Good day, everyone, and welcome to today's Home Depot 4th Quarter Earnings Conference Call. Today's conference is being recorded. Please note that any prompts entered before this time may and have registered in our system. Beginning today's discussion is Ms. Diane Dayhoff, Vice President, Investor Relations.
Please go ahead, ma'am.
Thank you, Lisa, and good morning to everyone. Joining us on our call today are Frank Blake, Chairman and CEO of The Home Depot Craig Meneer, Executive Vice President, Merchandising and Carol Tamay, Chief Financial Officer and Executive Vice President, Corporate Services. 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 really would appreciate if the participants would limit at 770-384-2387.
Before I turn the call over to Frank, 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. Call. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Call. These risks and uncertainties include, but are not limited to, those factors identified in the release and in our filings with the Securities and Exchange Commission.
Investor Relations. Today's presentations also include certain non GAAP measurements. Reconciliations of these measurements is included in the release and is provided on our website.
Securities and
Exchange Commission.
Now let me turn the call over to
Frank Blake.
Thank you, Diane, and good morning, everyone. Sales for the 4th quarter were 17 point $7,000,000,000 down 3% from last year. This year's 4th quarter consisted of 13 weeks compared to last year's Q4, which had 14 weeks. Excluding that additional week in 2012, sales for the 4th quarter were up 3 point 9% from the prior year. Comp sales were positive 4.4% and our diluted earnings per share were $0.73 2019 of our 19 U.
S. Regions posted positive comps. The 2 regions with negative comps were New York and New Jersey, both of which were overlapping last year's strong repair sales from Hurricane Sandy. Counterbalancing that, we had positive comp performance throughout our Western and Southern divisions. And even with the pressure from New York and New Jersey, our Northern division positively comped.
We grew ticket and comp transactions in the improved inventory turns and maintained our focus on expense control. Our pro customer had another quarter of sales growth. Adjusting for hurricane impacts, the Pro and consumer grew at the same rate in the quarter. Marvin and the operations team continue to focus on improving Experience for our pros. We launched our Pro Extra program this past fall.
With Pro Extra, our pros can track their purchases, take advantage of exclusive product offers and get access to helpful business tools. The rate of sign ups has increased and is over 10,000 per week and results of our Black Friday holiday and gift center events during the quarter. We saw strong growth on interconnected retail with dot To support our interconnected retail efforts, we recently opened our first of 3 new direct fulfillment centers. Each facility will have capacity to hold as many as 100,000 SKUs for direct ship to customers. Facilities will now expand our capabilities to ship most orders the same day they are received.
As another part of our interconnected efforts, Last month, we acquired blinds.com. We're very excited about this acquisition. Blinds.com is the market leader in online window coverings with a compelling shopping, sales and service experience for customers. In addition to the strength we believe they'll bring to us in this category, We also believe they can help us develop best in class capabilities for selling customized configurable products online. And most importantly, comps above the company average.
And just last week, we opened the first of our 2 new Canadian rapid deployment centers. Our Mexican business positively comped for the quarter, making it 41 quarters in a row of positive comp growth. Looking at the full year 2013, we significantly exceeded our plan. On a 52 week basis, we grew sales by over $5,000,000,000 We had the most transactions in the company history and our best annual comp sales increase since 1999. And looking at our 2 year stack comp rates, we had very consistent double digit sales increases in every quarter.
The company with the help of our vendors was able to respond effectively to this increased demand, while maintaining tight operational focus. For 2014, as Carol will detail, we expect sales growth of 4.8% and diluted earnings per share of $4.38 16.5 percent Increase. 2014 GDP estimates call for low single digit growth, So our 2014 guidance is premised on the housing market as a continuing tailwind for our business. It is not our view that all housing metrics will sustained the growth rates from 2013 going forward. This last year saw a particularly strong recovery in housing prices.
But we do expect the housing Year over year private fixed residential investment or PFRI as a percent of GDP grew to 3.1% and the Q4. This remains well below the 60 year average of approximately 4.6%. Finally, today, our Board announced a 21% increase in our quarterly dividend to $0.47 per share. This is the 5th dividend increase in as many years and follows our targeted dividend payout of 50% of earnings. We remain committed to disciplined capital allocation to create value for our shareholders.
We will invest to sustain and grow our business. Our intent is to increase our dividend every year and we will use our excess cash for share repurchases. Let me close by thanking our associates for their hard work and dedication. I'd like to give special thanks to all of our associates who've Help their customers and their communities through the recent winter storms often under the most difficult of circumstances. It's a great reflection of everyone's hard work that this half 100 percent of our stores qualified for success sharing, our profit sharing program for our hourly associates.
