Good day and welcome to The Home Depot Q3 'fourteen Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Ms. Diane Deha, Vice President, Relations, please go ahead.
Thank you, Audra, and good morning to everyone. Joining us today on our call are Craig Meniere, CEO and President a question and answer session.
Ted Decker, EVP
of Merchandising and Carol Tomei, Chief Financial Officer and Executive Vice President, Corporate Services. Following our prepared remarks, the call will be open for analysts' questions. Questions will be limited to analysts and investors. And as a reminder, we would a question
and answer session.
Before I turn the call over to Craig, let me remind you 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 These risks and uncertainties include, but are not limited to, those factors identified in the release and in our filings with the Today's presentations may also include certain non GAAP measurements. Reconciliation of these measurements is provided on our website. Now let me turn the call over to Craig.
Thank you, Diane, and good morning, everyone. While I've spoken to many of you on past earnings calls, This is my first call as CEO and I'd like to start by thanking Frank for his leadership and guidance over the years. Our effort as a leadership team will be to continue to drive our strategic framework and to take on the opportunities that lie ahead for our business. A question. Now let's turn to the quarter.
Sales for the Q3 were $20,500,000,000 up 5.4% from last year. Comp sales were positive 5.2 percent and our diluted earnings per share were $1.15 a question. Our U. S. Stores had a positive comp of 5.8%.
In the Q3, as we saw in the 2nd quarter, We had broad based growth across our geographies with all three of our U. S. Divisions posting mid single digit comps. Every region positively comped in the quarter as did 39 of our top 40 markets. A We saw growth in ticket and transaction in the Q3 and we were particularly pleased with the strong transaction growth as each month in the quarter a question and answer session.
As Ted will detail, all of our merchandising departments positively comped a And we continue to see strength in the core of our store. Our service businesses had comps above the company average with a question and answer session. Both our Consumer and Pro businesses grew during the quarter. A question. The growth in our pro business continues to be anchored by our large spending pro, which grew at approximately 2 times a question and answer session.
So as we look at the trends across our business, broad based geographical growth, strong comps On the international front, our Canadian business posted comps above the company average in local currency for the quarter, making it 12 quarters in a row of positive comps. Comps in local currency for our Mexican business were in line with our company average, yielding their 44th consecutive quarter of positive comps. Sales from our online channel grew almost 40% in the quarter and this was particularly impressive as we anniversaried growth of over 50 a question and answer session. We saw increased traffic to our sites, growth in online conversion a And an increase in the number of orders being picked up in the store in the quarter. We continue to divest in interconnected retail.
A question and answer session. Across our online
properties, we
improved navigation, enhanced search capabilities and expanded chat functionality during the quarter. A question and answer session. And our supply chain team opened our Perris, California direct fulfillment center, the second of 3 planned direct fulfillment centers. These Automated facilities will support our online growth with a balance of cost efficiency and speed in shipping online orders to meet our customers' needs. Interconnected retail also requires us to rethink space allocation within our stores.
Almost 40% Installing dedicated storage bays in 5.50 stores to improve the customer experience.
A question and answer session.
And we have also seen improvement in GDP growth. As Cara will detail, we are reaffirming a question and answer session. Before I close, I'd like to briefly comment on the data breach. 1st, we apologize to anyone impacted by this. From the start, our guiding principle has been to put our customers first.
Our customers won't be responsible for any fraudulent charges incurred through the breach and we will continue to offer free credit monitoring a question and answer session. Finally, I'd like to congratulate Mark Powers, a 28 year Home Depot veteran who was recently a question and answer session. Please go ahead. I'm very pleased to be on the call. I'm very pleased to be on the call.
A question. The power of the Home Depot begins with our company's strong culture and commitments to its values. I want to thank our associates a question and answer session. Thanks for their hard work and dedication to our customers. Based on this quarter's results, over 99% of our stores would qualify for Success Our profit sharing program for our hourly associates.
With that, let me turn the call over to Ted. Thanks, a Craig, and good morning, everyone. We were pleased with our performance in the Q3, strength in the core of the store, growth of our Pro customers, Excellent execution of seasonal events and the continued implementation of our merchandising tools all contributed to these results. All merchandising departments posted positive comps. Millwork, tools, kitchen, indoor garden, lumber, lighting, bath a.
Paint and Outdoor Garden were positive, but below the company average. The core of the store continued to perform and we saw comps a question and answer session. There is also strength in simple decor with comps above the company average in plumbing fixtures, decorative lighting, vanities and hard surface flooring. A Pro Heavy categories continue to grow and we saw comps above the company average in insulation, concrete, Pressure treated wood, dimensional lumber, HVAC and gypsum. Our millwork categories also had another quarter of great performance, Our Labor Day, fall cleanup and harvest events provided great values and were well received by our customers, resulting in solid comps in outdoor power, storage, Using our merchandising planning tools, we were able to add innovation and localization within our a question and answer session.
