WEBVTT - Home Depot Executive VP, CFO Talks Company Outlook

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<v Speaker 1>We have a special guest. As I said, the cf

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<v Speaker 1>OH of Home Depot joins us, Richard McPhail. I guess

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<v Speaker 1>I'll just kick it off with one to Richard. As

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<v Speaker 1>we kind of gauge the strength of the US consumer

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<v Speaker 1>and the housing market, you're in a perfect position to

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<v Speaker 1>give us an outlook on both. How do we look,

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<v Speaker 1>you know, four days ahead of Black Friday?

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<v Speaker 2>Well, Matt and Emily Nina, thank you for having me.

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<v Speaker 3>So.

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

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<v Speaker 4>the US consumer remains healthy and strong and engaged in

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<v Speaker 4>home improvement. We had a third quarter that just ended

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<v Speaker 4>in October where we actually saw performance better than expected.

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<v Speaker 4>Now we attribute most of that to the fact that

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<v Speaker 4>weather was exceptional across the country.

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<v Speaker 2>We also have some impact from hurricanes obviously, but you know.

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<v Speaker 4>It's a good sign when the sun is out, customers

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<v Speaker 4>are engaged and outdoors doing projects.

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<v Speaker 2>So we think the customer mindset is healthy.

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<v Speaker 4>Now, you know, you ask about the state of housing,

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<v Speaker 4>there is some interplay here with home improvement.

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<v Speaker 2>You know, if you think about the last five years,

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<v Speaker 2>since twenty.

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

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<v Speaker 4>Home values up right around fifty percent since twenty nineteen,

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<v Speaker 4>home equity positions up or right around eighty percent, and

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

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<v Speaker 4>about that is typically that drives human improvement demand and

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<v Speaker 4>home improvement spend as homeowners invest in their homes. What

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<v Speaker 4>our customers tell us, though, is that the interest rate

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<v Speaker 4>and environment is still sticky. You know, we actually saw

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<v Speaker 4>mortgage rates increase since the September FED meeting.

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<v Speaker 2>So that's led to a this incentive for folks to

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<v Speaker 2>move do projects.

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<v Speaker 4>That are oriented with moving, and if you think about

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<v Speaker 4>those larger remodeling projects that are oftentimes financed by debt

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<v Speaker 4>drawn against from equity positions. Our customers tell us, while

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<v Speaker 4>those rates are decreasing slightly, they're still around eight before

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<v Speaker 4>to eight and a half percent, and so they're saying, look,

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<v Speaker 4>we're just gonna we're deferring large projects for the moment until.

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<v Speaker 2>We see what happens with rates.

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<v Speaker 4>So you have a healthy customer with a deferral mindset

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<v Speaker 4>when it comes to larger projects.

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<v Speaker 3>Richard, maybe I can follow up on that. During our interview,

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<v Speaker 3>we also talked about the impact of your business potentially

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<v Speaker 3>simming from tariffs as the new administration comes in next year,

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<v Speaker 3>talk to us a little bit about that, how you

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<v Speaker 3>navigated that in twenty nineteen, and also how are you

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<v Speaker 3>thinking about that going into next year.

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<v Speaker 4>Sure, well, first, it's too early to speculate on what

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<v Speaker 4>the administration might might be thinking here, So we don't

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<v Speaker 4>want to speculate in particulars. In twenty seventeen, we saw

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<v Speaker 4>tariffs of significant.

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<v Speaker 2>Degree in certain classes of goods.

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<v Speaker 4>There were some appliances classes that saw tariff subworbs of

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<v Speaker 4>twenty five percent. Look, that's something that we sit down

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<v Speaker 4>with our supplier base and work through.

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<v Speaker 2>And so we've.

