Good day, ladies and gentlemen, and welcome to The Home Depot 4th Quarter and Fiscal 20 15 Earnings Call. Today's conference is being recorded. Depot. Please go ahead, ma'am.
Thank you, Nicole, and good morning to everyone. Joining us on our call today are Craig Meniere, Chairman, CEO and President Ted Decker, EVP of Merchandising and Carol Tomei, Chief Financial Officer and Executive Vice President, Corporate Services. Depot. Following our prepared remarks, the call will be open for analyst questions. Questions will be limited to analysts and investors.
And as a reminder, we would appreciate it if the participants Depot. If we are unable to get to your question during the call, please call Investor Relations department at 770 3,842,387. 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. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. 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.
Depot. Site. Now let me turn the call over to Craig.
Thank you, Diane, and good morning, everyone. Fiscal 2015 was a record year for our company. We achieved sales of $88,500,000,000 the highest in company history. We also recorded the highest net earnings in company history And fiscal 2015 earnings per share grew 15.9 percent to $5.46 Sales for the Q4 were $21,000,000,000 up 9.5% from last year. Comp sales were up 7 Depot.
Our U. S. Stores had a positive comp of 8.9%. Diluted earnings per share were $1.17 in the 4th quarter. Our strong sales performance was driven by Continued moderate housing recovery, exciting merchandising events, solid execution and a benefit from favorable weather.
We continue to see broad based growth across the store and our geographies. All three of our U. S. Divisions posted positive comps in the 4th quarter led by our Southern division, which posted low double digit comps, Depot. While our Northern and Western divisions recorded high single digit comps.
In all 19 U. S. Regions and top 40 markets Depot. Mid single to low double digit comps in the quarter. Internationally, our Mexican and Canadian businesses We had another quarter of solid performance.
Mexico reported positive double digit comps in local currency, making it 49 consecutive quarters of positive comp growth. Our Canadian business Also posted high single digit comps in local currency for a total of 17 consecutive quarters of positive comp growth. Canada ended the year with sales over $7,000,000,000 in local currency, reinforcing our position as the number one home improvement retailer in Canada. I would like to congratulate Jeff Kennard, who was recently promoted to President of Home Depot Canada. Jeff is a 19 year Home Depot veteran with strong operational and merchandising experience, which has allowed him to be instrumental in our success in Canada.
While there was strength in seasonal holiday decor, gift center and Black Friday events. Core categories were also a strong contributor to our performance. Both ticket and transactions grew in the quarter. As Ted will detail, all of our merchandising departments posted positive comps, and we saw a healthy balance of growth among both pro and DIY Depot. With Pro outpacing our DIY business in the U.
S. You will recall during the Q3, We completed the acquisition of Interline Brands, a leading national distributor of maintenance, repair and operations or MRO products. We told you that in the 2nd 90 days of integration would be about building out specific business cases. We are moving forward on a number of exciting sales driving initiatives that have been identified through this process. For example, we will soon begin offering our exclusive paint brands to Interline's multifamily operators.
We have a good sense of what we need to accomplish over the next 18 to 24 months in order to fully realize the value of Depot. The retail environment is evolving and the blending of the digital and Physical worlds remain a common theme. We are responsive to these trends, building out our interconnected capabilities and investing Depot. Content, site improvement and improved mobile experiences to solve for a frictionless customer experience. We continue to see healthy sales from our digital business, while also seeing year over year improvement in customer satisfaction scores.
For the year, our online business grew by approximately $1,000,000,000 a growth rate of over 25% versus the prior year. A significant portion of this online growth leverages the physical store assets that we have As over 40% of our online orders are picked up in stores. This is a testament to the power of our interconnected strategy. At our December investor conference, we highlighted our plans to further optimize our supply chain Depot. We have been piloting Project Sync in Houston for some time And have now begun to roll out in a few other regions.
Though it is early days, we have seen benefit We appreciate the efforts Depot. Our cross functional teams internally as well as the increased collaboration with our external partners Depot. As all parties involved are working together to develop and adopt engineered flow schedules that serve as the foundation of Project Sync. Turning to the macro environment. While 2016 consensus U.
S. GDP growth projections have moderated, We continue to see positive signs in the housing data with home price appreciation, housing turnover and household formation being the key drivers of growth for our business. We expect 2016 comp growth of approximately 4.5%. Carol will take you through the details, but currency headwinds could results in lower total company comp growth. Therefore, we expect total company comp growth of approximately 3.7% to 4.5 percent and corresponding diluted earnings per share of $6.12 to $6.18 Today, our Board announced a 17% increase in our quarterly dividend to 0.6 Depot.
We remain committed to maintaining a disciplined capital allocation strategy to create value for our shareholders. We will invest to sustain and grow our business and return excess cash to our shareholders through dividends and share repurchases. The power of The Home Depot begins with our company's strong culture and commitment to our values. I want to thank our associates for their hard work and dedication to our customers. And I'd also like to congratulate Ann Marie Campbell, Ann Marie brings a deep understanding of Home Depot's operations, culture and customers to the role.