In Builders Hardware categories, in fasteners, we recently completed a reset resulting in a more effective mix of our private label brand ever built a question and answer session with National Brands. With this reset, we also introduced a larger assortment of innovative specialty fasteners. In cabinet hardware, we adjusted the assortment throughout the U. S. To better serve our customers on a local level.
As a result, these categories comped above the company average in the 3rd question and answer session. Total comp transactions grew by 3.1%, while comp ticket increased 2.1% for the quarter. A question. Our average ticket increase was positively impacted to reflect approximately 10 basis points due to commodity price inflation from products such as a question please. Transactions for tickets under $50 representing approximately 20% of our U.
S. Sales were up 1.9% for the 3rd quarter. Transactions for tickets over $900 also representing approximately 20% of our U. S. Sales were up 5.9% in the 3rd quarter.
The drivers behind the increase in big ticket purchases for water heaters, flooring and countertops. Now let me turn our attention to the Q4. Our strategy of partnering with suppliers to bring innovation value to the market has never been stronger. A question and answer session faucet lineup. These faucets will bring the latest in innovation and style and are exclusive to The Home Depot.
For our pro customers, we will be featuring an a question
and answer session.
Please go ahead. Thank you. Thank you. Thank you. Thank you.
Thank you. Thank you. Thank you. Thank you. Thank you.
Thank you. Thank you. Thank you. Thank you.
Thank you. Thank you. Thank you. Thank you. Thank you.
Thank you. Thank you. Our next cast iron in stainless steel. This breakthrough technology provides up to 20 times the cutting life of standard blades, saving our pros With the holidays nearing, we're once again offering an outstanding assortment of products in our gift centers. A We will feature great deals on hand and power tools, including amazing values from Milwaukee, Makita and DeWalt.
In Holiday Decor, we continue to bring innovation in the latest offerings to our customers. We have become a leading destination for the question and answer session. We're excited about our lineup of pre lit trees and have added many new styles, Finally, I'd like to mention the outstanding special buys that we have planned for Black Friday and Cyber Week. We'll have extreme values for the traditional DIY a question and answer session, we look forward to driving excitement this holiday season. With that, I'd like to turn the call over to Carol.
Thank you, Ted, and hello, everyone. In the Q3, sales were $20,500,000,000 a 5.4% increase from last year. Our total company comps or same store sales were positive 5.2% for the quarter with positive comps of 5.3% in August, a question and answer session. 4.8% in September and 5.4% in October. Versus last year, a stronger U.
S. Dollar negatively impacted a question and answer session. Total company comps by approximately $109,000,000 or 60 basis points. A question and answer session. Our total company gross margin was 35% for the quarter, a question Supply chain drove 7 basis points of expansion 2nd, lower deferred financing costs Our international businesses also contributed 5 basis points of gross margin expansion in the quarter due primarily to higher levels of co op For fiscal 2014, we would expect to report gross margin expansion of approximately 5 basis points, In line with what we reported for the 1st 9 months of the year.
In the Q3, as a percent of sales, Total operating expenses decreased by 56 basis points to 22.6%. Our 3rd quarter expenses a question and answer session. Please go ahead. Thank you. Thank you.
Thank you. Our next question comes from the line of The gross amount of breach related expenses incurred in the quarter was approximately $43,000,000 For the 4th quarter, We are projecting our known gross breach related costs to be approximately $27,000,000 and After insurance, a 4th quarter net breach expense of approximately $6,000,000 For fiscal 2014, given our projected known net a question and answer session. To breach related expenses of $34,000,000 we now expect fiscal 2014 operating expenses to grow at approximately 27% Interest and other expense for the Q3 was $113,000,000 question and answer session, please refer to the following. 1st, Interest and investment income increased by $102,000,000 reflecting a $100,000,000 gain on sale of HD Supply common stock. During the quarter, we sold another block of HD Supply common stock.
This brings the total pretax gain on sale of HD a question and answer session, please refer to the line of our call. Please refer to the line of our call.
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the line of our call. Please refer to the line of our a question and answer session. 2nd, interest expense increased by $27,000,000 from last year Due to an increase in long term debt outstanding and some interest payments on state tax settlements. Our income tax provision rate was 37 a question and answer session. And we expect our income tax rate to be approximately 37% for the year.
Diluted earnings per share for the Q3 were 1.15 a question and answer session. An increase of 21.1 percent from last year. During the Q3, we opened a question please. Tuna stores in Mexico for an ending store count of 2,266. At the end of the 3rd quarter, Selling square footage was $236,000,000 Total sales per square foot were $3.48 up 5.8 a question and answer session.