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<v Speaker 4>Got a lot of experience in this and we are

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

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<v Speaker 4>too early to speculate, but you know, we feel like

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<v Speaker 4>if there's anybody who can manage through this weekend and

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<v Speaker 4>you know, unique to the home deeperp perhaps over half

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<v Speaker 4>of our products are actually manufactured in the United States,

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<v Speaker 4>and so if you think about the kind of the

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<v Speaker 4>less than half that is manufactured or sourced from foreign countries,

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<v Speaker 4>we've been diversifying our countries of origin really for the

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<v Speaker 4>last fifteen years we're in a different position than we

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<v Speaker 4>were in twenty seventeen in respect to diversification.

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<v Speaker 2>That's something we're going to continue.

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<v Speaker 3>So, Richard, I'm wondering, what is the strategy to grow

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<v Speaker 3>the business right now when we're in an environment where

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<v Speaker 3>home sales are at the lowest level in over a decade.

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<v Speaker 1>How does Home Depot kind of combat that?

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<v Speaker 4>Well, you know, Emily that there's so much improvement we

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<v Speaker 4>can make in our current model. We have the fifth

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<v Speaker 4>largest e commerce business in the United States, even though

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<v Speaker 4>folks don't normally think about that, but the uniqueness of

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<v Speaker 4>that business is it is interconnected with our stores. Virtually

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<v Speaker 4>all of our customers who shop online shop in our

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<v Speaker 4>stores as well. But there still there are too many

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<v Speaker 4>points of friction when you think about customer returns, order modifications,

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<v Speaker 4>and the delivery experience. We're making huge gains and taking

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<v Speaker 4>friction out of the process for our customer, but we're

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<v Speaker 4>nowhere near where we want to be. We know if

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<v Speaker 4>we begin to delight customers more, that absolutely translates into

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<v Speaker 4>higher sales. Another huge opportunity for the Home Depot is

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<v Speaker 4>with the professional contractor. Roughly half of our sales are

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<v Speaker 4>coming from that professional contractor who's working on behalf of

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<v Speaker 4>the homeowner. We've made significant investments in an ecosystem to

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<v Speaker 4>really drive into that larger remodel. And so while the

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<v Speaker 4>market is soldware remodeling, our ability to capture market share

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<v Speaker 4>really shouldn't depend on what the external environment is.

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<v Speaker 2>We've invested in.

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<v Speaker 4>A digital experience, in rolling out a salesforce across the nation,

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<v Speaker 4>and fulfillment assets and capabilities, networks of platbed distribution centers

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<v Speaker 4>that will be in seventeen markets this year where we

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<v Speaker 4>can get products straight to the job site, not even

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<v Speaker 4>touching the store, straight to the.

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<v Speaker 2>Job site same day, next day.

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<v Speaker 4>And the uniqueness of Home Depot is while there are

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<v Speaker 4>plenty of companies serving the pro like that, we're the

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<v Speaker 4>only one who can serve them across all products boys

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<v Speaker 4>so we can simplify the pros lives. And they turned

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<v Speaker 4>us because they know that.

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<v Speaker 2>They can rely on us.

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<v Speaker 4>And I should say, actually, one thing that I think

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<v Speaker 4>is unique to the Home Depot.

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<v Speaker 2>You know we're building stores again.

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<v Speaker 4>We really stopped in any material sense building stores in

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<v Speaker 4>two thousand and eight. In twenty twenty three, we announced

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<v Speaker 4>an eighty store build that will roll out over five years.

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<v Speaker 4>By the end of this year, we will have built

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<v Speaker 4>twenty five of those new stores, and we're so excited

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<v Speaker 4>about what we're already seeing.

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

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<v Speaker 2>Home Depot all.

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<v Speaker 1>Right, Richard. Great to have a little bit of time

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<v Speaker 1>with you, and I hope we can get you back

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<v Speaker 1>either here on Bloomberg Business Week or are you join

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<v Speaker 1>me on my show every day nine to eleven on

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<v Speaker 1>Bloomberg Open Interest. David McPhail there, the CFO of Home Depot,