Good day, everyone, and welcome to the Home Depot Q2 2016 Earnings Call. Today's At this time, I'd like to turn the conference over to Ms. Diane Dayhoff, Vice President, Investor Relations. Please go ahead.
Thank you, Shalon, and good morning to everyone. Joining us on our call today are Craig Meniere, Chairman, CEO and President is Ted Decker, EVP of Merchandising and Carol Tamay, Chief Financial Officer and Executive Vice President, Corporate Services. Conference call will be recorded. If we are unable to get to your question during the call, please call our Investor Relations department at 77 is 0384-2387. Now before I turn the call over to Craig, let me remind you that today's press release and the presentations made by our executives include forward looking statements as defined in the Private Securities Litigation Reform Act of 1995.
Conference call is being recorded. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Company's presentation will be posted on the call. These risks and uncertainties
include, but are not limited to,
the factors identified in the release and in our filings with the Securities and Exchange Commission. Today's presentations will also include certain non GAAP measures. Reconciliation of these measures is provided on our website. Now let me turn the call over to Craig.
Thank you, Diane, and good morning, everyone. We had a solid quarter, Sales for the Q2 were $26,500,000,000 up 6.6% from last year. Comp sales were up 4.7% from last year and our U. S. Stores had a positive comp of 5.4%.
Diluted earnings per share were $1.97 in the 2nd quarter, up 13.9% versus last year. Conference call is being
recorded. In the U.
S, all three of our divisions posted positive comps in the 2nd quarter, led by our Western division. Internationally, our Mexican and Canadian businesses had another quarter of solid performance. Mexico reported positive double digit comps in local currency, making it 51 consecutive quarters of positive comp growth. Quarters of positive comp growth. We continue to see broad based growth across our stores, both ticket and transactions grew.
All of our merchandising departments posted positive comps and we saw a healthy balance of growth among We have been piloting our first business use case, offering interline's catalog products to pros shopping Home Depot stores. We are pleased with the traction that we've seen in this pilot, although it is still early days. We continue to work towards leveraging Interline's capabilities to expand our share of wallet with our current customers as well as gain new customers. We continue to build out capabilities to improve the overall customer experience. For example, in recent months, we began implementing our dynamic ETA feature for online purchases.
Dynamic ETA provides a delivery date based on the customer's location. Company's call is being recorded. In the past, we issued a generic delivery window estimate, which allowed for extra time or cushion for the delivery commitment to customers. As we've begun to implement the dynamic ETA, our promised delivery date to customers is earlier conference call is being recorded and more accurately estimated. As a result, we're seeing an increased conversion in customer satisfaction.
We continue to see great productivity from our supply chain as the dividends from investments made over the past several years yield a positive impact on our inventory productivity, logistics costs and service to our stores and customers. As you know, we see our supply chain transformation as an ongoing work in progress and continue to will optimize our network with initiatives like supply chain sync. Sync is in the early stages of a multiyear rollout. Customer order management system is now fully deployed in all U. S.
Stores. The next phase of Calm is to call is available for buy on the line deliver from store, which we expect to be completed by the end of the fiscal year. While we had a strong quarter, as you have heard, we are instituting a high degree of change across many areas of the business. Conference call is being recorded. With this amount of change, there will be learnings and opportunities to refine the process along the way.
In the quarter, we identified several opportunities for improvement, particularly around inventory management and freight handling, which we're working to address. Turning to the macro environment, we continue to see positive signs in the housing data, is today. I want to close by thanking them. Based on the first half results, almost 100% of our stores qualified for
Thanks, Craig, and good morning, everyone. We were pleased with our results in the Q2. Core maintenance and repair categories as well as company pro heavy categories continue to have solid performance in the quarter. Our growth in the quarter was balanced. Total comp transactions grew by 2.2% for the quarter, while comp average ticket increased 2.5%.