Based on this quarter's results, 100 percent of our stores qualified for success sharing, our profit sharing program for our hourly associates. This is our largest second half payout to date, and we look forward to continuing this momentum Depot in 2016. And with that, let me turn the call over to Ted.
Thanks, Craig, and good morning, everyone. We were pleased with our performance in the 4th quarter as sales exceeded our expectations. We saw strength across the entire store as well as continued growth in our online business. Sales were aided by milder weather and great events, including the strong Black Friday and Gift Center. All of our merchandising departments posted positive comps.
Appliances, tools, building materials at double digit comps in the quarter. Lighting, plumbing, hardware and indoor garden were above the company average, Depot. And decor was in line with the company average. Outdoor garden, millwork, lumber, kitchen and bath, Depot. Paint, Electrical and Flooring posted mid single digit positive comps.
Pro Heavy categories saw significant growth during Depot. Good day, ladies and gentlemen, welcome to The Home Depot.
Good day, ladies and gentlemen, and
welcome to The Home Depot. Our recent assortment update in roofing continues to drive excellent results as we saw double digit comps in roofing in the 4th quarter. And we continue to see strength in core maintenance and repair categories with double digit comps in pumps, security lighting, water heaters, electrical tools, construction adhesives, ladders and cocks. Depot. Cleaning, bath fixtures, door locks and pipe and fittings also had comps above the company average.
We believe that more favorable weather trends in the quarter aided sales growth by approximately $100,000,000 Our customers took advantage of the milder weather and were able to complete more outdoor projects. For example, we saw double digit comp sales in and the Company's press release. The Black Friday, gift center and storage events provided great values and were well received by our customers. Our strong Black Friday helped drive double digit comps in categories like portable power and appliances. Depot.
Our gift center performed extremely well, and we saw double digit comps in tool storage, power tool accessories and hand tools. In addition, our associates rallied behind our decorative holiday offering, resulting in comps above the company average. In the Q4, total comp transactions grew by 5%, and for the year, we set a new transaction record With over $1,500,000,000 total transactions. In the quarter, comp ticket increased 2%. Our comp ticket increase reflects about 32 basis points of contraction due to commodity price deflation Depot.
Transactions for tickets under $50 representing approximately 20 percent of our U. S. Sales were up 3.8% for the 4th quarter. Transactions for tickets over $900 Also representing approximately 20% of our U. S.
Sales were up 11.9% in the 4th quarter. The drivers behind the increase in big ticket purchases were appliances, roofing and special order kitchens. The big ticket was also driven by several installation service categories such as roofing, sheds and countertops. Now let me turn our attention Depot. In our ongoing effort to update and refresh our assortments, we will be resetting our door lock Depot.
Using our assortment planning tools, we were able to more effectively cluster our door lock assortment around styles, finishes and brands. Depot. We have a new merchandising approach that highlights our brands and their complete collections. Our reset will include great innovative products Such as the Schlage Connect and Kwikset's 915 Electronic Locks. Depot.
For our pro customer, we are introducing new and exclusive products from Milwaukee, DeWalt, Ryobi and Rigid, all leaders in professional tools. Depot. The new Milwaukee M18 Fuel with One Key is a revolutionary technology that provides users The ability to control tool settings, track the location of their tools and manage their tool and equipment inventory with their wireless devices. Depot. This innovative technology gives our pro customers the trusted power of the Milwaukee brand with added benefits to make them more productive.
Depot. In addition to great new products, we are gearing up for the spring selling season. We are excited about Our exclusive grill offers from Weber, Next Grill and KitchenAid. And our large assortment online offers numerous Depot. Our patio assortment continues to expand, including new dining set designs from Hampton Bay and an enhanced offering of patio accessories.
For the Gardner, we are excited about our expanded selection of exclusive organics from Doctor. Earth and Blackmagic. Our spring Black Friday event will once again offer amazing values for our customers. Depot. The stores will be loaded with exciting products and exclusives on items like live goods, grills Depot and Outdoor Power Equipment.
We're looking forward to a great spring season. With that, I'd like to turn the call over to Carol.
Thank you, Ted, and good morning, everyone. In the 4th quarter, sales were $21,000,000,000 a 9.5% increase from last year. Comp sales were positive 7.1% for the quarter, with comps up 6.3% in November, 8 point 6% in December and 6.7% in January. The continuing strength in the U. S.
Dollar negatively impacted total company comps Depot. In the quarter by approximately $350,000,000 or 1.8%. Comps for U. S. Stores were positive 8.9% for the quarter with comps of 8.1% in November, 10.6% in December and 8.2% in January.
