Speaker 1: We have a special guest. As I said, the cf
Speaker 1: OH of Home Depot joins us, Richard McPhail. I guess
Speaker 1: I'll just kick it off with one to Richard. As
Speaker 1: we kind of gauge the strength of the US consumer
Speaker 1: and the housing market, you're in a perfect position to
Speaker 1: give us an outlook on both. How do we look,
Speaker 1: you know, four days ahead of Black Friday?
Speaker 2: Well, Matt and Emily Nina, thank you for having me.
Speaker 3: So.
Speaker 4: Look, as we've said now for the last year or two,
Speaker 4: the US consumer remains healthy and strong and engaged in
Speaker 4: home improvement. We had a third quarter that just ended
Speaker 4: in October where we actually saw performance better than expected.
Speaker 4: Now we attribute most of that to the fact that
Speaker 4: weather was exceptional across the country.
Speaker 2: We also have some impact from hurricanes obviously, but you know.
Speaker 4: It's a good sign when the sun is out, customers
Speaker 4: are engaged and outdoors doing projects.
Speaker 2: So we think the customer mindset is healthy.
Speaker 4: Now, you know, you ask about the state of housing,
Speaker 4: there is some interplay here with home improvement.
Speaker 2: You know, if you think about the last five years,
Speaker 2: since twenty.
Speaker 4: Nineteen, we've seen unprecedented increases in home values and home equity.
Speaker 4: Home values up right around fifty percent since twenty nineteen,
Speaker 4: home equity positions up or right around eighty percent, and
Speaker 4: so you've seen unprecedented wealth creation in housing. What's interesting
Speaker 4: about that is typically that drives human improvement demand and
Speaker 4: home improvement spend as homeowners invest in their homes. What
Speaker 4: our customers tell us, though, is that the interest rate
Speaker 4: and environment is still sticky. You know, we actually saw
Speaker 4: mortgage rates increase since the September FED meeting.
Speaker 2: So that's led to a this incentive for folks to
Speaker 2: move do projects.
Speaker 4: That are oriented with moving, and if you think about
Speaker 4: those larger remodeling projects that are oftentimes financed by debt
Speaker 4: drawn against from equity positions. Our customers tell us, while
Speaker 4: those rates are decreasing slightly, they're still around eight before
Speaker 4: to eight and a half percent, and so they're saying, look,
Speaker 4: we're just gonna we're deferring large projects for the moment until.
Speaker 2: We see what happens with rates.
Speaker 4: So you have a healthy customer with a deferral mindset
Speaker 4: when it comes to larger projects.
Speaker 3: Richard, maybe I can follow up on that. During our interview,
Speaker 3: we also talked about the impact of your business potentially
Speaker 3: simming from tariffs as the new administration comes in next year,
Speaker 3: talk to us a little bit about that, how you
Speaker 3: navigated that in twenty nineteen, and also how are you
Speaker 3: thinking about that going into next year.
Speaker 4: Sure, well, first, it's too early to speculate on what
Speaker 4: the administration might might be thinking here, So we don't
Speaker 4: want to speculate in particulars. In twenty seventeen, we saw
Speaker 4: tariffs of significant.
Speaker 2: Degree in certain classes of goods.
Speaker 4: There were some appliances classes that saw tariff subworbs of
Speaker 4: twenty five percent. Look, that's something that we sit down
Speaker 4: with our supplier base and work through.
Speaker 2: And so we've.
Speaker 4: Got a lot of experience in this and we are
Speaker 4: ready for whatever in environment we're going to be operating in. Again,
Speaker 4: too early to speculate, but you know, we feel like
Speaker 4: if there's anybody who can manage through this weekend and
Speaker 4: you know, unique to the home deeperp perhaps over half
Speaker 4: of our products are actually manufactured in the United States,
Speaker 4: and so if you think about the kind of the
Speaker 4: less than half that is manufactured or sourced from foreign countries,
Speaker 4: we've been diversifying our countries of origin really for the
Speaker 4: last fifteen years we're in a different position than we
Speaker 4: were in twenty seventeen in respect to diversification.
Speaker 2: That's something we're going to continue.
Speaker 3: So, Richard, I'm wondering, what is the strategy to grow
Speaker 3: the business right now when we're in an environment where
Speaker 3: home sales are at the lowest level in over a decade.
Speaker 1: How does Home Depot kind of combat that?
Speaker 4: Well, you know, Emily that there's so much improvement we
Speaker 4: can make in our current model. We have the fifth
Speaker 4: largest e commerce business in the United States, even though
Speaker 4: folks don't normally think about that, but the uniqueness of
Speaker 4: that business is it is interconnected with our stores. Virtually
Speaker 4: all of our customers who shop online shop in our
Speaker 4: stores as well. But there still there are too many
Speaker 4: points of friction when you think about customer returns, order modifications,
Speaker 4: and the delivery experience. We're making huge gains and taking
Speaker 4: friction out of the process for our customer, but we're
Speaker 4: nowhere near where we want to be. We know if
Speaker 4: we begin to delight customers more, that absolutely translates into
Speaker 4: higher sales. Another huge opportunity for the Home Depot is
Speaker 4: with the professional contractor. Roughly half of our sales are
Speaker 4: coming from that professional contractor who's working on behalf of
Speaker 4: the homeowner. We've made significant investments in an ecosystem to
Speaker 4: really drive into that larger remodel. And so while the
Speaker 4: market is soldware remodeling, our ability to capture market share
Speaker 4: really shouldn't depend on what the external environment is.
Speaker 2: We've invested in.
Speaker 4: A digital experience, in rolling out a salesforce across the nation,
Speaker 4: and fulfillment assets and capabilities, networks of platbed distribution centers
Speaker 4: that will be in seventeen markets this year where we
Speaker 4: can get products straight to the job site, not even
Speaker 4: touching the store, straight to the.
Speaker 2: Job site same day, next day.
Speaker 4: And the uniqueness of Home Depot is while there are
Speaker 4: plenty of companies serving the pro like that, we're the
Speaker 4: only one who can serve them across all products boys
Speaker 4: so we can simplify the pros lives. And they turned
Speaker 4: us because they know that.
Speaker 2: They can rely on us.
Speaker 4: And I should say, actually, one thing that I think
Speaker 4: is unique to the Home Depot.
Speaker 2: You know we're building stores again.
Speaker 4: We really stopped in any material sense building stores in
Speaker 4: two thousand and eight. In twenty twenty three, we announced
Speaker 4: an eighty store build that will roll out over five years.
Speaker 4: By the end of this year, we will have built
Speaker 4: twenty five of those new stores, and we're so excited
Speaker 4: about what we're already seeing.
Speaker 2: It's one of the best investments we can actually make it.
Speaker 2: Home Depot all.
Speaker 1: Right, Richard. Great to have a little bit of time
Speaker 1: with you, and I hope we can get you back
Speaker 1: either here on Bloomberg Business Week or are you join
Speaker 1: me on my show every day nine to eleven on
Speaker 1: Bloomberg Open Interest. David McPhail there, the CFO of Home Depot,