We set a record for success sharing payout for the full year of 2013, almost $250,000,000 We're proud of that result and look forward to continuing this momentum in 2014. With that, let me turn the call over to Craig.
Thanks, Frank, and good morning, everyone. We are pleased with our performance in the 4th quarter, although the makeup of Sales was very different by area of the country. The departments that outperformed the company's average comp for the Q4 were indoor garden, kitchens, Outdoor Garden, Plumbing, Electrical and Tools. Bath, hardware, paint, decor, lighting, flooring, Millwork and Lumber performed positively. Comp sales in building materials were negative, reflecting tough year over Year Storm Comparisons in Roofing.
Sales for the quarter were driven by great events, including our outstanding Black Friday and strong gift centers and Flexible Response in Seasonal Categories, including winter preparedness and decorative holiday. As Frank mentioned, weather had some impact winter storms and some of the coldest temperatures on record in the Midwest and Northeast. As a result, our Northern and experienced negative comps in outdoor project categories like lumber and building materials. This negative impact was partially Set by positive performance in weather related categories like portable heating, pumps, weather stripping and snow removal equipment. In areas of the country that were not affected by difficult weather, we saw continued strength across the store.
Across The country, including our Northern division, maintenance and repair categories like pipe and fittings, air circulation, cleaning and HVAC had comps above the company average. We also saw continued strength in light bulbs where sales posted a double digit comp for the 4th consecutive quarter. Its continued innovation in LED technology is becoming more widely adopted by our customers and is expanding to other categories of the store like decorative and security light. Categories that are traditionally dominated by our pro customers also performed well. For example, dimensional lumber, insulation, concrete, pneumatic shares comp above the company average.
As I shared with you last quarter, we executed several events planned to drive sales. And Decorative Holiday, several new products were introduced, including our expanded assortment of pre lit trees. While the holiday selling season was compressed by 1 less week compared to 2012. We drove positive comps in these categories, including our online channel. Thanks to our amazing values and execution by our associates, we had one of our best sell through rates ever.
Black Friday sales were the highest on record and gift center sales exceeded our plan. Outstanding exclusive offers driven with our vendor partners allowed us to be first to market with product and result in great performance in power tool accessories, Hand Tools and Portable Power. Total comp transactions grew by 3.3% for the quarter, while average ticket increased 1.1%. The total impact to ticket growth from commodity inflation was flat. Transactions for tickets under $50 representing approximately 20% of our U.
S. Sales were up 2.5% for the 4th quarter. Transactions for tickets over $900 also representing approximately 20% of our U. S. Sales were up 5.5 percent in the 4th quarter.
The drivers behind the increase in big ticket purchases were appliances and the continued recovery of our pro customer. Now Let me turn our attention
to the
Q1. We're excited about the opportunities we have as we enter into our spring selling season. Our new assortment planning tools provides us the ability to optimize our assortments at a local level and help us better prepare for spring. As many of you know, spring is our biggest selling season. So for the 5th consecutive year, we will have our spring Black Friday event.
Working with our vendors, we plan to bring in special buys and extraordinary values on popular spring items like patio furniture, grills, landscape and live goods to name a few. In addition to the spend, we're also excited about the new products our merchants have added to our assortments. In outdoor living, we are introducing higher end Patio Furniture from Brown Jordan that is available online and showcased in some of our stores. This exciting new product allows customers to customize Furniture and Fabric to fit their space with fabric options from Sunbrella. We're also adding 5 new collections to our core patio, which will expand our assortments and offer our customers more options than they have ever had.
In Grills, Weber's new exclusive Spirit Series with the Gourmet Barbecue System offers our customers several attachments to enhance their barbecuing experience. And we're also expanding the new brands with the addition of charcoal and gas grills from KitchenAid. New for 2014 and outdoor power is a full lineup of cordless power from EGO, including a lawnmower, string trimmer, blower and hedge trimmer. These tools are powered by a 56 volt lithium ion battery with 40% more power compared to other batteries in the industry and a remarkable recharging time that allows a dead battery to be fully charge in as little as 30 minutes. And while we're loaded for the outdoor spring selling season, we also have a strong lineup of product for projects Inside the Home.
New for Bath, Delta's ActiveTouch H2O hand shower combines a fixed shower head and hand shower with 9 spray settings and the ease of active touch technology, which allows for one hand operation. Also for Bath, through an exclusive partnership with Kohler, we're introducing a new lineup of bathroom products, including the toilet seat with an integrated LED light. And for our pro customers, we're introducing a new line of water heaters from Rheem with innovative features and improved diagnostic controls. These water heaters decreased energy usage by 10% as compared to current models and increased available hot water by up to 25 segment saving both time and money. In addition, these models already many of these models already meet the 2015 Department of Energy specifications a whole year in advance and are exclusive to The Home Depot.