Ticket growth was driven by an increase in items per basket as project business continued to show strength. Our average ticket was also positively impacted company's earnings call was approximately 18 basis points. In addition, the stronger U. S. Dollar had a negative impact to our average ticket growth of approximately 69 basis Focusing on big ticket sales in the 2nd quarter, transactions for tickets over $900 representing approximately 20% of our U.
S. Sales were up 8.1%. The drivers behind the increase in big ticket purchases were HVAC, Appliances and Roofing. All merchandising departments posted positive comps led by appliances, which had double digit comps in the quarter. Hardware, outdoor garden, kitchen and bath, millwork, electrical, paint and flooring were positive, but below the company average.
As Craig mentioned, we continue to see notable strength with our Pro customers. Pro sales grew faster than the company comp, company led by our High Spend Pro customers. This continued strength led to comps above the company average in commercial and industrial lighting, We saw continued strength in the core of the store as our customers undertook various projects. For example, landscape lighting, handmade and vinyl Our store associates did an exceptional job executing our summer events and creating excitement in our stores. These events help drive robust comps in appliances, tool storage, outdoor power and grills.
In our ongoing effort to update and refresh our assortments, we continually leverage our merchandising tools to Our online business had strong growth in the quarter with double digit traffic growth and improvement in conversion. Our We are enhancing the functionality in mobile with features like larger and clear product images, live mobile chat and a simplified checkout experience. Fulfillment and nearly 90% of our online product returns are processed through the convenience of our stores. Now let's turn our attention to the Q3. Our focus on innovation is a key part of our strategy.
For our pro customers, we will be introducing the DEWALT FlexVolt system in our stores this fall. This DEWALT system uses the innovative FlexVolt battery, which identifies various types of DEWALT tools and adjusts voltage to provide the appropriate level of power needed. These products provide corded performance without the cord and the innovative brushless motors increase tool runtime and durability, As smart devices continue to resonate with customers, we are excited about expanding smart technology with the new Ryobi Garage Door Opener. This innovative system connects with any smart device and allows our customers to operate their garage door remotely, talk on the phone or play music through an embedded Bluetooth speaker or park with ease using the laser park assist attachment. The new exclusive Ryobi Garage Door Opener conference call is available for the Q3.
Our exciting Q3 events along with outstanding execution of stores will position us for success in the 3rd quarter. With that, I'd like to turn the call over to Carol.
Thank you, Ted, and hello, everyone. Before I review our results, recorded. I'd like to remind you that our net earnings for the Q2 of 2015 included a pre tax net expense of $92,000,000 related to our 2014 data breach and a $144,000,000 pre tax gain on sale of HD Supply common stock. Conference call is being recorded. When added together, these two items contributed $0.02 of diluted earnings per share last year that did not repeat this year.
So with that, let's get started. In the 2nd quarter, sales were $26,500,000,000 company is a 6.6% increase from last year, driven primarily by positive comp sales as well as the impact of Interline Brands. Call is 4.7%. Our total company comps or same store sales were positive 4.7% for the quarter with positive comps of 2.3% in May, 7.5% in June and 4.5% in July. Comps for U.
S. Stores were positive 5.4% for the quarter, with positive comps of 3% in May, call is being recorded by the timing of Memorial Day. Last year, Memorial Day sales were included in our May results and this year they were included in our June results. Adjusting for this timing shift, our U. S.
Comps would have been 4.3% in May, company was 7% in June and 5% in July. Our total company gross margin was 33.7% for the quarter, company is an increase of 3 basis points from last year. The change in our gross margin is explained largely by the following factors. Conference call is being recorded. First, as expected, we had 22 basis points of gross margin contraction due to the impact of Interline.
2nd, we had 13 basis points of gross margin expansion in our supply chain, driven primarily by increased productivity company is expected to be a strong year for the year. And finally, we had 12 basis points of gross margin expansion due primarily to reaching higher co op company's Q2 2016 earnings call and rebate tiers in certain category classes, which lowered our cost. For fiscal 2016, we continue to expect our gross margin rate company's expense as a percent of sales decreased by 78 basis points to 18.2%. As I mentioned, Our expenses in 2015 included $92,000,000 of net data breach related expenses that did not repeat in 2016. Company's earnings call.