Now turning to the balance sheet. At the end of the quarter, inventory was $12,000,000,000 and a question and answer session. And inventory turns were 4.7 times flat to last year. We ended the quarter with $41,500,000,000 in assets, Including $2,200,000,000 in cash and cash equivalents. Moving to our share repurchase program.
In the Q3, we received 4,500,000 a question and answer session. Additionally, in the Q3, we repurchased $2,240,000,000 or 24,200,000 of our outstanding shares, a question and answer session. For the remainder of the year, we intend to repurchase approximately $1,260,000,000 of outstanding stock For total fiscal 2014 share repurchases of approximately $7,000,000,000 Computed on the average of beginning and ending long term debt and equity for the trailing a question and answer session. Thank you, Steve. Thank you, Steve.
Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve. Thank you, Steve.
Thank you, Steve. Thank you, Steve. Good morning, everyone. Good morning, Steve. Good morning, everyone.
Moving to our guidance. For the 1st 9 months of fiscal 2014, our sales growth was in line with the plan we laid out at the beginning of the year. And as we look to the Q4, nothing has come to our attention that changes our point of view. So today, we are reaffirming our sales growth guidance This guidance features total company comps of approximately 5% in the 4th quarter, consistent with our plan. But as you heard from Ted, we are ready for a question and answer session.
For earnings per share, remember that we guide off of GAAP. We are reaffirming fiscal 2014 diluted earnings per share guidance of $4.54 an increase of approximately 21%. This earnings per share guidance includes the $5,740,000,000 of share repurchases completed in the 1st 3 quarters of 2014 And our intent to repurchase approximately $1,260,000,000 in additional shares in the 4th quarter. Thank you for your participation in today's call. And Audra, we are now ready for questions.
We'll go first to Aaron Robinson with a full free search.
Hey, thanks. Appreciate the opportunity to ask a question and welcome aboard. Craig,
we're glad to have you.
Thank you.
A question and answer session, please. And whether you think there'll be kind of subtle changes that we'd expect, whether it's SG and A, whether it's capital allocation? How should we think about your outlook on things like a question.
I mean, I'd start with the comment that our strategic framework is really built from the customer back in terms of what they expect a question from the Home Depot. It's clearly been a strength that we have pivoted off of. It will evolve as the interconnected a Departure from any of the strategies that we've had in place. We think that framework works.
Okay. Thank you. Well said. And if I could a follow-up to ask maybe Carol or anybody about the performance of the categories that you're kind of shrinking in store to accommodate sales online, I think maybe or to accommodate sales, let's say, so cabinets shrunk to accommodate appliances and carpet shrunk to accommodate a Hardwood, can you talk about the performance of the categories that have actually been shrunk to accommodate other categories, whether you're seeing a Growth there or whether you're seeing a contraction there in line with the footage?
Overall this is Ted. Overall, we're seeing growth. Certainly, some of those Categories are shifting sales to online, but overall we're happy with the performance of the portfolio.
Okay. Thanks and best of luck guys.
Favor. Thank
you. We'll take our next question from Chris Horvers at JPMorgan. A question.
Thanks. Good morning, everybody. Good morning. Good morning. Couple of questions.
So can you talk about whether you've seen or you saw any impact from the credit breach? A question. What did you hear from stores? What was the pro saying in September, October? September trends did decelerate and then reaccelerate pretty nicely in So I was curious if you thought any of that was the breach and what you're hearing in the field around it?
I mean, Chris, really it's very difficult for us to be able to Determine if there was any impact. We were very, very pleased with the fact that we had positive transaction growth in each month during the quarter. A I think that represents strength for our customers' confidence in The Home Depot and we appreciate that.
A And don't mean this to sound defensive, but if you look at a 3 year stack, September was our hardest comparison.
Understood. Right. Okay. And no real like, I guess, your stores aren't communicating anything up to you that's conclusive in either direction? A No.
Okay. And then as a follow-up, Carol, curious if you could talk about your thoughts on November. Of course, I know you said nothing has a question I have heard a lot of retailers speak to a pickup or at least as good as sort of the trend from 3Q. A
question I'm happy to talk about our perspective a question and answer session. On November 4th quarter, as you know, it's always tricky to forecast where sales will go in the Q4 because we're heading into winter. And And I don't know about where you are, Chris, but it's mighty cold here in Atlanta. That being said, we're 2 weeks into November, And I must say that I'm impressed with the sales that we reported to date. So if there's a bias in our forecast, I would say the bias is to the upside.
Thanks very much. We like the word impressed. Good luck in the Q4. Thanks guys.
