The Home Depot, Inc. Q3 FY2025 earnings call

• Sales for Q3 were $41.4 billion, with adjusted diluted earnings per share at $3.74. - In September, SRS completed the acquisition of GMS, which enhances SRS' position as a leading building materials distributor. - Associates focused on customer service, with initiatives like rolling out the freight flow application to improve freight processes. - Achieved record in-stock and on-shelf availability levels using computer vision. - Faster fulfillment efforts led to over 400 basis point increase in customer satisfaction scores. - Deployed new project planning and blueprint takeoff tools for the Pro ecosystem. - Nine merchandising departments had positive comps, with comp average ticket up 1.8% due to higher ticket items and modest price increases. - Pro and DIY comp sales were both positive, with Pro-heavy categories and DIY seasonal products performing well. - Hosted supplier partnership meeting, recognizing innovative vendors. - Looking forward to holiday, Black Friday, and Gift Center events in Q4.

Sales for the third quarter were $41.4 billion, up 2.8% from the same period last year. Comp sales increased 0.2% from the same period last year, with comps in the U.S. up 0.1%. In local currency, Canada and Mexico posted positive comps. Nine of 16 merchandising departments had positive comps. Total company online comp sales increased approximately 11% compared to the third quarter of the previous year. The acquisition of GMS by SRS enhanced SRS' position as a leading multi-category building materials distributor.

• Updated fiscal 2025 guidance due to softer-than-expected Q3 results, continued pressure in Q4 from lack of storm activity, consumer uncertainty, and housing pressure, along with inclusion of the GMS acquisition. - Expect total sales growth of approximately 3% with GMS contributing ~$2 billion in incremental sales; comp sales growth slightly positive. - Gross margin expected to be ~33.2%; operating margin ~12.6%; adjusted operating margin ~13%; effective tax rate ~24.5%; net interest expense ~$2.3 billion; diluted earnings per share expected to decline ~6% vs fiscal 2024; adjusted diluted earnings per share expected to decline ~5% vs fiscal 2024. - Plan to continue investing in the business with capital expenditures of ~2.5% of sales.

• Lack of storms in Q3 led to greater-than-expected pressure in certain categories. - Continued consumer uncertainty and housing pressure disproportionately impacting home improvement demand. - Impact of acquisitions on operating expenses and integration risks. - Seasonal swings and weather impacts affecting sales.

Q: My first question is more short term on the fourth quarter...

A: Richard McPhail answered about fiscal year guidance, impact of GMS, SRS performance, etc.

Q: Wanted to start on the average ticket...

A: Billy Bastek answered about ticket growth, promotional activity.

Q: Given all the comments from this morning...

A: Edward Decker and Richard McPhail answered about home improvement demand recovery, fixed cost structure.

Q: So I wanted to follow up on the implied 4Q operating margin question...

A: Richard McPhail answered about 4Q operating margin, seasonality, etc.

Q: I wanted to follow up on the complex Pro and GMS side...

A: Richard McPhail and Edward Decker answered about GMS sales contribution, margin dilution, cross-selling.

Q: I had a couple of follow-up questions. Just first on transactions slowed while ticket accelerated this quarter...

A: Billy Bastek and Edward Decker answered about transaction and ticket trends, elasticity.

Q: There's a lot of talk about a K-shaped economy right now...

A: Edward Decker answered about regional differences, upper income customer base fatigue.

Q: Maybe, Richard, on the idea of cross-selling...

A: Mike answered about cross-selling opportunities between Home Depot, SRS, and GMS.

Q: I wanted to follow up on the storm impact...

A: Richard McPhail answered about storm impact in Q4 and outlook for SRS and GMS