In the quarter, we were pleased with our expense performance as total expenses were under our plan. Due to our continued focus on expense control, we now believe that our fiscal 2016 expenses will grow at approximately 32% call of our fiscal 2016 sales growth rate. Our operating margin for the quarter was 15.5%, company is an increase of 81 basis points from last year. Interest and other expense for the Q2 was $228,000,000 is up $144,000,000 from last year, reflecting last year's pre tax gain on sale of HD Supply common stock that did not repeat this year. In the Q2, our effective tax rate was 37% compared to 37.3% in the Q2 of fiscal 2015.
For fiscal 2016, we expect our income tax provision rate to be approximately 37%. Our diluted earnings per share for the 2nd quarter were $1.97 an increase of 13.9% from last year. Now turning to the balance sheet. At the end of the quarter, inventory was $12,300,000,000 is up $464,000,000 from last year due primarily to the impact of Interline. Inventory turns were 5 point is 2 times, up 1 tenth from the Q2 of last year.
Year over year, accounts payable increased by is $778,000,000 to $8,300,000,000 reflecting the timing of purchases company are approximately 9,460,000 shares of outstanding stock. For the remainder of the fiscal year, we intend to repurchase is approximately $2,500,000,000 of outstanding stock using excess cash, bringing total anticipated 2016 share repurchases company is $5,000,000,000 Computed on the average of beginning and ending long term debt and equity for the trailing 4 quarters, conference call is being recorded. Now turning our attention to
the full year.
Recent GDP growth estimates suggest a slowdown in the U. S. Economy from what we expected, recorded, but we are encouraged by the strength of our core business as the U. S. Housing market continues to recover.
Company is a company that is currently in line with our expectations. Based on our first half performance and our outlook for the balance of the year, we are reaffirming the sales growth guidance we laid out at the end of our Q1.
Call is being recorded. For fiscal 2016, we expect sales
to grow by approximately 6.3% with comps of approximately 4.9%. Implied with this guidance is a comp for the second half of fiscal twenty sixteen of approximately 4.3%.
Conference call
is being recorded. This is not a reflection of a sequential slowdown in sales, but rather a reflection of year over year performance. On a 2 year stack basis, While we are reaffirming our sales growth guidance, we are lifting our earnings per share growth guidance for the year, principally because of better expense control and therefore more operating leverage than we anticipated at the end of the Q1. For earnings per share, remember that we guide off of GAAP. Conference call is being recorded.
We now expect fiscal 2016 diluted earnings per share to grow by approximately 15.6 percent to $6.31
We'll have our first question from Simeon Gutman with Morgan Stanley.
Thanks. Good morning. There was a lot of noise, it sounds like in the early part of the quarter with weather and some Memorial Day shift. Do you was there any I don't know if it's possible to measure this, but do you think there was some degree of demand destruction that you didn't pick up granted June, July improved, but I'm trying to get a sense if you think underlying demand could actually be stronger than it looks.
Well, I think There's no doubt to your point that May was a tough start. When you look at Variability in the quarter month to month compared to a year ago, we had higher variability and part of that was clearly driven by weather. An example would be in Washington DC alone, there were 20 days of rain in the month of May. So it's hard to tell, But clearly, we know there was an impact.
Okay. And then my follow-up, I mean, there's a lot of noise in retail across many segments. You mentioned that the housing or housing outlook is fine. I know this seems obvious, but can you maybe just talk about what gives you confidence in it. Is it the pro growth?
Is it the type of projects? I'm sure it's all the above, but love to hear just some color on that topic.
