rental, all of that as an important element of driving the Pro business. We’re really excited about the capabilities that we’re building out around delivery for our Pro customer and particularly in the flatbed network that will allow us to deliver big and bulky type products for our Pro customers. That will also take pressure off of our stores, the intent there is to relieve pressure from our stores. If you walked our stores, any at morning at six o’clock, you’d see lots of deliveries lined up in the aisles of the store, which is a great for the Pro’s are actually stopping in those aisles during that morning so that the flatbed delivery network that we’re building out, will give us the capability to remove that pressure from the stores to be much more efficient and to be able to open up capacity for delivery and begin to narrow down on windows to get to specific time slots for our Pro’s. That’s the work that we’re doing over time.

So we’re super excited about that. We’ve got a couple of these facilities up and running. There will be more coming towards the latter part of this year and then you’ll see an expansion in the next year. We’re kind of — Kate, we’re following the same pattern that we did when we build out the RDC network, kind of go slow at first, make sure that you have all the elements of it put in place that are operating efficiently. And then you increase the expansion of that on a more rapid basis as you move through the years. And that’s really what we’re doing, so really excited about that.

We’re excited about, the capabilities in connecting the Pro to the digital world as well. We’re seeing increased adoption there we on-boarded, the million or so Pro’s that we told you we were going to do into the digital capabilities. The engagement that we’re seeing there with Pro’s that as they get more familiar with the capabilities, that where you continue to enhance, we love the growth that we’re seeing with those Pro customers and their engagement in the digital world.

So, really we’re excited about the opportunities we have with a Pro customer. And the ability that we have to grow with the Pro and the more plan purchase element of their business, an area that we hadn’t really penetrated all that strongly. Because, it was largely done from a store base footprint, and the new supply chain capabilities give us a much greater opportunity to be able to play in that more plan, purchase element of the larger purposes. So super excited about that opportunity.

Kate McShane

Thank you. We are asking all the companies that are presenting at the conference for questions, and some are a little forward-looking, so you might not be able to expressly the answer them but your view would be helpful. Nice.

Question-and-Answer Session

Q – Kate McShane

The first question we’re asking is, if taxes were to go up next year, would you pull back on any of your investments?

Craig Menear

No. We will continue to do what’s necessary. Our approach to how we use our capital doesn’t change. We’re going to start with investing what we need to invest in position, the Home Depot to win in the marketplace on an ongoing basis. That’s just what we do. And we even talked about the fact that during the downturn of 7, 8, 9, we invested through that downturn, and that played to our advantage, right way. We’re investing through COVID. That’s going to play to our advantage. So now we would not pull back on investment that’s necessary to position the business.

Kate McShane

Okay. The next question, and again, we talked about this a little bit, but when it comes to margins, Calendar 21 do you expect them to be higher or lower than 2019?

Craig Menear

I think the answer there is to go back to what we shared with everybody at the investor conference in December, right? Through the investments that we’re making in the business, we want to position the Home Depot to be able to gain share faster in the market to be able to outgrow the market, no matter what the environment is. And if we can accomplish that, we then deliver incremental profit dollar growth. And that’s really what we’re focused on.

You don’t take rate to the bank, you take dollars to the bank. So if we can grow incremental profit dollars, that really is we know, we can then flow that through to the bottom-line for our shareholders. And that’s really what we’re focused on. If you think about areas that we’ve invested in the business and appliances comes to mind, right? We’ve put a lot of investment in the business in appliances over the past 10 years, we have grown incremental share in a huge way in that space, and now have a multi billion dollar business in appliances. That, obviously is a category that puts rate pressure on us from a margin standpoint, but the incremental gross margin dollars and then operating profit dollars that we gain way offsets the pressure that we see from a mix standpoint, on rate. And that I think is exactly the kind of investments that you want us doing as an investor in Home Depot so that we can deliver great returns and great return on invested capital as well. And so that’s really what our focus is overall rate will fall or rate falls. Our job is to deliver incremental off margin dollars so that we can deliver for our shareholders on the bottom-line.

Kate McShane

Thank you. The third question, which is not really applicable to Home Depot, but I’ll just ask it, do you expect to have more or fewer stores in ’21 versus 2019? Or is it the same?

Craig Menear

We expect to have a few more modest, right? Our store expansion has been very, very modest over the past, I don’t know 10 years plus, we open a handful of stores or two, three stores a year, maybe as many as five depending on the given year. Most of those have been in Mexico. But in recent years, the last couple of years, we’ve been able to actually open some stores in the U.S. where we’ve been working on filling opportunities it goes to one of your earlier questions about how are you — you think about migrations and that’s something that we’re always working on.

And, we’ve opened a handful of U.S. stores to fill-in market opportunities that we’ve seen come up and we’ll continue to do that we continue to evaluate that on an ongoing basis. So, handful of stores, probably the incremental over the next couple years.

