- All selling departments reported negative comps and plumbing outperformed the company’s average comp and seasonal and kitchen and bath were at the company’s average comp.
- Lumber, building materials, hardware, flooring, paint, electrical, and millwork were all below the company’s average comp and with the softness in these project businesses, average ticket was down 1.2% from last year to $57.58.
- Total company transactions were $361 million, down 4.2% from last year and transactions in the $600-plus range comped down double-digit while transactions of less than $25 were down single digits.
Regionally, the firm saw positive comp sales in the Southwest region, with every department in that region outperforming the company average.
- The Northern Plains region, while still negative, outperformed the company average comp in part due to the floods that affected the Midwest in July.
- The firm has continued to see cost pressure in the quarter from price inflation in products that are metal and petroleum based.
- There was unit share gains against the market in several categories, including roofing, toilets, hardware, power tools and accessories, and electrical on a rolling 12 months, and all of these categories are essential to basic repair.
- In anticipation of high energy costs later this year, consumers are focused on energy conservation and are already responding to these challenges by preparing their homes with these products.
Fiscal 2008 Outlook:
- Fiscal 2008 sales will decline by approximately 5% and fiscal 2008 earnings per share from continuing operations will decline by approximately 24%, consistent with the low end of the previous guidance.
Key questions and answers from the second quarter earnings call conducted by The Home Depot Inc. (HD) on August 19, 2008.
Daniel Binder (Jefferies):
Could you quantify the benefits you think you may have seen from the Midwest recovery efforts due to the floods?
Frank Blake: It is at a level of immateriality, probably around $10 million.
Daniel Binder (Jefferies):
What was the contribution from international on the total comp store sales?
Frank Blake: International was around 140 basis points.
Christopher Horvers (J.P. Morgan):
If you think about everything you do in your backyard in the early Spring to early Summer, any sense on how those categories comped relative to the rest of the mix?
Craig Menear: Those categories actually performed above the company average in the quarter. Overall, when we look at our core seasonal businesses for the entire season, the first half, if you will, they actually were two times better than the company average and we were certainly above what we anticipated in the quarter for those businesses.
Mitchell Kaiser (Piper Jaffray):
Could you give us a little more detail on what you are going to do on the processes around the RDC?
Mark Holifield: Yes, we are slowing our 2008 openings but we feel we are on track for a 2010 completion where we would serve 100% of our stores. Our focus at this point is really ensuring a seamless rollout going forward, doing the right thing for our stores and our customers.
The key things that we are focused on -- improving the in-stock at the stores, we are pleased with where we are there. The RDCs have improved the in-stock for the SKUs that are covered by RDC.
We are improving our accuracy of shipments, the quality of timeliness -- and quality and timeliness of loads delivered to our stores and then our throughput productivity, and those are the things we are focused on as we go forward.
Mitchell Kaiser (Piper Jaffray):
The goal that 75% of your COGS will go through either the lumber DCs, stocking DCs, or RDCs, is that still consistent with that you are looking for over time?
Mark Holifield: Yes, our end goal is to have 70% to 80% of goods covered through central distribution. Keep in mind though that that includes, as you have said, other DCs besides RDCs to get there.
Budd Bugatch (Raymond James):
Did you beat your own internal forecast in the second quarter and if so, at what line items?
Carol B. Tome: We did beat our internal forecast. We beat our sales forecast, we beat our earnings forecast. Now, we did get a benefit from the Quebec settlement which was 1 cent of earnings better than our plan but we had a solid quarter.
And it’s not just on the income statement. We were very pleased with the performance of inventory. We’re managing inventory in a very difficult environment.
Matthew Fassler (Goldman Sachs):
And in terms of expense favorability, are there any call-outs that would get in the way in the second half of the year?