So clearly, when we look at housing, things that we focus on are home value appreciation, which continues to grow. We look at housing turnover, which is kind of running at norms, well north of 4% of the housing stock company's call centers and all of those are drivers in our business and all of those continue to recover.
But I would say what gives us confidence is strength in the big ticket. As conference and part of the ticket growth was item in the basket growth and that tells us that the project business is alive and well. And then finally, we look at the strength in Pro and our pro business outpaced our DIY business. So when you couple just the trends that we see in our existing business, coupled with what we
will go next to Kate McShane, Citi Research.
Hi. Thank you for taking my question. Sure. This might sound a little nitpicky, so company I apologize, but I just had noticed in your prepared comments that you had mentioned that Kitchen specifically was below the company average comp, and I just was trying to reconcile the strength that you saw in Pro during the quarter versus some of this merchandise commentary and what you're seeing more specifically in terms what is driving that Pro business in Q2?
Well, our overall Kitchen business Did comp positively, the special order kitchens are not as much of a pro category. The take with Kitchens, our in stock kitchen business is more of the pro business and that in comp
you would expect to see some seasonality in our kitchen business. People are on vacation during the
open.
We'll go next to John Ball, Stifel.
Thank you. Congratulations on a strong quarter. I was just curious on payables, which were quite strong. You mentioned timing. If you could just talk about the sustainability of that number in the second half and whether your free cash flow assumptions have
conference call is being recorded. Craig commented in his remarks that we had some learnings during the quarter and one of those learnings was actually we had is an error in our order logic that we use for inventory purchases. And so we corrected that error and have corrected it and actually sent purchases to our suppliers. So that is just a timing matter. It will normalize itself by the end of the year.
So this is a consistent trend.
Conference call.
We'll go next to Christopher Hovers with JPMorgan.
Thanks. Good morning.
Good morning.
I wanted to talk about inventories a little bit. We've heard a number of vendors talk about inventory destocking at retail, Orders down in the second quarter. Is that process largely behind the Home Depot? Does it in any way reflect a less robust outlook for the market? And I know, Craig, you mentioned learnings and process improvement around inventory management freight handling, did that have any impact in terms of what we heard from the vendor community?
Chris, as Carol just mentioned, one of the learnings this quarter was, in fact, that we did have an error in an update logic that we put into our replenishment, we identified that, corrected it, and that clearly did have an impact On the order flow that happened during the quarter, that has been corrected moving forward.
Okay. And just thinking about the weather and thinking about the first half and the upcoming fourth quarter, In retrospect, now that you're further along, could you reassess the amount of pull forward and the bathtub effect between the Q1 and the Q2? As you think about lapping this upcoming Q4, I think a lot of investors are talking about, hey, the Home Depot really benefited from a warm winter. What's your thoughts on that? And do you think the 4th quarter in effect pulled forward demand from the first half of this year?
It's really, really hard to gauge that. Clearly, as we called out in the Q1, we felt that there was some pull forward. It's really hard to know exactly how much that happens. Who knows what the weather in the upcoming 4th quarter will be, but we'll try to stay focused on driving the business.
And we know we have a large comp in the Q4 of last year that we have to comp on top of and we've planned for that. We'll have a great holiday event that we'll talk to you about next quarter.
Okay. Thanks very much.
Next, Scott Mushkin, Wolfe Research.
Hey guys, thanks for taking my questions. I got 3 kind of quick ones. I think the first one The 60 day terms I think that you guys brought forward, I think it was in the last year beginning of this year for the pro sales. Any quantification on what you think that's doing
private label card, particularly our commercial private label card, we're really pleased with the results. Sales are up year on year ahead of our conference call is now open. Okay. So, I guess, I'll turn it over to Chris
for a few minutes. Okay. So, I'll turn it over to Chris for a few minutes.
Thank you, and talk about our private label program in total, we actually saw a decline in penetration year on year of about 30 basis points, taking our penetration down to just under 23%. The decline was attributed to a decline in the consumer card. And when we peel back the layers of the onion to say, well, what's happening with the consumer card, we see a few things. Last year, we had a few promotional events that we did not repeat this year. So that impacted the penetration.