For the year, our sales increased 6.4% to $88,500,000,000 and total company comp sales were positive 5.6%. Comps for U. S. Stores were positive 7.1%. During the year, a stronger U.
S. Dollar negatively impacted sales growth by approximately $1,400,000,000 or 1.6 percent. Our gross margin was 34.1 percent for the 4th quarter, a decrease of 24 basis points from last year and in line with our plan. The change in gross margin was driven primarily by the following factors. First, we experienced 15 basis points of gross margin expansion due to productivity within our supply chain and lower fuel cost.
2nd, we had 26 basis points of gross margin contraction due to the impact of Interline Brands. And third, Depot. We had 13 basis points of gross margin contraction due to a change in the mix of products sold, including a higher penetration of lower margin product categories like appliances. For the year, we experienced 6 basis points of gross margin expansion. In the 4th quarter, operating expense as a percent of sales decreased by 96 basis and the Company's Q1 results.
Our operating expenses were $90,000,000 over our plan. We had some unexpected expenses associated with store maintenance, snow removal and our data breach. Further, given our sales outperformance Depot. We increased our accrual for management bonus and success sharing. For fiscal 2015, our operating expense as a percent of sales Depot.
Our operating margin for the Q4 was 12.1% and for the year was 13.3%. In the Q4, interest and other expense was $236,000,000 an increase of $138,000,000 from last year. The year over year increase reflects 2 items. First, last year, we recorded a $111,000,000 pretax gain on the sale of HD Supply common stock that did not repeat this year. And second, interest expense It was $29,000,000 higher than last year, due primarily to higher long term debt balances.
Our income tax provision rate for both the Q4 and fiscal 2015 was 36.4%. Diluted earnings per share for the 4th quarter were $1.17 an increase of 11.4% from last year. For the year, Diluted earnings per share were $5.46 an increase of 15.9% compared to fiscal 2014. Now Now moving to some additional highlights. During the Q4, we opened 1 new store in Mexico, bringing our total store count at the end of the year Depot.
At the end of the year, selling square footage was $237,000,000 up slightly from last year, And sales per square foot increased 5.2 percent to 3.71 Depot. $8,000,000,000 up $730,000,000 from a year ago. On a currency neutral basis, inventory dollars grew by 8.7 Depot $2,000,000 Inventory turns were 4.9x, up from 4.7x last year. Payables grew $758,000,000 from last year. On a currency neutral basis, payables were up $834,000,000 Moving on to capital allocation.
In 2015, we generated approximately $9,400,000,000 of cash from operations and use that cash as well as proceeds from $4,000,000,000 of incremental long term debt issuances $1,000,000,000 back into the business through capital expenditures and the acquisition of Interline Brands. Further, we repurchased $7,000,000,000 or approximately 59,000,000 of our outstanding shares, including $2,000,000,000 or 16,200,000 shares in the 4th quarter. Finally, we paid $3,000,000,000 in dividends. Our capital allocation philosophy supports Our commitment to deliver high returns on invested capital. Computed on the average of beginning and ending long term debt and equity for the trailing four Depot.
Return on invested capital was 28%, 3 10 basis points higher than at the end of fiscal 2014. One more comment on capital allocation. For this month, we refinanced approximately $3,000,000,000 of our long term debt that is coming due in March 2016. This morning, we issued a press release with our guidance for fiscal 2016. I want to take a few moments to comment on the highlights.
Remember that we guide off of GAAP, so fiscal 2016 guidance Depot launch from our reported results for fiscal 2015. As we look to 2016, We are projecting total company comps of approximately 4.5%. Our comp forecast is Based on U. S. GDP growth estimates of 2.1% plus continued recovery in the housing market.
With the benefit of 5 new stores and a full year of sales from Interline Brands, we project total sales growth of approximately 6%. Our 2016 sales forecast is based on 2015 average U. S. Dollar foreign exchange rates. Depot.
The U. S. Dollar is currently stronger than the average exchange rate. As a result, we are providing a range of Sales, comp sales and diluted earnings per share growth to reflect the difference between 2015 average Depot Exchange rates and current exchange rates. If currency exchange rates remain where they are today, this would cause a negative impact to fiscal 2016 net sales growth of approximately $800,000,000 dropping our projected total sales growth rate from 6% to 5.1% and our projected comp sales growth from 4.5% to 3.7%.
As we discussed during our December investor We are planning our gross margin rate to remain flat to what we reported in fiscal 2015. We don't expect our gross margin rate to be materially impacted by exchange rates. On a currency neutral basis, We are forecasting our expenses to grow at approximately 40% of the rate of our sales growth rate, less than what we experienced in fiscal 20 Depot team as we had $128,000,000 of net bridge related expenses in fiscal 2015 that should not repeat in 2016. For the year, we project that our operating margin will grow by approximately 70 basis points. We don't expect our operating margin to be materially impacted by exchange rates.