Thank you.
A question, we'll go next to Brian Nagel at Oppenheimer.
Hi, good morning.
Good morning.
First off, Craig, congratulations on your new position.
Thank you. A Just a
quick question on expense growth. I guess maybe this is more for Carol. And I know there's a lot of moving pieces here with the breach related expenses. But if I look at expense growth In the Q3, was there some other upward pressure in there versus the prior quarters? And then if that be the case, how should we be thinking about that as we go Go into the Q4 and then even into next year.
Sure. So Brian, as we said at the end of the second quarter, we've had a great expense a question and answer session. At the end of the second quarter, we said that we expected our expenses to grow at 23% of our sales growth. A But we also said that there would be quarter over quarter differences in that expense growth factor because of year over year comparison. So So we always anticipated that expenses in the Q3 would be higher than our guidance for the year and that turned out to be true.
A question So if I look at our expense performance pre breach, we were right in line, actually a little bit better than we thought. Of course, the breach has distorted this event. So now as we look at a question and answer session. Thanks, Chris. Thanks, Chris.
Thanks, Chris. Thanks, Chris. Thanks, Chris. Thanks, Chris. Thanks, Chris.
Thanks, Chris. Thanks, Chris. Thanks, Chris. Thanks, Chris. Thanks, Chris.
Thanks, Chris. Thanks, Chris. Thanks, Chris. Thanks, Chris. Good morning, Chris.
Good morning, Chris. Good morning, Chris. Good morning, everyone. So it's just the year over year comparisons that make some of the quarters look different, but for the year we're very pleased with where we are.
A Got it. And then as we think about the breach, were there other expenses related to the breach and
how Home Depot had dealt with
the breach that were not captured
Well, I will tell you there are a handful of people who are working around the clock And their costs have not been captured. Their payroll. Their payroll is their payroll. But I would think if we a Put an hourly rate on that, maybe we should have captured a little bit more cost. But really, we try to be as comprehensive as we could.
It includes legal fees. It includes the cost of credit monitoring. It includes the cost of IT. So we try to be as inclusive as we could.
All right. Well, thank you and nice quarter.
Thank you.
We'll go next to Gary Balter at Credit Suisse.
Thank you. Welcome Craig to your new position. Just a question on the fulfillment centers. You mentioned I think Craig, you mentioned or maybe Ted mentioned Did you open the 2nd fulfillment center at this point? Could you walk us through what you're seeing from the stores a question around the 2 fulfillment centers you have to date in terms of this, are you seeing a shift to more pro?
Are you doing job lot quantity deliveries to job sites, Etcetera, what's the impact of those fulfillment centers?
I'd start Gary with the fulfillment centers being set up in large a question and answer session. Our focus on being able to have speed of parcel delivery to our customers when we complete The full rollout of all three centers in 2015 will actually be able to a I'm hit about 90% of the U. S. Population in 48 hours or less with parcel shipment. That's the main focus of those centers Overall, we're still in the early days of both of the centers that are open, but pleased with what we're seeing in terms of the Order fulfillment and operations of those buildings.
So does that take some pressure off of the stores? So right now how is that being sent to the customer?
Well, obviously parcel shipment goes a question and answer session, but our customers we also ship bulk product as well. Our customers are choosing to engage with our stores almost 40% of our orders through homedepot.com in the quarter Actually culminated in one of our Orangebox stores.
Okay. And then a follow-up on the Pro. Could you update us on like a If you track this data or if you share this data, but last year you talked about the average PROs doing $6,000 and a big effort was to try to increase that number to become
a question and answer session. We have seen growth in the average in the Pro over the past roughly 12 months. That average Has moved up to approximately $6,600 from the previous total and it's an area that we continue to focus on.
Thank you very much.
We'll go
next to Simeon Gutman at Morgan Stanley.
Thanks. Thanks for taking my question. 2 higher level ones. First, online growth, it's been solid for a pretty good amount of time and it does not seem to be cannibalizing store traffic or sales, a Which is pretty rare in retail these days. Do you have a sense of what your market share of just the online home improvement industry is?
And then any update whether It's margin neutral the online business or better and how you look at it?
We really don't have a good way to Try to get at a full market share for the online space. It's so that's one we really don't have a good handle on. A And then we look at the business in total in a portfolio approach as it relates to it being commerce. Again, a customer 40% or so picking up in store, we really look at it as a portfolio approach in terms
of overall
Profitability of the business and that's really how we look at it.
And maybe another way to look at it is just the census data because we do run a question and answer session. And if you look at our market share from the census data, we increased market share by 23 basis points now at 27.07 a question.