And then we see increasing competition coming from bank cards. In fact, I received one just at my home this week from Visa that's offering deferred financing. So there's increased competition out there. Pin debit up over 100 basis points year on year is now the 3rd largest form of tender inside of our company. So the 1st largest is the bank card, the 2nd largest is the private label card and the 3rd largest is Penn Debit.
Interesting. Thank you. That's good information. Did you have you guys looked at when we go through election cycles, kind of what We're obviously going to heat up the election cycle. We've heard that at the high end, some high end consumers are postponing certain purchases because of the election cycle.
Have you guys looked at your numbers and how does that flow through The Home Depot as we go through the fall?
To be totally honest with you, we're focused on our customer. We don't really pay a lot of attention to it. It's all about how do we take care of our customers every single day, make sure we're driving value for them every
day. All right. My last and this one is definitely a random question, but So, 2nd year of Prime Day. Do you guys feel Prime Day as Amazon does it? And then I'll yield.
Thanks.
Interestingly, on Prime Day, there's so much activity in the marketplace. It draws a lot of shoppers online And our customers responded, and we have a good day drafting off Prime Day.
All right, perfect. Thank you, guys.
Conference call
will go next to Budd Bugatch, Raymond James.
Good morning. Congratulations on a solid quarter.
I guess my first question has to do with the Interline integration, maybe talk a little bit more or give us a drill down and give us some color of A, what you are
Again, still working through the integration. We're kind of ahead of the value drivers. We like what we see, but I'll let Bill comment on that easier. No, Budd,
we've talked a little bit last call about our customer intercepts and research that we're doing and The prioritization of our use cases where it's based on really the customer feedback plus if you look at the market opportunity. And we have in pilot our first use case, which is the ability to enable customers to shop in aligned assortments inside the Home Depot stores. We have a pilot of 20 stores. It's really early days, but our results are Exceeding expectations are really 3 times expectations. So it's encouraging.
It says that all of the assumptions there of the ability to increase share of wallet with the pro remain intact. And so we'll get that and continue to focus on that. But Again, it is very, very early days.
And in terms of the impact on the quarter, as we talked about our top line growth And then it does add more variability and expenses. So if you look at our expense growth factor for the quarter backing out inner line, it was a little higher than company is going to be as we expected. As we now anniversary the Interline acquisition moving into the Q3, our expense growth factor is going to come more in line conference call is what we expected. And in fact, our expenses are under such good control. We were under our expense plan for the Q2.
We now think it's about 32% of our sales growth.
Okay.
And my follow-up really has to do with appliances, a double digit comp, if I heard you correctly. Ted, how sustainable is that? What's causing that? Do you see that in advance of the market itself?
Well, there's clearly some share opportunity in the marketplace that we've purposely positioned ourselves for. So we continue to Invest in expanding our client showrooms with the larger showrooms. We can put more display pieces on the floor. It allowed us to get a much broader showing of Whirlpool's offering as well as
comp in appliances met 50 basis points of total comp growth for our company.
Okay. And just quickly, just one follow-up. Is Pro penetration, can you give us any comment on that as a percentage of sales?
It's hovering where it's always hovered around 40% of sales.
Right. Thank you very much. Congratulations.
Thank you.
We'll go next to Michael Lasser, UBS.
Craig, how long do you think that home improvement demand from Retail. I think Carol in her prepared remarks noted that some economic prognostications have been ratcheted down, but you're keeping your forecast for same store sales in place. So how long do you think that this can be kind of an oasis within the broader economy.
Well, I think when you look at a few factors, first of all, there's about 4.6 months of company's call is being recorded. As you go forward, that's also helping to keep home value appreciation going and there's projections in The market out there from various sources that would say home value appreciation continues for the next couple of years for sure. And so I think this is a tailwind that we see for the foreseeable future and the guidance window that we've given.