For the year, we anticipate our income tax provision rate to be approximately 30 Depot. We expect our diluted earnings per share to increase by approximately 13% to $6.18 But if exchange rates remain where they are today, our projected diluted earnings per share would be approximately $6.12 Our earnings per share guidance includes our plan to repurchase approximately $5,000,000,000 of outstanding shares during the year using excess cash. For the year, we project cash flow from the business of roughly $10,000,000,000 Our 20 16 Capital Spending Plan is approximately $1,640,000,000 a 9% increase from what we spent in fiscal 2015 in support of our strategic initiatives and to maintain our aging store base. We'll also use our cash to repurchase $5,000,000,000 of shares and pay $3,400,000,000 of dividends. As Craig mentioned, we just announced a 17% increase in our quarterly dividend, which equates to an annual dividend of $2.76 in line with our targeted dividend payout ratio of 50%.
Our commitment to shareholder returns continues to be a hallmark of The Home Depot. So we thank you for your participation in today's Depot. And Nicole, we are now ready for questions.
Thank We'll take our first question from Peter Benedict from
Robert W.
Baird. Hey, guys. Thanks for taking the question. First question, just an accounting one, I guess, or how are you going to deal with the Interline brand sales as we move Through 2016, once we anniversary that, do those go into the comp base or are they going to be separate?
Yes, Peter, we're going to put Interline in Depot. Our comp base, we think it's important to operate as 1 Home Depot. So as a result, the comps as you think about the shape of the year, the comps in the back half of the year will be higher than the comps in the first half of the year.
Okay, perfect. That's helpful. And then,
I mean, the numbers don't seem to suggest you've seen any impact from the wealth effect, whether it be the energy markets or the stock market. I mean, obviously, everything in big ticket, very strong. But I mean, is there as you peel back the information, is there anything you're seeing in terms of Depot. Consumers may be starting to pull back on any of the higher ticket stuff? Again, the consolidated numbers don't seem to suggest that.
Thank you.
Peter, we're not seeing that. Our business was good and continues to be good.
Okay, great. Thanks very much.
And we have Chris Horvers from JPMorgan.
Thanks. Good morning and fantastic quarter. Good morning. I'm trying to understand the underlying tenor of demand. You mentioned about $100,000,000 lift to comps from weather, looks like about 50 basis Was weather a benefit across all three months or was it mainly on November December impact?
Well, if we look at our comp performance, we saw a double digit comp in the U. S. In December and that was really weather driven. December was the warmest month on Record in 121 years. And Ted, didn't we see a lot of strength in outdoor categories?
Yes. So clearly, both our pros and Depot. Consumers were able to continue with outdoor projects, but really we're seeing comp continue to be strong across the entire store. And while we appreciate the $100 odd 1,000,000 of benefit from weather, we don't look at this as a weather story in our Q4.
Goodness, now we grew ourselves by $1,800,000,000 So $100,000,000 of growth on $1,800,000,000 is not a weather story.
And it's geographies as well. Chris, I mean, we saw strength across really all the markets.
Understood. And then, I mean, do you look at that $100,000,000 as Depot. The pull forward and sort of sticking with the weather theme, the first and second quarter tend to be volatile. So, how are you thinking about that $100,000,000 Depot. And how you think in just how perhaps the spring plays out?
I know it's easier to look at on the halves, but as we model out the How are you thinking about the first versus second quarter?
I mean, Chris, generally, you don't see a pull forward from Q4 into Q1 or vice versa. Generally, it plays the bathtub effect between Q1 and Q2 as spring breaks. So we don't believe it's a pull forward.
As we built our plan, we did build the Q1 as the lowest comping quarter for the year, but that's principally because as we exited the year, as Depot. We had commodity deflation in our sales, where that commodity deflation continues into the Q1. So we built a plan to reflect Depot.
Thanks very much.
And we'll
take our next question from Simeon Gutman from Morgan
Thanks. Good morning. Nice quarter. Good morning. Craig or Carol and following on this theme, this I think the 2nd strongest U.
S. Comp since the housing recovery for Home Depot. And it comes when other things in retail are getting a little shaky. Depot. We talked about weather a little bit, but can you give us examples that you can share of any housing markets that may be longer in the tooth of recovery that just
Depot. Actually, the overall variability that we saw in the quarter by market was Depot. Kind of directly in line with what we saw last year. And you do get a little bit more market variation as you're in winter months based on Depot. So really, it's not there's not a lot of big variability.
Got it. So just underlying strength. And then I may have missed this in the prepared remarks, but on interline, can you share with us how it performed versus expectations, anything on sales Depot. And realize it's early and I don't think a lot of the integration is just getting started. But can you do you have a sense of how much overlap there is With the pro your pro and spending on Interline Brands maybe outside of The Home Depot today?
