This summary is based on the second quarter fiscal 2008 earnings call conducted by The Home Depot Inc. (HD: chart) on August 19, 2008.

Management:

- Chairman, Chief Executive Officer: Frank Blake
- Senior Vice President, Merchandising: Craig Menear
- Chief Financial Officer, Executive Vice President Corporate Services: Carol B. Tome
- Senior Vice President, Supply Chain: Mark Holifield
- Senior Vice President, Investor Relations: Diane Dayhoff

Key Investors Issues

- Sales were $20.9 billion, a 5.4% decrease from $22.2 billion in 2007.
- Earnings were $1.2 billion or 71 cents, down 25% from $1.6 billion or 77 cents a share last year.
- The firm opened 15 new stores, including one relocation and closed 15 stores for an ending store count of 2,257.

Half Year Highlights:

- Sales dropped 4.5% to $38.9 billion.
- Net income came in at $1.7 billion or 93 cents a share, down 41% from $2.6 billion or $1.26 a share in the year ago period.

Second Quarter Highlights

Sales were $20.9 billion, a 5.4% decrease from $22.2 billion last year, reflecting negative same-store sales of 7.9%, offset in part by sales from new stores.

- Earnings were $1.2 billion or 71 cents compared to $1.6 billion or 77 cents a share in the prior year on lower sales.
- Comps or same-store sales were a negative 7.9% for the quarter, with negative comps up 7.3% in May and negative 8.1% in each of June and July.
- Gross margin was 33.2%, an increase of nine basis points from last year reflecting higher supply chain costs that negatively impacted gross margin by 18 basis points.
- Operating expenses increased by 188 basis points to 23.4% of sales and the firm recorded an $18 million charge related to the store rationalization decisions.

The firm experienced about 73 basis points of expense deleverage due to a higher cost of credit associated with the private label credit card.

- The new agreement with Citi removes the volatility in the cost of credit and puts a cap on cost.
- The firm will also receive an up-front cash payment of $220 million, which will be recognized as income over the life of the contract.

Net interest expense was $157 million, up $12 million from last year, reflecting a decline in interest income due to lower investable cash balances, offset in part by lower interest expense arising from a favorable tax settlement.

- The firm had a favorable settlement with the Province of Quebec, the result of which reduced interest expense by $20 million and tax expense by $8 million.
- The firm opened 15 new stores, including one relocation and as planned, closed 15 stores for an ending store count of 2,257.

Selling square footage was 237 million, a 3% increase from last year and reflecting the sales environment, total sales per square foot were $350, down 8.6% from last year.

- Retail inventory was $11.9 billion, down 3.4% from last year and on a per store basis, inventory was down 5.9%.
- Return on invested capital for continuing operations was 10.7% but excluding the store rationalization charge, return on invested capital was 11.6%, down 210 basis points from last year.
- The firm ended the quarter with $45.1 billion in assets, including $1.1 billion in cash and short-term investments, an increase of $605 million in cash and short-term investments from the end of fiscal 2007.
- This reflects cash flow generated by the business of $4 billion, offset by $960 million of capital expenditures, $760 million of dividends paid, and $1.7 billion used to repay outstanding commercial paper.

Strategic Insights:

- For the past 18 months, the firm has been working on its five key priorities -- associate engagement, shopping environment, product excitement, product availability, and own the pro.
- On the product and merchandising side of the business, it has made significant progress as the firm is implementing a portfolio approach to merchandising efforts and this is already providing significant benefits.
- In a time of increasing price pressure, they are managing through the areas where it need to protect critical price points for customers and at the same time, addressing areas where it needs to recognize the cost increases that some of the vendors are facing.

On product availability or supply chain, the firm has three rapid deployment centers or RDCs serving 300 stores.

- Although current RDCs are meeting or beating most of the measurements of performance that have been set out for them, the full rollout will be more effective when the firm has improved some of the key processes in the facilities.
- The core retail pilot in Canada is now live in 36 stores with 20 coming online yesterday, it is going well and remains on track to be completed in all Canadian stores by year-end.
- The net promoter score has improved 480 basis points year over year and is now at 52.9% as industry benchmarks say the best-in-class retailers have net promoter scores of over 50%.

On share performance, the firm has stabilized the share loss rate but it has not yet turned the corner on total share gain.

- Housing and home improvement spend as a percent of GDP is now at 3.5% versus a 60-year historical average of 4.75%.
- The firm has finalized a new deal with Citi that will reduce the volatility in the cost of credit.
- On the international side, Mexico remains very strong, Canada’s performance was also solid though some of the economic ills of the United States have impacted them and they have posted low-single-digit negative comps.

Operational Metrics: