Home Depot Earnings Call Cheat Sheet: A Challenge to the Weather Thesis

On Tuesday, Home Depot, Inc. (NYSE:HD) reported its fourth quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Impact from Weather

Colin McGranahan – Bernstein: First question, just on weather. Was there anyway that you went about trying to quantify how much of an impact you thought that had in the quarter?

Frank Blake – Chairman and CEO: Colin, it’s a little difficult to tell because when you look at – we had some real strength in interior projects, and you wonder whether or not that was driven, just because higher traffic, because customers could get to the stores, but our best estimate at this point is somewhere between 200 and 250 basis points.

Colin McGranahan – Bernstein: Just following up, maybe this is a question is for Carol or Craig on the gross margin, can you update us just on how much is remaining in your multiyear gross margin expansion outlook, and specifically on supply chain, obviously a pretty good performance here in the fourth quarter in supply chain with I think 50 some basis points of contribution versus incremental supply chain benefits that you’d expect, as you automate DCs, and so just kind of an update on the gross margin outlook and where you are on that journey? Then how you’re thinking about pricing in 2012 and how that might impact gross margin?

Carol Tome – EVP, Corporate Services and CFO: I can start with the outlook, and then Craig can talk about pricing. As you pointed out, we had great margin expansion coming from supply chain for the year with 32 basis points of margin expansion coming from supply chain. So, we’re pleased with that. As we look to 2012, we expect continued margin expansion coming from supply chain, maybe about a third of what we realized in 2011. As you know, we’re about 70% penetrated in terms of costs that are centrally distributed, but we are not done. So when we have our investor conference in June, we will update you on our longer-term outlook for gross margin.

Craig Menear – EVP, Merchandising: Certainly, we’re looking to continue to leverage our productivity, but we also want to invest that back in the customer to drive top line sales and make sure that we’re delivering outstanding values for our customers.

Challenge to the Weather Thesis

Christopher Horvers – JPMorgan: I wanted to follow-up a bit on the weather question. If you look at the monthly stacks, December in the U.S. was actually the best month. So, I guess, thinking about that 200 to 250 basis points and December being the best stack against the energy tax credit, I mean, do you think you’re being perhaps a little conservative in terms of the lift from the weather.

Frank Blake – Chairman and CEO: You’re talking on a two-year basis, Chris?

Christopher Horvers – JPMorgan: Yeah.

Frank Blake – Chairman and CEO: As Craig said, Chris, I mean, this is an art not a science on figuring out how much weather contributed to our sales, but certainly December was a very warm month, January was a very warm month. And peeling apart how much of that is traffic, so nicer weather, people have an easier time getting to the store versus the more general uplift is just very tough. So, our best estimate, as Craig said is, it’s between 200 and 250 basis points.

Christopher Horvers – JPMorgan: I guess, maybe the other way to look at that is to say, well, now that perhaps February, it’s a little warmer year-to-year, but maybe a little more normal of the gap, how has the business performed in the U.S. in February?

Carol Tome – EVP, Corporate Services and CFO: Right. Well, as you know, February is our hardest compare when you look at how we’ve performed in the first quarter of last year, and if we look at our month-to-date sales, we are quite pleased with our performance.

Christopher Horvers – JPMorgan: Then just one quick one as a follow-up. The buyback of $3.5 billion, it looks like it’d be about a $55 embedded price into that. Is that the right calculation?

Carol Tome – EVP, Corporate Services and CFO: Well, we try to use simple math for this, and so we took $3.5 billion, used a $50 share price, coming up with 70 million shares for the year, cut that in half and use that for the basis of determining the EPS benefit. It’s just simple math. We’ll buy it in based on where the price is obviously.

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