I mean, we're in the obviously in the early days of the integration efforts and we've worked hard across As we shared, we have a common vendor base. So we're working through the programs with our vendors. We reduced redundancy Depot. And now we're really getting into the more of the focus on the sales side of it and the sales driving initiatives. As we called out, we're excited about the fact that we'll begin to sell our paint brands to the multifamily operators in the interline company.
Bill Lenny is here and he might want to comment. I mean, we're starting to see some success in crossover, but it's very early days.
No, it is. Depot. We have seen some wins on some initial account engagements. And so what that does, it really validates what we see as the value of It's what we see as the value of the Interline acquisition. It's just that synergy about being able to sell across channel.
Depot. And then, as Carol articulated, we're working on that vision of One Home Depot that allows our customers to shop Depot. Either in store, online or through interline and having a greater access to a broader range of goods.
Okay. Thanks.
Depot. And we'll take our next question from Seth Sigman from Credit Suisse.
Thanks, guys. Good morning and congrats on the quarter.
Thank you.
I wanted to just follow-up on that last question, but specifically on gross margin. Carol, you're guiding to flat Gross margin, which is pretty consistent with everything you said before. Obviously, Interline has a little bit of a near term impact on that despite lower Depot. Once you anniversary the inclusion of Interline, how do you think about the gross margin opportunity from either synergies with Interline or Supply chain benefits or even lower input costs that some suppliers have talked about. And what I guess, what do you
Depot. Sure. As Craig mentioned, it's really easier to look at our business by half. So as you think about gross margin 2016. The first half because of the impact of interline will be down year on year.
The back half will be up year on year. Depot. The back half will be up year on year, because we'll be anniversarying the Interline and we'll see the benefits of productivity. We've talked to you in the past of our ongoing efforts to drive productivity within our cost of goods. We have a cost out team that we stood up several years ago that works We're actively with TEN and the merchants to drive productivity and first cost, which is our largest cost pool.
You've seen us drive Depot. Incredible productivity and our supply chain for the year. We had 20 basis points of expansion coming off of supply chain. This productivity that we are driving through our business allows us to invest in lower margin categories, not only in our line, but lower margin categories like appliances and other categories that haven't fully recovered Depot. So we feel very confident of the gross margin guidance that we've given for 2016.
So I'd add also the comment Depot. We shared at the investor conference that our approach is to really look at the end to end value chain and drive Depot collaboration with our vendor partners. And as we work through this with key suppliers, Depot. Ted and I talked to them, we're confident and likewise so are they that there's opportunity to take cost out of the entire value chain, which will benefit not only the Home Depot customer in terms of greater value, the shareholder, but also our vendor partners In terms of driving profitability for them as well.
Okay. Thanks for that. That's very helpful. Maybe just one follow-up question on Canada, Has evolved there over time and how are you thinking about perhaps more capital being deployed there by others in the sector?
Depot. We're actually very pleased with our performance in Canada. Before bringing Bill back, he did an amazing job in Canada, and Jeff and the team will continue that effort. We have made significant capital investments in Canada, Depot. Not only in our stores for the experience that our customers have in store, but also in our website As we've replatformed our website and continue to develop our interconnected strategy for Canada as well as a significant investment in our supply chain, deploying our strategy that we developed here in the U.
S. Into Canada as well. Depot. So we're looking forward to continued opportunity to serve our Canadian customers.
And I might just throw in from a store footprint perspective. We have 182 stores in Canada where we want the stores to be. So we're very pleased with our store footprint.
Thanks so much for the color.
And we'll take our next question from Michael Lasser from UBS.
Good morning. Thanks a lot for taking my question. It seemed like One of the biggest surprises in the Q4 was the amount of market share that you were able to grab and that's not even Depot accounting for some of your non traditional competitors like department stores, that's just your building Depot. So do you have a sense like where it's coming from? Are you seeing capacity come out of this system from some of your Depot.
Traditional competitors and that's enabling you to gain share or have you altered the way you do business such that these share
Depot. Well, I'd say that, certainly, it's something that we focus on all the time. The Customer is clearly investing in our space. We're in a good asset class as it relates to housing, Depot. But incredibly proud of the team's efforts, whether that is the merchants to be able to deliver incredible values, Depot.
Our stores and our online team to be able to execute against that, our supply chain team that delivered And the nimbleness of our supply chain to be able to react to kind of both weather patterns that happened during Depot. Just really, really pleased with the effort that the team put forth in total.
Depot. Do you have a sense whether your share gains and it would seem to suggest based on your commentary about the different business segment. Whether your share gains were larger on the pro side than they were on the consumer side? I'm not including Interline. I'm just talking in the core business.
Right. I mean, what I would say is the measure of share is something that's incredibly difficult to Depot. Overall, we do believe we're taking share in the market, but it's The finite number, it's pretty tough to get at.
And it really depends on what you're talking about. We're looking double digit positive, Depot. I suspect that was a pro customer.