Heading into the 20 2014 spring selling season. We believe that we are well positioned and are excited about the opportunities that it Exchange. And with that, I'd like to turn the call over to Carol.
Thank you, Craig, and good morning. In the 4th quarter, sales were $17,700,000,000 Call. As Frank mentioned, fiscal 2012 included a 53rd week, which added approximately $1,200,000,000 in sales to the 4th quarter and the year. The extra week is not included in our 2013 comp or same store sales calculation. Comp sales were positive 4.4% for the quarter with positive comps of 3.7% in November, 6.9% in December and 3% in January.
Comp sales for U. S. Stores were positive 4.9% for the quarter, with positive comps of 3.7% in November, 7.8% in December and 3.8% in January. For the year, Our sales increased 5.4 percent to $78,800,000,000 Excluding sales from the 53rd week in fiscal 2012, Total sales for fiscal 2013 increased 7.2%. For the year, total company comp sales were positive 6.8% and comps for U.
S. Stores were positive 7.5%. Our total company gross margin was 35 percent for the Q4 considerably better than our plan and was 10 basis points higher than last year, of which 14 basis points came from our U. S. Business.
The year over year expansion in our U. S. Business can be explained by the following. First, we experienced 6 basis points of gross margin expansion due to productivity within our supply chain. The remaining 8 basis points of expansion reflects the net impact of a change in the mix of products sold and in some cases, Higher Co Op and Rebate Levels Than Last Year as We Reached Higher Purchase Tiers.
For the year, we experienced 18 basis points of gross margin expansion. Operating expense as a percent of sales decreased by 26 basis points to 25% in the 4th quarter. Excluding last year's extra week, operating expenses as a percent of sales decreased by 54 basis quarter. Fiscal 2013 operating expense as a percent of sales was 23.1%, a decrease of 106 basis points from what we reported last year. On a 52 week basis, our expenses grew at 32% of our sales growth rate, in line with our guidance.
In the 4th quarter, interest and other expense was $178,000,000 an increase of $18,000,000 from last year. And for the year, interest and other expense totaled $699,000,000 an increase of $154,000,000 from the prior year. The increase in interest expense is primarily attributable to $4,000,000,000 of incremental debt issued in fiscal 2013. Our income tax provision rate was 36% in the 4th quarter and 36 0.4% for the year. On a reported basis, diluted earnings per share for the 4th quarter were $0.73 an increase of 7.4% from last year.
On a 13 week basis, diluted earnings per share grew by 19.7%. Quarter. For the year on a reported basis, diluted earnings per share were $3.76 an increase of 25.3% compared to the prior year. On a 52 week basis, diluted earnings per share grew by 28.3%. One last comment on earnings per share.
You will recall that in fiscal 2012, we incurred a $145,000,000 non recurring charge related to the closing of our China stores, which had a $0.10 negative impact to fiscal 2012 diluted earnings per share. We've provided a supplementary schedule in our press release that sets forth a year over year comparison with and without this charge. Now moving to our operational metrics. During the Q4, we opened 3 new stores in Mexico and 1 in the U. S.
And ended the year with 2,263 stores. At the end of the year, selling square footage was $236,000,000 about flat to last year and sales per square foot increased 4 point 9% to $3.34 At the end of the year, inventory was $11,000,000,000 of $347,000,000 from a year ago. Inventory turns were 4.6 times, up from 4.5 times last year. Moving on to our share repurchase program. In the 4th quarter, we received 3,400,000 shares related to the true up of an accelerated share repurchase or ASR program we initiated in the 3rd quarter.
Additionally, in the Q4, we repurchased $2,100,000,000 or 26,400,000 shares. This included 7,500,000 shares repurchased on the open market and 18,900,000 shares repurchased through an ASR program that was initiated and closed in the Q4. For the year, we repurchased a total of $8,500,000,000 of 111,300,000 shares of outstanding stock. Computed on the average of beginning and ending long term debt and equity for the trailing 4 quarters. Return on invested capital was 20.9%, 390 basis points higher segment at the end of fiscal 2012.
We detailed our 2014 guidance in our press release, but I want to take a few moments to comment on the highlights. Segment. Remember that we guide off of GAAP. So fiscal 2014 guidance will launch from our reported results for fiscal 2013. As we look to 2014, we are basing our sales growth assumptions starting with GDP growth forecasts, which for the U.