And if you look at some of the housing markets that have gotten really hot, San Francisco, Miami, Are you seeing similar trends there or any sign that demand is starting to ebb out?
We don't really see any change.
We haven't seen any change. The fundamentals, as Craig pointed out, for housing and then the impact to home improvement are really, really good. And you go back to household formation. If the number of people in households were to drop to the 2,000, it would create 4 point is a company of 3,000,000 new households. Now, will they all go into single family owned households?
No, but we serve both. We served So there's just a tremendous amount of tailwind that continues to support our business and our business outlook Through 2016 into 2017 for sure, if not 2018, 2019.
And my follow-up question is on The implementation of comps along with change in your ordering algorithm that you implemented in the quarter, Did it have any impact on sales? Did it drag down sales at all? Did it have any impact on in stock?
I mean, it's really hard to know. We really don't know. And the reason that we don't is there are so many items candidly in the store that can be substituted. So if we cause ourselves hurt in one item, it's very possible that a customer picked up another item. So it's pretty difficult to tell.
Understood. Good luck with the second half of the year.
Thank you.
We'll go next to Seth Sigman, Credit Suisse.
Thanks. Good morning. Great quarter, guys. Thanks. I just want to follow-up one of the last questions.
So you exited the quarter with a pretty healthy trend. It sounds like the tone is positive on the demand outlook. Is there anything we should be thinking about in terms of the cadence of comp growth in the back half of the year Q3 versus Q4?
Yes, the way that we've built our plan and our forecast is that the cost for Q3 and Q4 will be more or less the same, 3rd quarter than it is in the 4th quarter, principally because of year over year comparisons. For the full year, the expense growth factor should be about 32% of our sales
Okay, that's helpful. And then maybe just to dig in a little bit further, I mean, have you seen any major change
We're very pleased with our August results. Parts of the country obviously are flooded. We have a store closed in Louisiana, But if and we our heart goes out to the people who are impacted by that. But if you ignore that kind of activity, we're very pleased.
Okay, got it. And then One of the things that you guys talked about is the growth in units per transaction. I'm just wondering, is there a change in trend there? And if so, like, do you think that's a result of some of the initiatives or is the composition of the projects that are getting done right now maybe a little bit different? Like, how do you think about that trend.
I think that the units per transaction, this is about the 3rd quarter now that When you think of all the positive comps we've had over the past several years, the units per transaction really didn't move that much. But The last few quarters, we've seen a healthy growth in units per transaction and it's really units In the larger ticket items, when you start to get into larger ticket items, you're looking at 40, 50, Even 70 items in a basket. So this is clearly a project. While appliance sale, for example, would help The average ticket, you're only looking at 1 or 2 items, the appliance and maybe some connecting hoses. But our project business remains very healthy and the growth of that unit per transaction And units and things like lumber and building materials are very healthy for the business.
So it speaks to pro and it speaks to project.
We'll go next to Peter Benedict, Robert Baird.
Just following up on that, is there any historical perspective you guys can provide us with around this units per transaction trend that you're seeing? How does the current metrics compare to any periods in the past? And when you started to see An uptick historically, how long does that go on for? Is there any perspective around that you can help us with? Thank you.
The granularity and items per basket, our history is not so good. Our record keeping is not so extensive. So we can't really go back to prior conference call is that while The high spend pros drove the outperformance. The gap between high spend pros and low spend pros So we would expect this trend in items per basket to continue.
Okay, Carol. Thanks. That's helpful. And then just my one follow-up would be, just curious if you guys are Thank you.
Well, we've continued to see trade up. We've talked about this the last several calls where we're looking at all our price points. And again, company had another quarter where our comp progression improves as we go up the line structure from good, better, best. In specific to pro pricing, I'd say the only call out would be lumber prices are on the move and you're starting to get some trade off between plywood and OSB, just as those prices Get back elevated the more premium product in plywood, there isn't as much of a gap in that product class.