Okay. And then my follow-up is regarding merchandising and some of the scientific assorting. And Craig, we used to hear from you when you were the head merchant about some of the enhancements that were being made and then the ones still to come. But I guess when I hear localized the sorting and some of the things that are happening, I would have thought some of those were tackled already. So I I guess granted that merchandising will probably still evolve, can you just give us or Ted now I guess a high level of what the merchandising initiatives on the table, what are some of the most a Treating opportunities from here.
Sure. I would say that our we've made good progress on developing the tools. The tools It can always be enhanced, but foundationally they're developed and they've been rolled out to the merchant community. As you know, we review about a third of the business each year. So while we've had these tools in place for a couple of years now, We still haven't reviewed the entire store utilizing leveraging the new tools.
And I would say that certainly the second time a question and answer session. In the 3rd time that a business is reviewed with a tool, we're going to get better and better. So when you think about a question and answer session. We start with our clustering tool, where we're using our online sales data as well as a question and answer session. So once you have your demand and your assortment, how do you best get the appropriate micro space We think about businesses that are shifting online or more so than others, areas that we're trying
Would you say it's early days with this? Or is it middle? I a I want to put a baseball analogy to it, but just try to contextualize it.
I would say early. I would say mid on the development of tools It's early on our usage of that. Great. Thank you.
And we'll
take our next question from Seth Basham at Wedbush Securities.
Good morning. Good morning.
Can you give us an update on your buy online, deliver a From store initiatives, where are you piloting it? How are the pilots going? When do you expect to roll it out?
Mark Holyfield here. I'll let him address.
A Hey, Seth. Mark Holofield here. Yes, buy online, deliver from store, we're in pilot at this point in 2 stores. And the pilot is going well. It's a very small pilot at this point.
Most important thing is that we get the customer service experience absolutely right. And once we are confident in that, we'll begin the rollout.
Okay. So the rollout is planned for later this year? Or is it a a
I'd look for that in 2015.
Great. And then as a follow-up on the services business, You guys are seeing very strong growth in installed services. Can you give us a sense as to what's driving that? Is it something in the back end? Or is it just strong demand across the categories?
Manik, we've seen, obviously, as home value appreciation has happened, customers are a Certainly more willing to invest in their homes. I think you also see services growing as a result of you have an aging population. And I know for myself, where I used to love to do things, I actually have Home Depot Services do a few things now that I would have done previously. So I think we I think it's a combination of that macro trend a question and answer session. And make sure that we are monitoring how we actually provide the experience to the customer.
A Mark, I don't know if you have any additional comments.
This is Mark Powers. I just took over services. So I can't claim all the progress, but Have been closely involved historically with this in driving the customer experience. So we do follow-up surveys with our customers To make sure we are improving the customer experience consistently and we see we're making strong progress in that. We also interact strongly as you Imagine with our service providers and give them feedback on their performance and hold them accountable to the standard of customer experience that we Backed out of our
brand. Got it. Thank you very much. Thank you.
And our next question comes from Peter Benedict at Robert W. Baird.
Hey,
First one for Mark Hollifield. Mark, it sounds like transportation was a little bit favorable, a At least Carol called that out. Just wanted you to maybe take a minute here to talk about some of the puts and takes in transportation right now. You've got the port issue, you've got some driver shortage issues, You've also got fuel obviously it's helping. So maybe just give us a sense of where you stand and how you see transportation as you look out over the balance of the year?
A
Yeah. Thanks, Peter. It's absolutely a very challenging environment with lots of disruption out there. So we were very pleased to see supply chain contribution to gross margin given that. The disruptions at the ports have and general a question and answer session.
Transportation delays have been pretty difficult the last few weeks, but thanks to a lot of hard work our team has been able to land our Black a question and answer session. Friday freight, we don't see any disruption to our supply chain for Black Friday. But we are concerned over the long haul here, The West Coast ports, the rail situation, the driver shortage, all look to create uncertainty in terms of a question Transportation rates going forward. So that's definitely a concern. Pretty hard to predict though given the fluidity of the situation that's out there.
A
I will say, Peter, we have put all of that into our guidance, this uncertainty. We factored some of that in. The other thing that I would a question So, the 7 basis points of margin expansion that we received in supply chain, only 2 was fuel related. So, Mark and his team are driving great productivity within the four walls of our a question Last thing I would say is on inventory. We were pleased with our inventory performance, it turned flat year on year Given the disruption in the supply chain, actually we've added one day of lead time and that actually, if you back out that additional day, our inventory turns would have been up year on year.
So we are pleased given this challenging environment.
A Good. That's great color. Thank you. And then Carol, I guess just a follow-up would be for you. Help us understand how you're thinking about the dividend payout ratio longer term.