S. Are approximately 2.8%. We are also projecting that the U. S. Housing market, Namely Home Price Appreciation, Household Formation and Housing Turnover will contribute approximately 200 basis points of comp growth in 2014.
While some of the macro and housing data have softened over the last few months, we continue to believe that we are in the moderate Stage of Housing Recovery. As Frank mentioned, home affordability is still quite attractive and we are continuing to see home prices improve, both of which are positive for our business. For the year, we expect comp sales growth of approximately 4.6% and Total Sales Growth of Approximately 4.8%. Some may see this as slightly lower than the preliminary 2014 guidance we gave in December of 2013. While nothing has materially changed in our economic outlook, we We did adjust our 2014 plan to reflect a weaker Canadian dollar than what we experienced last year.
Quarter. I'll also note that the extreme winter weather in February hasn't been our friend, but our February costs are positive. And we know firsthand that many homeowners have and the major repairs ahead of them, which suggests we should have a great spring selling season. For 2014, we are projecting no gross margin expansion, consistent with our intent to use cost out savings to support recovering and growing lower margin product categories. On the expense front, We are forecasting our expenses to grow at approximately 33% of the rate of our sales growth.
For the year, we project that our operating margin will grow by approximately 20 basis points. And we expect diluted earnings per share to increase by approximately 16.5 percent to $4.38 Earnings Per Share guidance includes our plan to repurchase approximately $5,000,000,000 of outstanding shares during the year using excess cash. 2019. Our 2014 capital spending plan is approximately $1,500,000,000 an 8% increase from what we spent in fiscal 2013 in support of interconnected retail. For the year, we project cash flow from the business of roughly $8,800,000,000 Earnings.
We will use our cash to invest in our business and to return capital to shareholders in the form of share repurchases and dividends. Our commitment to shareholder returns continues to be a hallmark of The Home Depot. On top of our intent to purchased $5,000,000,000 of outstanding shares in 2014. As Frank mentioned, we just announced a 21% increase in our quarterly dividend, which equates to an annual dividend of $1.88 in line with our targeted dividend payout ratio of 50%. So we thank you for your participation in today's call.
And Lisa, we are now ready for questions.
Yes, of course,
Day. And we'll take our first question from Aaron Rubinson from Wolfe Research.
Hi, thanks. Good morning, everyone. Good morning. Good morning. Wanted to ask you a question about growth kind of beyond recovery.
A lot of companies in cyclical businesses have turned to acquisitions when economic growth moderates. Wondering if you can tell us a little bit about your appetite for acquisitions as it is today? And also as you A few years out and the economic environment moderates a little bit. How you think that might develop?
Okay. Thanks, Armin. I'll let Carol comment on this as well. But I'd say what you see from us now and what I would expect To continue is that we use acquisitions really not as a supplement to Sales Growth, but as a supplement to competencies that we think are important to add to our capabilities. And I would anticipate that that will be the case going forward.
Yes, indeed, Aaron. We've got a filter that looks at opportunities for growth through acquisitions Just in That Light. How can they enable our existing business? So if you look at blinds.com, the most recent acquisition We're also getting a Natus call center and these people know how to close sales. This is enabling business of ours that we think has huge growth potential.
And so if growth won't be coming, let's say, post recovery from acquisitions, Would we be kind of banking more on share repurchase, more on added leverage? Or is there some other innovation that you
We think also about taking share and expanding categories in our store and improving the productivity of our store. And We've actually been through quite a long period of not having growth in our market. And we have some experience of being able to generate Positive comp growth even in a flat to down housing market. 2010, 2011 were not friendly years in the housing market and we were positively comping.
Well, thank you and terrific results to talk next quarter.
Thank you. Thank you.
And we'll go next Eric Bouchard from Cleveland Research.
Good morning.
Good morning.
Wondering if you can speak a little bit to you're terming the recovery now in the moderate phase. As you look through the last 3 months or the last 6 months, what you're seeing different in terms of consumer demand And appetite either around categories or price points or in the area of discretionary remodel, but how you're Seeing that evolve and if anything changed in the last 3 months relative to the prior 3 months in terms of the intensity or the areas where demand is appearing.
So Eric, again, I'll let Carol comment on some of the macro things that we're seeing. But I'd also just preface this by saying, It's difficult to tease those conclusions out from a quarter where you have a lot of Particularly unusual weather and some unusual overlaps for us. So as Carol mentioned in her comments, We do see housing as a tailwind, but not perhaps quite as much as it was in 2013. But again, if you look just at the last quarter, hard to tease out some of the specifics on that.