Clearly, innovation is a driver to the customer stepping up in the line structure. When you provide new innovative products, people step in.
Okay, makes sense. Thanks very much.
We'll go next to Dan Bender, Jefferies.
Thank you. I just want to go back to the comment you made earlier about the replenishment error. I was just curious if it was significant enough that it created any in stock
I mean, we
definitely saw an impact in our in stock position for about 6 weeks during the quarter, But clearly, I've recovered from that at this point.
And let's put that in perspective for you. We strive to have in stocks of 99% or greater. Company is currently in the
range of $1,000,000,000.
As Craig pointed, we were 6 weeks under that goal, but the largest gap was 13 basis points. So it wasn't a major disruption, but because of our standards to be 99% or better, we felt it.
Yes, we missed our own expectations.
Okay, great. And then you mentioned earlier that there were certain promotions you didn't repeat, causing the private label penetration on I was just curious on that. If you could talk a little bit about your promotional posture, how you're thinking about promotions relative to the market,
I would say that we have really
Last year, there was a willingness to take on some more debt for share buyback. Thus far, you've stuck to the $5,000,000,000 share buyback. Is there a scenario Where you could see the leverage increase a bit, I think you're still under that 2x adjusted debt to EBITDAR at this point?
We are around 1.8x, which gives us about $3,000,000,000 of borrowing capacity relative to our target. It's not our intent to let that borrowing capacity continue to grow. And as we have in the past, we've opportunistically taken advantage of company's interest rates and availability to raise incremental debt and increase our share repurchase. So you should think about our past practice buy back shares. And if we like to issue some incremental debt and buy back some additional shares, we'll let you know.
Great. Thank you very much.
Brian Nagel, Oppenheimer.
Hi, good morning.
Congrats on
a nice quarter.
Good morning. Thank you.
My first question, I apologize, maybe somewhat repetitive some of the prior questions, but just to be clear, and I think someone else mentioned, there's been a lot of noise out there in retail sales lately from what other companies are talking about. And clearly, we talked a few about weather. But as you look at the data, You mean more granular than what we've discussed today. Is there anything are you seeing anything to suggest or anything to hint at a more cautious consumer environment, In a bigger ticket type project?
I think, as we said, we're fortunate that we are in a space where the customer is willing to spend. That's clearly driven by the dynamics that exist in the housing market overall. And as Ted called out, we had a strong performance in tickets above $900 growing 8.1% contract and appliances, but by the units per basket around the project business. So it's very encouraging what we're seeing in that.
Thanks. And then a follow-up, Carol, on the expense leverage side. For a while now, it seems that Home Depot continues beat expectations with regard to expense leverage. You mentioned that again today with now higher EPS guidance for the year. So Maybe more color on exactly where this latest bit of beat is coming from.
And as you look out, is there anything to suggest that at
Well, we view productivity as a virtuous cycle in our business and we are constantly looking at ways to drive productivity, while ensuring that the customer experience is the best it possibly can be. Most recently, our HR team did a great job of renegotiating some contracts in support of our medical benefit programs for our associates. And that reduction has caused actually cost out. And with that cost out, our people costs aren't going to be as high this year as we anticipated. But there are other examples of where our team continues to go after large purchasing contracts to drive productivity And make sure that the experience is the one that we want to deliver.
Well, thank you and congrats again.
Thank you. Thank you.
On everyday value. I know you already commented on that, but there was some noise in the quarter regarding maybe heightened promotional cadence from some of the competitors in your space. Is there anything to note from your vantage point regarding changes in the promotional environment?
I mean from time to time, we see increases in promotional activity. We saw it certainly during the quarter, but we're focused on driving
Okay. So nothing of note. And then Carol, I know one of the things you've talked about Increasingly over the last couple of quarters is the aging housing stock in the U. S. I'm curious if you've started to come to any conclusions regarding how big of a driver or impact that could be on your business over time?