Kate McShane

Okay, thank you. And the last and fourth question is, with regards to pricing power, do you expect pricing power to be stronger or weaker going forward?

Craig Menear

I’d say Home Depot uses its size and scale to leverage its pricing power. So that’s something that we do on a consistent basis.

Kate McShane

Okay, great. I’m going to check in with the audience to see if they have any questions. For those who are listening on the webcast, there is a ask a question box where you can type in your question and I’ll be able to read it to Craig and Ted. The first question I see here is, do you have any thoughts on catering to Home Builders?

Craig Menear

No. I mean, we’re really not set up for new construction. That’s not — we have Home Builders that shop at the Home Depot. But that is not what we are really set up to do. We really don’t cater to new construction. We couldn’t put together a lumber package to save our life. That’s just not our forte. We don’t have the space in our stores to be able to do that. That’s just not who we are.

Kate McShane

Okay. The next question touches upon something we talked about with regards to inventory. The question is, are there any areas that are more affected by inventory or lower levels of inventory now than others? And just how do you — how did the inventory challenges that are being created by the new normal volumes of high speed delivery? How are you addressing them?

Craig Menear

Sure. Yes. When you push an incremental 7 billion through in a quarter there’s definitely create some challenges. There’s no doubt about it. And Ted, if you want to share some of the categories.

Ted Decker

Yes. I would say every category was impacted, some worse than others. I think our two ends of the building were probably the most impacted with lumber and pressure treated with a huge spike in demand there and then in our garden, consumer and the cleaning products. Those were probably the two most impacted. But really every category participated in that 25% growth in Q2. In our year-over-year in-stock rates are down in virtually every category.

I can say them now with deep collaboration with our internal Home Depot supply chain team and with our supplier partners; we’re seeing improvement across the board. And we’re seeing accelerating improvement across the board. So lumber prices up about 150 plus percent is helping in the loss of supply and demand on lumber, but things like paper products and cleaning which you didn’t see at any retailer for weeks on end, you’re seeing paper products start to show up. And so across the board, we’re seeing pretty meaningful improvement and the worst of that imbalance is supply and demand as fortunately past us.

Kate McShane

Thank you. Another question that was just asked, is there a way to quantify the impact from the recent hurricanes and the fires that — can you quantify the impact of recent hurricanes and fires have had on the business?

Craig Menear

Yes. No, I actually don’t have numbers on that. Fortunately, where the hurricane actually came in was a much less dense population than what it could have been. And that doesn’t help the folks in Lake Charles, who are — pretty much took a direct hit. But it really was fortunate that it wasn’t in a very dense populated area. If it could have gone into Houston or gone into even New Orleans, it would have been much more significant. Probably the way the teams reacted, responding to continue to react and respond to the community needs, but it’s not a huge adjustment at this point.

And then in fires, right now in a scenario where they’re still going strong, there’s really not a ton of activity that happens in this stage of the game. And they’re just really — it’s a scary environment because when you’re in an environment like that where fires happen, it’s fueled by the Santa Ana winds, they spread so quickly, there’s multiple fires going. It’s just a really scary situation for the folks that are in those communities for our associates. Unfortunately, we’ve had associates who have lost their homes. And our Home Refund is stepping in to try to help those associates, which we will do but why it’s a tough, scary environment, but not at this stage of the game there’s really not a big impact financially on the business.

Kate McShane

Okay. Thank you. And the last question we’ll take from the audience is just how do you see the competitive landscape changing? We talked about independence before, but one of your larger competitors has been working to improve its operations. And so when it comes to the Pro’s, specifically, how are you continuing to execute and outpace your closest competitor?

Craig Menear

The thing for us that’s really, really important is clearly we have to be aware of what’s happening in the market around us, but the most important element for us is to stay focused on our customer and our customer needs. And to be in tune with the customer understand what their needs are and make sure that we’re addressing those. And if we do those things, we will continue to grow faster than the market the same way we did in the second quarter. And that’s really our focus overall, understand the customer, understand their needs, how do we help them run a better business when it comes to our Pro customers, make them more efficient and more effective in what they do every single day and then for our DIY customers to be there for their needs. And to help them get proper projects done whether that’s through know-how with our associates, through know-how that we have on homedepot.com or whether it’s a great innovative product that we bring to market that makes it simpler for them to do the projects. That’s really what our focus is overall.

Kate McShane

Okay. And with that, I want to thank you for joining us today and for all your time.

Craig Menear

Thank you, Kate. I appreciate it very much. Thank you for having us.

Kate McShane

Nice to see you.

Craig Menear

Good to see you as well. Take care. Thank you.

Ted Decker

Thank you.

Source Article