I mean are there any Developments out there that would compel you to maybe raise that a bit at some point or do you think
a Well, we love paying out 50% of our earnings in a dividend, which means at the end of the year, we'll look back at what we earned and a Cut it in half and that will be the new dividend. So looks like we'll have a nice increase coming at us in February. As we think about this longer term, a question. Craig and I will be talking about what that optimal payout should be. You can imagine in an environment of a company that's a maturing company, strong cash flow, Giving excess cash back to the shareholders in the most efficient way is something that we should try to do.
And a higher dividend payout may be on the agenda, but We'll
talk about that and
we'll talk about it with our Board and make those calls.
Okay, terrific. Thanks so much guys. I appreciate it.
Thank you.
Our next question comes from Kate McShane at Citi. Thank you for taking my question. Good morning.
Good morning.
A question. My question was on the pro sales that you mentioned that were very robust by comping 2 times the company average during the quarter. A question. Can you remind us how much the Large Pro grew during Q2 and if what you saw in Q3 was a sequential acceleration? A question and answer session.
So Kate, I think our comments were that the large spend pro, which makes up about a question 13% of our pros, they grew 2 times the company average. Our pro customer in total grew about the company average. If you look at the large spend pro, that double digit growth would have been the same in Q2. Right.
Okay. A question. Thank you. And then my second question was just on interconnected retail. And it's great to hear all of the new a question and answer session for questions.
I just wondered from a cost standpoint, will we be seeing accelerated costs for this initiative going forward?
Well, we run our business as a portfolio as we've talked to you all along. So yes, there are costs. We're standing up new distribution facilities. We have costs associated with that, but we drive productivity and other facilities to cover those costs. So it's all in the portfolio, that we run To drive towards that 13% operating margin target that we set forth last year to reach that by the end of 2015.
A question.
Okay. Thank you. We'll go next to Dan Bender at Jefferies.
Hi, good morning. Good morning. My question was related to the expenses in Q3. You mentioned that 99% of the stores qualified for success share Planning.
And I
was curious if bonus accruals were in line or higher than expected in Q3 given the a
Right. So Dan, we crew bonuses based on a number of financial metrics. For the stores and success sharing, it's based on sales. As we Reaffirmed this morning, our sales growth guidance is the same now as it was at the beginning of the year, which means the accrual isn't any higher than it would have been, Actually, less than last year, because last year we were blowing away our sales plan. So bonus expense actually was a bit of a help in the 3rd quarter.
And then my second question is related to credit. You've cited that as an issue for some of the pros in the past. Have a Have you seen any improvement on
that front?
As we look at
our private label credit card, we see that within our pro segment 71% of all Those who are asking for a new account are being approved. The average line that's being approved is about $6,900 a question please. So we feel pretty good about the availability of credit for our PROs. Now not all PROs ask for a private label card. And so we understand that providing credit to this important customer is really important and we're looking at other ways in which we might get a question Credit to them besides just our private label card, is there some other sort of financing vehicle that we should be providing?
So we're exploring that.
Okay. Thank you.
Our next question comes
a question
and answer session.
I would
like to ask a question and answer session. I would like to ask a question and answer session. I would like to ask a question and answer session. Last couple of years, what have you learned that you can now extend to other areas that maybe you haven't previously shared about your ability
a question Gregory, even flooring, one of the key products that we're moving into our new a question and answer session. Is hard surface flooring, so customers are quite happy to order complete flooring jobs and direct delivery a So I think that's a key learning that the interconnected, the online experience can both be educational and a question inspirational, but also be used for commerce on big ticket items like flooring and appliances. I think the other comment I'd have is really important for us to be working closely with our a question and answer session. And I think there are opportunities around the store to continue to focus on that and we will. We put analogy, we've seen great results in those businesses as a result of that focus with our key suppliers.
And I think that's something we
have to continue to do. A
Okay. That's helpful. My follow-up question is, we've seen some we see the results of some of your competitors who are struggling, whether it's Those that are specialized within the flooring category or those that are trafficking in some of the categories that you also traffic in yet are attached to Predominantly attached to malls. It's probably easy to assume that some of your a Strong performance of mid single digit comps along with gross margin expansion is due to the results of Those competitors. So what are you expecting moving forward?
Do you expect that there'll be any change in the competitive environment? Your strong performance is sure to attract some attention and may influence some competitive response. Question Are you preparing for that?
I mean, historically candidly in the retail business, the competitive
environment changes on an ongoing basis. And that's
actually what's really Changes on an ongoing basis. And that's actually what's really fun about the retail business. And so we fully anticipate Ongoing that across multiple different segments that we compete against that the market will react a question and answer session. And we remain focused on continuing to take share. A Okay.
Thank you very much and best of luck to everyone in a new position.
Thank you.