In fact,
we know it's a pro customer to our consumer insights. Appliances contributed 50 basis points of our comp growth Depot. Most of that is consumer. So we really have to look at the category of business and what was driving each.
And can you tie those share gains to some of The Pro initiatives like the credit initiative, the Pro Extra initiative and some of what you've done Recently, I think it's important just to get a sense for how long these market share gains can last.
Sure. So I'll speak to the private label card perhaps.
Sure.
Depot. We just rolled out our new value prop in January. So you really can't attribute the strength in Pro, which by the way grew faster than the consumer Depot. You can't attribute that to the new private label card, but we're very excited about what that new private label card is offering to our Depot customers. As you know, 60 days to pay fuel rewards, 3 65 day returns.
Depot. It's early days, but we are liking what we see. Our new accounts are up over our Target. Our pros are enjoying on average $25 off at the pump when they're using their fuel reward card. So we really like what we're seeing and we think that's Depot.
So you can't attribute that, but some of the other initiatives that we've introduced are really helping drive business.
Yes. Michael, what I think is happening and we're just very pleased with the performance across all the categories is we are focused Depot. We've done a lot of work. We've talked about our assortment planning tools. We feel we have the right line structure Depot.
We're focused on everyday value and convenience for our Depot and our consumer customers, and I think this is resonating.
Awesome. Thank you so much.
Depot. Good luck.
Thank you.
And we
have a question from Seth Basham from Wedbush Securities.
Thanks a lot and good morning.
Good morning.
Just a follow-up on Michael's question. As you think about 2016 and your comp forecast ex Interline, Would you expect the pro to be a larger driver of your comps in 2016 than 2015?
Depot. I think we're focused on actually growing all of our segments. We're focused on growing the pro customer, the DIY customer, the do it for me customer as well as our digital customer. And so we haven't really thought about it as one being radically outsized versus the other. And we look at Depot transactions and ticket as a balance of growth as well.
Got it. A follow-up as you think about the composition of traffic and ticket into 2016, you're looking for a balance. What does that dictate in terms of your expectations for the housing Do you expect housing prices and turnover to be about in line with 2015? Or do you expect any change?
We actually expect Depot. So let me walk you through those changes if I may. First what I'm going to do is walk you from where we exited in the U. S. Comp of 7.1 Depot.
That's a 260 basis point delta and the drivers of that are Depot. First, it starts with GDP. We're using GDP growth forecast of 2.1%. Depot. GDP in the United States in 2015 was 2.4%.
So those 30 basis points coming off the top because it's Depot. Secondly, on home prices, we anticipate home prices to be up next year, 3.5%. That's good. It's down from the growth That we experienced in 2015 of 5.4%. So that's another 30 basis points of growth Depot.
And then there's 200 basis points of market share, coming off because we just don't build market share into our growth forecast. So that gives you 4.5% comp estimate for 2016. A few other housing numbers since you asked, I gave you the home price estimate Depot. We anticipate housing turnover to be up 4.4 percent of units, household formation to be up considerably. We're forecasting 1,900,000 households formed, that's a lot.
This year it was about 1,300,000 households. The other thing that we're really spending time trying to get a better understanding Depot. As you know, 65% of the homes in the United States are older than 30 years. Depot. There's external research that shows that spending on older homes is higher.
Depot. John Burns would suggest it's something like 7.5% higher. Our own internal research suggests it's 8% higher. Depot. So this aging housing stock bodes very well for us.
And if we could take you back to the last mile recession, and I'm talking a lot here and I apologize. But if we could take you back to the last mile recession of 2001. The house of stock was a lot younger 15 years ago. So this is a good news story for us.
Got it. That is
a good news story. And Just one last follow-up. Obviously, you don't factor in market share gains, but anything execution wise that you think will change that could impact
Depot. I mean, we're going
to continue to focus on what we've been doing. So No, I don't see any major change.
Great. Thank you and good luck.
And we have a question from Jessica Mase from Nomura Securities.
Depot. Hi, good morning and congrats on the good results.
Thank you.
My first question is about the SG and A guidance. I just want Depot. I'd like
to clarify that 40%
of sales growth includes the data breach expenses from last year. And if there's anything else we should be factoring in That's why that would be lower than the 50% of sales growth guidance you gave at your Analyst Day.
Yes. No, I'm confirming that you understand that completely.
Depot. All right, great. Thank you. And then, I had a question on the interconnected retail as you showed some good progress in that channel. What are the other near term milestones we should be looking for Depot in that channel.
I mean, we're continuing to clearly roll out Depot. The investment we've made in our direct fulfillment centers, so we're continuing to sort those buildings, which will give us the capability where we put products across all three buildings to be able to get product to our customers in 2 business days or less. Depot. So you'll see us continue to shrink lead times for our customers. You'll continue to see us invest Depot.