Right. So as we look at the macro, we think housing will be a contributor to our Next year, we're about 200 basis points. We think it contributed about 2 50 basis points in 2013. The biggest driver is home price appreciation. And last year, as you know, home prices were up double digit.
We're not forecasting that in 2014. We think they'll be up around 6%. Now home prices have 21% to go before they return to peak. So perhaps it's a conservative outlook, But we think it's a realistic outlet to build a plan on. One comment I might say about the consumer, and Craig, maybe you want to jump in on this, is that as we look at sales against opening price points of good, better, best, all the way to premium.
We've seen growth in premium priced products in all four quarters, including this last quarter. So it doesn't really seem to us like there's a change in the consumer. I mean, there's just been some weather disruption for sure, but it doesn't really seem like there's a change in the consumer.
No, not at all. And as Carol mentioned, we're seeing the growth opportunity going up the line structure. And I think the other comment would be that over the past few quarters, we've shared that our pro business has been recovering. So you're seeing growth across categories like lumber and building materials that historically during the Home terms weren't as strong.
Great. Thank
you very much. Thanks, Eric.
And we'll take our next question from Dennis McGill from Zelman and Associates.
Hi, good morning. I guess first question, you noted that areas not impacted by weather, Which I guess we're few and far between. Saw continued strength. Can you maybe just put some numbers behind that? And maybe if we look out west where snow wasn't as much of an issue?
So Dennis, the Western division was our strongest performing division and That was the least impacted by weather.
And I guess when you say maintain the strength, is it Fair to say comps were comparable then to the prior quarter?
In the Western division, I would say that our accounts were about twice the company average.
Okay. That's helpful. And then Carol, I think you mentioned that gross margins were well above plan. You went through the levers there versus a year ago, but relative to plan, where was the upside driven and how does that kind of factor into the flat outlook for 'fourteen?
Sure. Well, You remember that we were anniversarying strong sales from Hurricane Sandy. We had about $255,000,000 of sales that we had to anniversary. Nonetheless, We built a plan that had our building materials department growing year on year. And as Craig pointed out, it didn't grow year on year.
And that's a good news from a margin effective because we had a benefit from a lower penetration of a lower margin category. So that was one big change. The other change is the purchasing tiers that we hit in certain categories, and this is just a function of demand. So we hit new purchasing tiers for refrigeration, insulation plumbing repair. We hadn't planned on that and that gave us higher co op and rebate.
Okay, perfect. Thank you. Best of luck.
Thank you.
And we'll go next to Kate McShane from Citi.
Thank you. I was hoping to follow-up on a question asked previously with regards to the housing market trend. Carol, you've always expressed and your thoughts on changes in the environment. And I wondered if you could add your perspective on any opportunity for the easing of lending or The lowering of FICO scores and how that might play into your guidance.
Yes. We've said all along that Credit availability was a big driver of the housing recovery and the shape of the recovery curve. We are very encouraged by what we have seen at Wells Fargo. Wells Fargo has announced that they are taking the FICO scores for FHA loans down from what was 6.40 to now 600. We think that will be very good, particularly for those new households who are buying their first home.
That also is a good news story when Think about the affordability curve, because if you look at an affordability zone, mortgages that are $100,000 mortgage and this would be a great mortgage for an FHA loan, that stays in the affordability zone until mortgage rates reach 9%. So we're encouraged by this. So we also hear that other lenders are starting discuss loosening up. It's still a very tight environment, make no mistake, but there are encouraging signs.
Okay. Thank you. And if I could just quickly follow-up about the sales from the affected regions by weather. How much do you think will be pushed into Q1? And how much do you think is just loss at this point.
Really, we don't see any loss at this stage of the game. It's very, very early, obviously, in the quarter. And we're experiencing what maybe many would say is a more typical winter.
Thank you.
And we'll take our next question from Scot Ciccarelli from RBC Capital Markets.
Good morning, guys.
Good morning.
Carol, I know you've mentioned about a number of macro factors, Are there certain factors you're particularly concerned about now? And then I guess for both Frank and Carol, When you guys kind of talk about PFRI as a percentage of GDP, call it 3.1% today, the long term average of 4.6%, is it realistic To get back to 4.6 percent? Or what is the more what do you think is the realistic target to kind of reach over time given the current environment and current size of GDP?
So Scott, first, I on the factors that we are concerned about, Carol just went through a discussion on one of them that has been a long standing concern, which is credit availability and indicated we're starting to see some improvement there. But that's certainly been a Key factor that we've watched. In terms of the recovery of PFRI and whether it gets back to 4.6%, That's economists would tell you things have a tendency to revert to the mean, but there are always exceptions to the rule.
