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Speaker 1: We have a special guest. As I said, the cf

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Speaker 1: OH of Home Depot joins us, Richard McPhail. I guess

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Speaker 1: I'll just kick it off with one to Richard. As

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Speaker 1: we kind of gauge the strength of the US consumer

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Speaker 1: and the housing market, you're in a perfect position to

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Speaker 1: give us an outlook on both. How do we look,

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Speaker 1: you know, four days ahead of Black Friday?

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Speaker 2: Well, Matt and Emily Nina, thank you for having me.

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Speaker 3: So.

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Speaker 4: Look, as we've said now for the last year or two,

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Speaker 4: the US consumer remains healthy and strong and engaged in

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Speaker 4: home improvement. We had a third quarter that just ended

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Speaker 4: in October where we actually saw performance better than expected.

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Speaker 4: Now we attribute most of that to the fact that

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Speaker 4: weather was exceptional across the country.

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Speaker 2: We also have some impact from hurricanes obviously, but you know.

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Speaker 4: It's a good sign when the sun is out, customers

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Speaker 4: are engaged and outdoors doing projects.

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Speaker 2: So we think the customer mindset is healthy.

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Speaker 4: Now, you know, you ask about the state of housing,

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Speaker 4: there is some interplay here with home improvement.

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Speaker 2: You know, if you think about the last five years,

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Speaker 2: since twenty.

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Speaker 4: Nineteen, we've seen unprecedented increases in home values and home equity.

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Speaker 4: Home values up right around fifty percent since twenty nineteen,

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Speaker 4: home equity positions up or right around eighty percent, and

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Speaker 4: so you've seen unprecedented wealth creation in housing. What's interesting

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Speaker 4: about that is typically that drives human improvement demand and

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Speaker 4: home improvement spend as homeowners invest in their homes. What

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Speaker 4: our customers tell us, though, is that the interest rate

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Speaker 4: and environment is still sticky. You know, we actually saw

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Speaker 4: mortgage rates increase since the September FED meeting.

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Speaker 2: So that's led to a this incentive for folks to

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Speaker 2: move do projects.

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Speaker 4: That are oriented with moving, and if you think about

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Speaker 4: those larger remodeling projects that are oftentimes financed by debt

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Speaker 4: drawn against from equity positions. Our customers tell us, while

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Speaker 4: those rates are decreasing slightly, they're still around eight before

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Speaker 4: to eight and a half percent, and so they're saying, look,

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Speaker 4: we're just gonna we're deferring large projects for the moment until.

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Speaker 2: We see what happens with rates.

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Speaker 4: So you have a healthy customer with a deferral mindset

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Speaker 4: when it comes to larger projects.

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Speaker 3: Richard, maybe I can follow up on that. During our interview,

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Speaker 3: we also talked about the impact of your business potentially

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Speaker 3: simming from tariffs as the new administration comes in next year,

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Speaker 3: talk to us a little bit about that, how you

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Speaker 3: navigated that in twenty nineteen, and also how are you

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Speaker 3: thinking about that going into next year.

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Speaker 4: Sure, well, first, it's too early to speculate on what

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Speaker 4: the administration might might be thinking here, So we don't

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Speaker 4: want to speculate in particulars. In twenty seventeen, we saw

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Speaker 4: tariffs of significant.

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Speaker 2: Degree in certain classes of goods.

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Speaker 4: There were some appliances classes that saw tariff subworbs of

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Speaker 4: twenty five percent. Look, that's something that we sit down

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Speaker 4: with our supplier base and work through.

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Speaker 2: And so we've.

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Speaker 4: Got a lot of experience in this and we are

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Speaker 4: ready for whatever in environment we're going to be operating in. Again,

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Speaker 4: too early to speculate, but you know, we feel like

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Speaker 4: if there's anybody who can manage through this weekend and

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Speaker 4: you know, unique to the home deeperp perhaps over half

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Speaker 4: of our products are actually manufactured in the United States,

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Speaker 4: and so if you think about the kind of the

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Speaker 4: less than half that is manufactured or sourced from foreign countries,

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Speaker 4: we've been diversifying our countries of origin really for the

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Speaker 4: last fifteen years we're in a different position than we

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Speaker 4: were in twenty seventeen in respect to diversification.

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Speaker 2: That's something we're going to continue.

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Speaker 3: So, Richard, I'm wondering, what is the strategy to grow

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Speaker 3: the business right now when we're in an environment where

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Speaker 3: home sales are at the lowest level in over a decade.

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Speaker 1: How does Home Depot kind of combat that?

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Speaker 4: Well, you know, Emily that there's so much improvement we

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Speaker 4: can make in our current model. We have the fifth

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Speaker 4: largest e commerce business in the United States, even though

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Speaker 4: folks don't normally think about that, but the uniqueness of

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Speaker 4: that business is it is interconnected with our stores. Virtually

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Speaker 4: all of our customers who shop online shop in our

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Speaker 4: stores as well. But there still there are too many

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Speaker 4: points of friction when you think about customer returns, order modifications,

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Speaker 4: and the delivery experience. We're making huge gains and taking

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Speaker 4: friction out of the process for our customer, but we're

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Speaker 4: nowhere near where we want to be. We know if

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Speaker 4: we begin to delight customers more, that absolutely translates into

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Speaker 4: higher sales. Another huge opportunity for the Home Depot is

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Speaker 4: with the professional contractor. Roughly half of our sales are

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Speaker 4: coming from that professional contractor who's working on behalf of

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Speaker 4: the homeowner. We've made significant investments in an ecosystem to

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Speaker 4: really drive into that larger remodel. And so while the

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Speaker 4: market is soldware remodeling, our ability to capture market share

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Speaker 4: really shouldn't depend on what the external environment is.

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Speaker 2: We've invested in.

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Speaker 4: A digital experience, in rolling out a salesforce across the nation,

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Speaker 4: and fulfillment assets and capabilities, networks of platbed distribution centers

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Speaker 4: that will be in seventeen markets this year where we

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Speaker 4: can get products straight to the job site, not even

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Speaker 4: touching the store, straight to the.

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Speaker 2: Job site same day, next day.

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Speaker 4: And the uniqueness of Home Depot is while there are

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Speaker 4: plenty of companies serving the pro like that, we're the

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Speaker 4: only one who can serve them across all products boys

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Speaker 4: so we can simplify the pros lives. And they turned

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Speaker 4: us because they know that.

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Speaker 2: They can rely on us.

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Speaker 4: And I should say, actually, one thing that I think

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Speaker 4: is unique to the Home Depot.

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Speaker 2: You know we're building stores again.

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Speaker 4: We really stopped in any material sense building stores in

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Speaker 4: two thousand and eight. In twenty twenty three, we announced

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Speaker 4: an eighty store build that will roll out over five years.

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Speaker 4: By the end of this year, we will have built

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Speaker 4: twenty five of those new stores, and we're so excited

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Speaker 4: about what we're already seeing.

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Speaker 2: It's one of the best investments we can actually make it.

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Speaker 2: Home Depot all.

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Speaker 1: Right, Richard. Great to have a little bit of time

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Speaker 1: with you, and I hope we can get you back

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Speaker 1: either here on Bloomberg Business Week or are you join

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Speaker 1: me on my show every day nine to eleven on

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Speaker 1: Bloomberg Open Interest. David McPhail there, the CFO of Home Depot,