And enhancements through search visualization as it relates to not only Photography, video for our customers. We know there are customers engaged in that. And Kevin Hoffman is here who runs our online business. Kevin, I hope you have Just one comment you can make to that?
Sure. And just continuing to develop better experiences for our customers, mobile experiences Our big focus for us as well. And as Craig mentioned, we're also rolling out our buy online, deliver from store functionality throughout the year And we think our customers will be excited about that.
The great news for us is 40% plus of all the orders that happen in our digital space, Our customers choose to pick that up in one of our stores. They're conveniently located. They're safe. They know that they Depot. The product is going to be there.
They don't have to worry about it not being on their doorstep. And that's a great opportunity for us as it drives more traffic to our stores.
Great. Thank you very much.
And we have a question from Dan Bender from Jefferies.
Depot. Hi, thank you. My question was regarding online. I was wondering if you could give us the growth rate in the quarter, I think you gave us a year. Depot.
And what do you think the top 2 or 3 things are that are helping the strong conversion there?
Yes, our online sales grew 230,000,000 Depot. Our next question comes from the line of Jefferies. Your line is open. Good day, ladies and gentlemen. Welcome to the Home Depot.
For the year, total online sales were $4,700,000,000 that's 5 point 3% of our total sales, up from 4.5% from last year. Really pleased with the growth.
Kevin, you want
to comment?
Yes. So key things Driving the growth is really what we talked about, great mobile experiences, great end to end interconnected experiences. Our focus is not just the transaction Depot. But as Craig said, over 40% of our orders actually end up in the store in one way, shape or form. So what we found is a lot of our online Depot.
Experiences are really about tying the customer back to their store side shopping journey. And when we look at the total enterprise Depot. Just very, very pleased with our progress there. Whether they convert online or whether they convert in the store, that's really the customer's decision. So really great progress.
We set all new records during our Cyber Monday event and our Black Friday event and really, really strong momentum.
And then my follow-up, just hoping maybe you could comment on a few things. First, what your commodity deflation assumptions are for Q1? Depot. What the breakdown was at the $90,000,000 of extra expense in Q4 and what you may be seeing in wage pressures across the company or Depot.
Happy to. So the commodity price deflation pressure, again, we don't forecast future deflation. Depot. So our forecast is inflation deflation neutral, but because we have seen prices come down that has a year over year impact. It's about 50 bps in Depot.
Looking at the breakdown of expenses of the $90,000,000 that were over our plan, about 1 third of the dollars were related to store maintenance, snow removal and the data breach. The data breach specifically being $9,000,000 and then the rest was in our bonus and Depot. As Craig pointed out, all of our stores are eligible for success sharing. We're going to have the highest second half payout in our Company history. So we're excited about that.
And then Dan, the third question?
Was regarding wage pressure that you may be seeing either regionally or as a company average increases and so forth.
Yes. So thank you for that question. As we told you at our investor conference, we do have some fuel costs coming at both in terms of wage pressure as well as higher medical costs due to prescription drugs. All of those pressures have been addressed in the guidance that we have Depot.
Thank you.
And we have a question from Matthew Fassler from Goldman
Thanks a lot and good morning. Good morning. My primary question relates to your big ticket sales trends that Comp growth in tickets of $900 or more, I think is the 2nd strongest on record on both a 1 year and a 2 year basis. A couple of elements there. You mentioned custom kitchens, kind of curious whether those mega projects are gaining more traction.
And also does the pro growth that you're Seeing and particularly the acceleration some of the pro categories doing better disproportionately impact that big ticket zone of your sales?
Depot. Well, I would say, Matt, on big ticket, we like the progress we're seeing in the momentum. So you specifically mentioned the kitchen cabinet business. That was Depot. A strong double digit comp for us.
And what's encouraging is the pipeline, of quotes in our Depot. Our record highs and even now after such a strong Q4 going into Q1, we have a very robust pipeline. Depot. Just across the whole store, appliances obviously is a big ticket item that continues to grow. In our service Depot.
We have nice traction with our home, interiors business and exterior business, whether it's kitchen installs or roofing, siding windows. So seeing really across the business.
And if it's possible to dissect the acceleration From the 8% growth, really high single digits that you've seen year to date to the 12% number, would you say that DIY or other DIY or pro
It's actually both. I mean, the install is certainly Depot. Right. Appliances and consumer. Appliances and consumer, roofing has a tendency to be pro.
Depot.
Great. Thank you for that.
I'm sorry. Matt, the only point on that is as we look at we talk about our top Depot. And we're still as much as we've recovered in aggregate all Depot. There's still $2,500,000,000 in key categories and those tend to be bigger ticket items. So special Depot.
Juste:] We're watching Depot. I'll take it carefully as Carol said, but from all indications, pipelines are strong and
Depot. Great. And then just a couple of cleanup points on the expense line. Carol, you spoke about the impact Depot. J.