Thanks.
Well, we're doing more research in this regard because we've never been in this place in our country with this. So we don't have any history to rely on. So we've got more research to do. It actually makes us comfortable about our growth forecast as we go into 'seventeen because when things start to break, you got to fix it. And we think it's a tailwind, but Scott, I don't I can't quantify it yet.
Jessica Mace, Nomura Securities.
Hi, good morning.
Good morning.
My question is a follow-up on the supply chain. You talked about it being a work in progress and you mentioned the comp system and some other factors. But I was wondering if you could just give us a little bit more detail on the next milestones that we should be expecting and what that impact could be on the P and L? Thank you.
And Mark Hollyfield is here. I'll let Mark comment.
Yes. We're pleased. As we've mentioned, it is a work in progress. We continue to see opportunity to improve our in stock, our inventory productivity, our logistics costs. Sync is the biggest initiative we have going in that.
Company is currently in the range of $1,000,000,000 of the cost of goods sold, the dollar volume that goes through there on the SNC initiative. From that, we're seeing mainly improved transportation costs and smoother demand flow, and we're working with our suppliers to continue to improve those benefits for all in the supply chain. So we'll continue along that path Until but we're not in a hurry. It's still early days and it's a multiyear initiative that we're pursuing there.
To put it in perspective between 20112015, on a cumulative basis, our supply chain has driven 68 basis So we continue to anticipate benefits coming on the gross margin line through the productivity in our supply chain. And also there will be longer term inventory turn benefits. We never want to go out of stock, but there will be longer term inventory turn opportunities.
And that really comes from shortening lead times.
Great. Thank you for taking the question.
Sure. Conference
call
will go next to Greg Melich, Evercore ISI.
Hi, thanks. I'd love to dig a little deeper into the digital online business. I think up 19%, still quite strong, but it is decelerating. Is that just law of large numbers? Was there something given all the initiatives you have, whether it be sync or supply chain changes or getting ready for bod fest that's impacted that?
Yes, we don't look at it as a deceleration on a nominal dollar basis. We've now grown over 2 $100,000,000 for 14 quarters. 14 quarters. One change was The patio line structure I spoke about we put more value product into the store that really sold incredibly well And that took about 2, 3 points of comp off our online number. So we've been running at that 20 ish, 20 plus for has been a very strong year for several quarters now growing the business
$200,000,000 a quarter. Okay,
got you. And if you and just Make sure I got the numbers right. I think you mentioned 42% of online now is done through the stores and I want to make sure I got that right. And 2,
Yes, that's right. So 42% of online orders are picked up in the store and 90% of returns We are now following with what we call BODFIS, which is buy online, deliver from store. We've always delivered from our stores. The difference now is you can execute the transaction online
That's great.
Thanks a lot.
Good luck.
Thank you. Shirlan, we have time for one more question.
That will come from Laura Champine with Ro Equity Research.
Good morning. I wanted to dig a little deeper into what's going on with the Pro. Do you think that you're benefiting From the growth of the market or you actually taking market share with PROs? And then assuming you're taking share with PROs, Do you see more strength with smaller pros, larger pros? What categories are you dominating that's driving that share gain?
I I mean, I definitely think that the market in total, at least when you talk to PROs, They're busier than they were a year ago. So the market growth is certainly there. And when we look at The strength in our pro categories, we believe, based on all the data that we have, that we're taking share in those categories as well.
If you think about it, Laura, based on the census data, which is the NYX-four forty one, we grew share year on year. And since pro outpaced DIY growth, That had to be share coming from in the pro space. So clearly the market is growing, but we're taking share at the same time.
Got it. And any comments on the strength of
the smaller Pro versus the larger Pro?
Yes. As I mentioned earlier, what we've seen is a narrowing between the large
Got it. Thank you.
You bet.
Well, thank you for joining us today and we look forward to having you join us on our next quarterly earnings call in November.