We'll go next to Scot Ciccarelli at RBC Capital Markets.
Hi, guys. You talked about earlier in the call, you talked about some of the success that you've a question and Carol, I know you just mentioned credit extension in another question. But what other key initiatives are you guys implementing to drive a question and answer session, number 1. Number 2, are you doing anything that's materially different today than you were maybe a year or 2 ago to drive those share gains?
A I'll let Mark. Hey, this is Mark Powers. So we're focused strongly inside the store on building those relationships a question With our pros and making sure that we are taking some of the friction, if you will, out of their transactions a question and answer session.
In dealing with us at with Home
Depot, you might have already heard about our program with Pro Extra. A Last quarter, I think we called out that we had 1,700,000 members of pros who signed up for Pro Extra a question and answer session. To receive special buys of the week, also different services that we are providing to them, such as being able
a question to return product in our
stores without any receipts, which takes a lot of friction out of their day in and day out transactions with us. And now we're up to 2,500,000 actually Pros who are participating in Pro Extra. So we're very pleased inside the store with our focus with that Pro customer segment and also outside the store, we're seeing some strong traction in building relationships with our outside sales force as well.
A question.
And how big is that sales force at this point, Mark?
Right now, we're I believe we're approximately 150 Associates and our exterior sales force.
Those salespeople who are really attached to our high spend pros a Pretty good doggone important. The average spend for our High Spend Pros on average is close to $30,000 a year.
A Excellent. All right. Thanks, guys. Thank you.
We'll go next to Dennis McGill at Zelman and Associates.
A Hi, good morning and thank you. First question just has to do with Canada. It looks like you posted pretty strong numbers there now for the last 4 or 6 quarters. And Just curious, whether you think that momentum is sustainable and how much of that would you attribute to market as opposed to market share?
Question? I think, first of all, Bill and his team in Canada have done an outstanding job of driving the business in Canada. And we look to see that continue that kind of performance. We think there is a lot of opportunity to Continue to bring great value to our Canadian customers and drive for share gains in the market.
Greg, do you feel like right now it's share gain? Any sense on how much of a share versus market?
That's pretty tough a question I would say, I don't know that the Canadian market ever got quite as difficult as the U. S. A question But certainly they had their bumps along the way as well. But it's pretty tough to tell the difference on those.
We feel so good about Canada though that we're opening a store in Canada this year. We haven't opened a store in Canada for a number of years.
Okay. And then Carol, can you just review appliance performance in the quarter, Harvey, you want to phrase it relative to comps or just absolute?
Sure. Appliances grew at the company average for the quarter. For the year, appliances have contributed 20 basis points of our comp growth.
A question. Okay.
Thank you. Yes.
And our next question comes from Matthew Fassler of Goldman Sachs.
Thanks a lot and good morning. Good morning. A excuse me. My question is really focused on inventory. Carol, the inventory was up a bit more than in the past.
You talked about adding, I guess, a day To back stock or having some planned increase, can you just kind of contextualize that for us, talk to us about how long you'd expect that to persist?
A Right. Well, as Mark described, the challenges within the supply chain disruption are real. They're real for all retailers. And so this additional day contributed probably a question please. We also had some air movement inventory that we We are carrying over a small amount, less than $100,000,000 but because of the cool summer, we didn't sell through all of our air movements.
We're carrying that over and we'll sell it next year. There are no But as a result of these two factors, we aren't going to get as much productivity out of inventory this year as we had planned. But We feel great about our inventory position and as we look towards 2015, we're planning for inventory improvement. And Mark, do you want to give question?
I think you said it pretty well Carol. I think the most important thing about our inventory is that customer service begins with us being in stock And we are always going to pursue that first and make sure that our inventory productivity comes right after that.
A question.
Thank you so much guys.
We'll go next to Mike Baker at Deutsche Bank.
A Hi, thanks. I wanted to ask 2 questions. 1, on the appliances, you just said in line with company average. But where are you on the adding the jumbo a resets and those types of things, do you have more of those stores than you did a year ago? And where is that going?
And then my second Unrelated question, if I could, is really just thinking about next year. And I understand from a macro standpoint that you guys think a lot of top line is driven by a question price appreciation rather than existing home sales and I agree with that, but existing home sales have been down 11 months in a row. A question. How long can you continue to comp at 4.5 plus with declining existing home sales? Thanks.
A question. Well, I'll ask I'll answer the last question and then Ted maybe you answer the first question. If we think about our 2014 growth, a It starts with GDP. The forecast for this year is 2.2%. We add to that about 200 basis points of growth coming out of home price appreciation and housing turnover.