Still think it will happen in 2014. Right.
It will take us a while. That's exactly right.
The other thing I would just point out, Scott, that we're looking at is household formation. Candidly, it is pretty weak. But when you think about it, why was it so weak? It goes back to credit availability. So we need to get those millennials into a home.
And Again, really happy with what we're seeing at Wells Fargo.
So basically, credit is kind of what you're looking at as driving All the other data, whether it's turnover, housing prices, etcetera, you think that's going to be the major, let's call it, delta
in the equation? Scott, Plus the Economy. I mean, the underlying engine remains job growth. We need people to be getting jobs. Market.
We're actually down to a very, very low inventory level. So it really does come If you've got the job growth, if you've got GDP growth, then the other key factor to watch is the credit availability. All right.
Very helpful. Thanks, guys. Yes.
And we'll go next to Laura Champine from Canaccord. Record.
Good morning. Could you comment on your market share trends in the quarter?
Yes. So if you look at a rolling twelve basis, we were up roughly 35 basis points to 26.5% based on the NIAX data. And when we look at 3rd party data that tracks consumer only spending, We were up in roughly 10 out of 22 key classes or departments, if you will. So 10 departments, 22 classes. So we feel good about the fact that we're
I'm Seth Basham with Wedbush Securities.
Good morning.
Good morning, Seth.
First question is around share gains as well. Can you help us better understand what's happening with appliances? How much share you're getting in appliances this quarter relative to recent quarters?
When we look at the most recent quarter, it shows based on again 3rd party tracking that we picked up about 180 basis points of share in the quarter and that compares to about 170 basis points on a rolling 12, which would be over the 4 quarters obviously.
Appliances contributed 60 basis points of our comp growth in the quarter.
Thank you. And then secondly, if I may follow-up regarding the macro. If you think about Credit availability being relatively tight. When you look at some metrics like DTI, debt to income and LTV ratios, those don't seem relatively too tight to norms In the past. So how do you rectify that against other dimensions of credit availability?
Oh, gosh, that's if you work for a financial institution and you took 1,000,000,000 of dollars of losses, you're going to and you're in an interest rate environment that's so low, it's hard To make a book, you're going to be shy and you're going to be very cautious in terms of underwriting. I mean, I would imagine and this is what financial institutions will tell us. So while there is it's a better environment to lend into and I suspect that's why banks are starting to signal that they're willing to change, it's been a tough, growth for those folks. Great. Thanks, guys.
And we'll go next to Jamie Katz from Morningstar.
Good Good morning. Thanks for taking my call. Can you guys comment just on how the Mexican and Canadian businesses have been doing, add a little bit more color? And then maybe talk about how you guys are planning on marketing to the pro business this year to grow that business a little faster?
Okay. Jamie, on the Canadian and Mexican business, first comment on Mexico. As I said, Mexico has now had 41 quarters in a row of positive comp growth. This year that performance, I mean, we say that and we sort of don't Funding in the Mexican Economy, which went through a significant adjustment and a significant adjustment that was centered very much around changes in housing policy. So we're very pleased with how our business not only has historically performed, but performed this year Again, positively comping in a difficult environment.
Then on Canada, Canada adjusting for FX Pleased with how our Canadian business is doing. We feel like we're well positioned in that competitive environment and have been positively comping Really for the last several quarters in a row there.
And marketing to the Pro? Yes.
From a pro perspective, Frank mentioned our program we launched Pro Extra, which we're excited about. We're signing up 10,000 customers per week and so Great momentum there. And also we're very pleased with our mobile app in Pro. This is allowing us to really help our Pros run a better business, leverage some of our online tools and connect our pro both virtually and in our brick and mortar locations. So in addition to that, we're going to continue to be aggressive on conventional means of advertising like radio, which really resonates well with our pros.
But at the end of the day for pros, it's about a couple of fundamental things and that is convenience, great service that can get in and out fast and value. And we're going to focus on those three things as well.
Thank you. Nice quarter.
Thank you.
Thank you.
We'll take our next question from Greg Melich from ISI Group.
Hi, thanks. Two questions. One was just on the comp trend through the quarter and into this quarter. I was surprised at just how strong December was given how strong it was a year ago. Could you explain what that was and the impact of Sandy.
And it looks like January was the weakest month of the quarter. How much of that was weather? And what do you expect
As it relates to December, let me address that first. We had As I mentioned in my comments, we had a record setting Black Friday. We had great gift center sales that exceeded our plans. Events were a strong part of December sales overall. And we had a terrific season as it related to our decorative holiday and live trees.