Rice:] Of Interline on gross margin rate. Can you talk to the impact, if any, on the expense ratio? And then the D and A guidance Does suggest a bit of a pickup. Is that primarily related to the deal or is there something else moving that number?
The D and A pickup is related to shorter lived assets Being put into service. We're looking into IT in a big way and that capital tends to have a shorter life. And the impact of Depot. The line is really reflected in the overall expense growth factor for the quarter. We were on 52 ish percent.
That's really because of interline you could back out. Interline it was more like 40%.
Great. Thank you so much.
Yes.
And we have a question from Scot Ciccarelli from RBC Capital Markets.
Good morning, guys. Depot. So
bigger question, I guess, 2 questions technically on e commerce. I mean, we've obviously seen e commerce Depot. So I guess the two questions are number 1, how do you think about the risk of consumers potentially getting increasingly used to Depot. Shopping for your category, especially with the growth of your own platform online. And then 2, in your opinion, what makes home improvement different than what we We've seen in so many other retail sectors where the box guys tend to battle market share losses and margin compression over time.
Like, why would you be immune to that Depot.
I think when you look at the business in total, there's a combination Depot. There are segments of our business. We shared in the past that we believe the best business model is in the store. Depot. And the customers have a they're smart.
They have a tendency to gravitate to the best business models. And so we think there's elements Depot. So things like concrete and soils and mulches that make sense And that's where the customer will find the best value to purchase the product. There's other categories that are enhanced by the digital experience, as Kevin was just sharing a minute ago, where our customers actually Start their shopping experience online, but then finish in store. And then there's clearly categories that Depot.
If you will, at risk to transfer online because whether it's breadth of assortment or ease of Depot. And candidly, in those categories to date, for the most part, we actually see growth in both channels. And so the digital business in large part has been incremental growth for us and we see that opportunity to continue.
Do you think there's a risk that as people get more used to shopping at some of those categories that you're terming at risk That you can wind up seeing increased margin compression down the road because obviously that's something we've seen in a lot of other retail segments.
I mean we run this As one business, as a portfolio, we've built out the capabilities and the tools to get visibility to our So it's all built into our forward look that we shared at our investor Depot.
Got you.
All right.
Thanks, guys. Yes.
And we'll take our next question from Kate McShane from Citi. Depot.
Hi. Thank you. Good morning.
Good morning.
My question is on Project Sync. I know that was a big focus of Your Analyst Day and you had mentioned in the prepared comments that it's been rolled out beyond Houston. Can you give us any more detail about where else this has that's been rolled out to. And can you remind us when you see this being completed?
I mean, it is in process rolling out in additional southern areas of the country, and this is a multiyear effort.
Okay. Thank you. And then my follow-up question was just on exclusivity of product. Again, in the prepared comments, I think you said that was a differentiator for the Pro. Do Do you have a percentage of what you're offering or sales percentages is of exclusive product to the pro customer?
Depot. Honestly, we haven't calculated that.
I mean, we talk about our private brands in the 15% to 20% range, Depot. But not talked about the exclusive products.
Okay. Thank you. We'll go
back and do that calculation. I don't know what it is.
Depot. Nicole, we have time for one more question.
We will take our final question then from Greg Melich from Evercore ISI.
Great. Thanks. I'll have 2 parts to it just to sneak 1 in. Carol, I just want to make sure I got the SG and A thing right in the guidance. Depot.
If it's 40% of sales growth, we should be taking 40% of 5.5% when we think about SG and A dollar growth. Depot. Is that right? So
you should be taking 40% of the sales growth we gave, which is 6%.
Okay.
And then, the second question is on working capital. So I hate to end on this, but try to find something wrong with these numbers. Inventory was up a lot, but payables were up too. What do you have in your $10,000,000,000 of cash flow guidance for working capital in 2016. And do you feel good about inventories where they are?
Are they too hot, too cold, just right?
So our inventories are in the best shape we've seen and I've been here this is my 21st year, so I can speak from authority. They're in really great shape. We have 1 tenth improvement in inventory plan for 20 Depot. And Mark Hollyfield is here and I would say we might want to try to get even better than that, but that's the plan.
Depot. Yes. Just one thing, just color on inventory. One thing to keep in mind is last year we had the West Coast Depot. So we're actually very pleased with where our inventory is.
And on top of that, we're very, very pleased with our in stock as compared to last year, which we're really seeing a material improvement in in stock versus last
Depot.
Great. So it's fair to say the $10,000,000,000 of cash from operations might include Couple of 100,000,000 from working capital, but it's nothing there's no massive move either way.
That's correct.
Okay, great. Depot. Thank you. Thank you.
Well, thank you for joining us on our call today and we look forward to reporting our Q1 earnings at the end of May when we'll talk to you then.
And once again, ladies and gentlemen, that concludes today's conference. We appreciate your participation today.