A That gets us to 4.4%. And then there's about another 4 tenths of growth coming from areas like appliances. And that gets us to the 4.6% comp that we a question As we look to 2015 then, we would look at GDP. GDP, economists tend to want to be at 3%. So that's what it's Looking like right now in the 3% area.
We will continue to believe we'll get help from housing, because it's not turnover while down a question It's still up as a percent of units, 4% of units are turning. So we'll get help from turnover, we'll get help from home price appreciation, a question and answer session. Not as robust as it was last year, but it will continue to recover because it has not fully recovered. And then lastly, we are very encouraged a question By the recent news that's coming out of the FHFA as well as a number of regulators who are really trying to address mortgage financing reform. A question and answer session.
While this is yet to turn into additional liquidity in the mortgage underwriting market, the news has been very good a question and answer session. And we believe that could be a real bolster to our industry. If you look at homes that were sold or financed through cash, that a A drop to 24% in September, which means more people need loans. They need mortgages. And so mortgage financing reform, really important for our industry
a So yes, we comped in line with the company average, but 3rd party reporting would suggest we took some decent share in the quarter. So we're pleased with that We have over 1,000 showrooms now that we've expanded the footprint. We started this over 2 years ago. About a quarter of those 1,000 are the bigger showroom that we call jumbo and that's where we essentially doubled the space a question Of the appliance showroom in the balance $750,000,000 odd are a big foot where we only go up about 30%. So We've done about 1,000.
We may we'll continue to look at the performance and we won't certainly do every last a store with an expanded showroom, but we probably have a few more that we can take a look at.
A Okay. Thanks for the color. Very helpful. Appreciate it.
We'll go next to Greg Melich at Evercore ISI.
Hi, thanks. I had a couple of follow ups. If you look at the inventory Carol that additional day, does that Change the $800,000,000 working capital benefit that you were expecting for this year? Then I wanted to follow-up on the pro side.
Yes. We're not expecting $800,000,000 of work Capital benefit. I'd knock that off by a couple of 100,000,000.
Okay, great. And then on the pro side, you mentioned some of a couple of things you're doing in credit, could you just remind us how many of your pros have signed up for your traditional private label card And how the pilot is going with the extended credit program?
That's a very great question, but for competitive Not going to share that number with you.
All right. Can I do it a different way? If you look at your large pros and look at the ones that are spending that $6,600 right now, what share of wallet do you think you have with your typical
a
We know there's upside opportunity. Let's put
it that way. I try, a question. Thanks. Good luck. Good luck, everyone.
We've shared this data in the past. If we had a 5% increase in the average ticket for PROs Or 3 more transactions. That's a $1,200,000,000 opportunity. So maybe that helps size it.
It does. And just on the pilot, if it does work, when How would you expect to roll that further on the credit offering?
We'll talk to you about that when we're ready to talk to you about
All right. Thanks. Have a great holiday.
Thank you. You too.
And we'll move next to Eric Bosthard at Cleveland Research Company.
Good morning. Good morning.
Two things. First of all, in terms of the categories below plan or excuse me, not below plan, but below average, Any theme that you draw from those or any insights as you look at the ones that are below average that you would conclude from that?
A I'll give you one data point perhaps if I could and then Ted can give you more color. If you look at the selling departments that Ted talked about, a question 9 of 2016 was 100 basis points of the average comp. So it was very narrowly bound. Question.
Yes. I wouldn't say there's a particular theme. Probably the category that a Is suffering from the mild weather is roofing. So that would be a Category, we're happy with the business, but there have been no storms. There hasn't been a lot of inclement weather.
So the demand in that is lower. In LiveGoods, again the drought in the West Coast and the very mild summer in the North, so You didn't get a lot of burnout of lawns and reseeding, etcetera. Those really are the only themes.
And then secondly, you comment or someone made a comment about appliances and promotions during the month of November around Black Friday or Cyber Week. From a promotional standpoint, a Where are you in that category or across the store? I can see what your gross margin expectations are, but anything different or material going on in terms of your a
No. The promotions are very similar to last year. We ran what we're calling a pre Black Friday appliance event for largely the month of November and we're like for like to last year.
Perfect. Thank
Audra, we have time for one more question.
And we will take that question from Laura Champine at Canaccord.
A Good morning. Carol, when you last spoke to the guidance level at $4.54 for the year, were you already a question Contemplating a $0.05 benefit from selling HD Supply shares? And if not, why not raise the guidance by $0.05 other than maybe some wiggle room? Yes, Laura. That was contemplated in the guidance that we've given now.
Well, we've issued a lot of press releases recently, but we've The 454 in for a while and that included the gain on sale of HD Supply. Got it. Thank you. You're welcome.
A question. Well, thank you everyone for joining us today and we look forward to talking with you at the end of the Q4 in February.