And So we're very, very pleased with the performance and the programs that our merchants put together and Well, our stores took that and drove it. Our associates just did an excellent job. When you look at January, As you would expect, with some of the weather impacts in parts of the country, we saw a little bit of Softening into more discretionary spend categories in that month. And Yes, certainly that was a factor. So the mix of sale changed in the month of January.
We don't like to use weather as an excuse, but we We probably lost $100,000,000 in the month of January. Atlanta was frozen, for example. It was tough here.
Guys, it's a lot of salt sales, but nothing else. My other question was sort of bigger picture, I want to address it. We did implement the Affordable Care Act. And one of the things we were watching was how many of your employees take up the new plan Structured. Anything you can update us there in terms of take up rates of your own plan or How you're baking into your guidance for SG and A would be helpful.
Yes, Greg, we're not going to get into the specific details around take up other than to say it was System we planned for.
Was it off by a stem? Yes. And that's in The guidance didn't change.
The guidance didn't change. Our HR team has done a fabulous job of working through ways to mitigate any cost pressures That may come at us by rebidding out placement services, plan redesigns. So we're providing insurance for our associates and taking care of our shareholders at the same time.
All right. Thanks a lot. Good luck.
Thank you.
And we'll go now to Michael Lasser from UBS.
Good morning. Thanks a lot for taking my question. Frank, it seems like home prices and home price appreciation has been the biggest driver of the market For the last 12 to 18 months, at what point do you think turnover will again overtake that And you may see a recoupling between home improvement comps and housing turnover. Michael, it's an interesting question. We were just talking about that very Okay, about that very question amongst ourselves.
And interestingly, historically for us, Housing turnover has not been that great a predictor of our sales, if you go back over time. And so I'm not sure that the way the housing market will play out for us That is price appreciation slows down, the correlation will shift to another element of the market.
So here's just a couple of data points for you. I find this to be very interesting. If you look at the correlation between housing turnover and home improvement sales between 20,021,013. You've got a high R squared, something like 0.7. If you look at it from the period 20 10 to 2013.
The R squared is 0.3. So the housing market is just changing. It's a good way to explain, but not necessarily a good way to predict.
Okay. Carol, I guess, if you look at The metric from 2000 to 2010 presumably the R squared would be higher?
Little bit, but not much. Yes.
Okay. My second question is on the acquisition of blinds.com. As you become more proficient with interacting and engaging Customers online. Do you think that puts you more in the crosshairs or potentially more in the crosshairs of the online only retailers? We think we're in those crosshairs.
But even more so than you already are, I We don't think that does anything to our being in their crosshairs. We First off, acquisition like blinds.com, as Carol said, the explanation for it is the competencies that it brings to allow us to better compete in interconnected retail. But we imagine that pretty much everybody out There with an Internet only offering that relates to home improvement already has a target on us. Okay. That's fair enough.
Let me ask one last question. What's the duration look like from extreme winter conditions and spending associated with the repair from that? How would you contrast it to Crafts tornado or hurricane related spending. Thank you.
Michael, it totally depends So I would suspect there are and I can look at my own yard, there are People who have right now needs, but depending on when the spring breaks will depend on what that duration time is between The recognition of the need and the action to make it happen.
And we will take our next question from Mike Baker from Deutsche Bank.
Thanks. Two questions. 1 on buyback. So $5,000,000,000 this year. Is there any upside to that?
I think a year ago you talked about $4,600,000,000 but said there could Sorry, if you take on more debt and you certainly did that and upside the number. A year later, we're closer to your 2.0 target leverage ratio, I think. So just Wondering if you could characterize any upside in that $5,000,000,000 number.
Well, today we're planning $5,000,000,000 using excess Cash. And to your point, we're not at our max target of 2x adjusted debt to EBITDAR. Today, we would have about $1,900,000,000 borrowing availability if we were to leverage up to that target. We don't have any plans to do that right now. We raised a whole lot of debt last year.
And Just always a good idea to let some time lapse before you go back to the market. Just so you have excellent execution,
Yes. Makes sense. The second question and maybe this is just looking at too finally, but your comp guidance suggests a 200 basis points of deceleration from 2013. You think about 50 basis points of that comes from Housing. The other 150 basis point deceleration, is that just being conservative, not prudent to expect to comp at 7 percent of the year or is there something else in there that we should be thinking about?
I'd ask you to think about commodities. In 2013, we enjoyed commodity inflation, Not thinking that's going to happen this year. In fact, we're going to have some pressure from commodity price deflation. So that would be one driver. The other driver, as you know, is that we rolled out our extended appliance assortment to many of our stores, something like 500 Appliance assortment to many of our stores, something like 500 stores.
So we'll be lapping against that. So that puts a little bit of headwinds on us.
And we don't plan on storms.
Thank you. We don't. Right. But we'll take them.
Very helpful. Just to go to it one more time, can you quantify that quantity the commodity impact in 2013 2014?
It would be I'm going to be rounding here. It's 80 to 90 basis points.
On a swing?
Yes. Okay. Thank you. Yes.
We'll take our next question from Gary Balter from Credit Suisse.
Thank you. Just following up actually on the last question, How much share how much of your comps were helped by share gain from some competitors that may be struggling? And what do you assume in your 2014 guidance?
Well, as Craig pointed out, pursuant to the NIAX definition, we enjoyed share appreciation in 2013, about 35 basis points of share appreciation. We don't tend to build a plan based on share capture. Call. That doesn't mean, Jerry, that we won't do everything to get that share capture and take care of our customers, but we don't tend to plan for that.
Okay. And then you made some comments on Canada and the currency decline. Is there a way and I'm not asking you to play But given the declines that you're seeing in their currency, which makes their purchasing power a little bit better for Canadians, do you think that that will help the underlying business at some point, Putting aside the currency impact?
To help the underlying business in Canada?
Meaning Yes. I'm sorry, go ahead.
As I said, Gary, the performance of our Canadian business, we're very pleased with it. And our Canadian business is doing well in an environment where our competitors, Rona and some others are having great difficulty. So we expect continued success there, frankly, regardless of the current.
Okay. Thank you.
And we'll take our next question from Keith Hughes from SunTrust.
Thanks. You finished off a great year with products or Projects $900 or greater. Given your comping against that in 2014, what kind of number are you expecting there in the same So, we actually plan our year based on growth for both transactions as well as ticket, and we plan that roughly equal. And if you look at the year, we were pretty close to that In terms of it was pretty balanced between tickets and transactions. I was acting specifically around The transaction is greater than $900
So Keith, we wouldn't plan at that level. Right. Okay.
Is your sense that it will be greater than the No, I think as if we see the continued recovery, I think the opportunity there driven by continued pro business, driven by customers taking on larger projects. If their home values continue to hold, I think we could expect to see the bigger ticket continue to grow.
And from a shape of the year perspective, I think the growth has been Heavier in the back half than the first half because we're still anniversarying some sandy storms in Q1. We've got about $150,000,000 more or less in Q1 and Q2 was an outstanding year for us. So I think If you're trying to build a model that way, Keith, that's how I would build it.
Okay. Thank you.
Yes. So, Lisa, we have time for one more question.
Okay. And we will take our next question from Alan Ryskin from Barclays.
Thank you very much. Your growth in the dotcom side of the business is Quite admirable. And given the investments that you've made to date, one would have to assume that dotcom continues to outpace the brick and mortar side. Carol, what effect on EBIT margins going forward will an accelerated growth on the dotcom side of the business have on EBIT?
Well, a couple of things about the profitability of our dotcom business. 1st year on year, it was much more profitable this year than last year, which is a good news story. And as we think about 2014 and beyond, we factored into our guidance the impact of a dotcom business that's growing faster than the core because to your point, it is.
Okay. And one last question, if I may, just Playing devil's advocate here. I believe in the past you've actually said that the single most important macroeconomic variable Your business is GDP, even greater than that of housing because GDP obviously incorporates housing plus everything else. Your guidance for GDP is actually higher in 2014 than 2013. So even with the expected deflation in commodity prices that you're anticipating in 2014.
Why are we not looking for a slightly higher comp than what you've laid out Day.
So Alan, I'll make a couple of comments and then Carol can add to them. Our commentary around GDP is being the most significant thing for us was those And thing for us was those comments were given in the context of a housing market that was frankly Still Flat TO Down. So in 2010 2011, when we were positively comping, what we were expressing was that that was a reflection Conference. What we tried to lay out both in our June 2012 and our December 2013 Conferences was now. We see a time when housing will be a tailwind to GDP.
And when you compare 14 to 2013, somewhat less of a tailwind than we saw in 2013. But Carol, if you want to add some comments to
Sure. So if you think of the drivers of housing that most impacted our business, we do believe home prices will appreciate in 20 14, but at half the rate they appreciated in 2013. So that's a year over year change. In terms of turnover, We think the turnover as a percent of units will be about 4%, so that's down slightly from 2013. All of this is a directionally correct but in person model.
We're taking all the
Okay. Thank you both very much.
Thanks, Alex. Well, thank you all