The Home Depot, Inc. (HD) Earnings Call Transcript & Summary

All right. Great. Thank you for everyone joining us today on our 10th Annual Retail Roundup Day 2. It's my distinct pleasure to have with me, Chief Financial Officer of The Home Depot, Richard McPhail. Thank you for joining us again this year. We always appreciate your support of our conference.

Absolutely. Thank you, Chris.

Awesome. So from an agenda perspective, it's just like the other ones. I'll ask questions, and we'll save time at the end for audience questions. So please don't be bashful.

So my first question is -- and it's the question we're asking all companies to kick off the conference, is more about the consumer. If you look across different companies with the consumer, there's varying feedback on green shoots and some COVID winning categories, low-end consumer weakness, shopping around occasions. So the first question is, is how would you describe the current state of the consumer from your vantage point? And how has that changed over the past year?

So -- and thanks to everyone for being here this morning. And it's a great day and week and month for The Home Depot. And we've announced an exciting acquisition which I'm sure we'll get to here in a minute. So our customer tends to be the homeowner, right? We sell into the installed asset class, in fact the largest asset class privately owned in North America, which is the residents, right? With the value of over $45 trillion. And so if you're a Home Depot customer, it's very likely you own your home. The homeowner has done exceptionally well over the last 5 years, really over the last 15 since the Great Financial Crisis. But in a comparative sense, the homeowner has seen their balance sheet expand much faster than they would have expected through home price appreciation. They tend to be employed and have enjoyed strong income growth over the last 3 to 5 years. And so we see a highly engaged customer at The Home Depot. I will just caveat that all my comments are relevant through the end of our fiscal year. We won't comment on intra-quarter trends. But throughout that period, I think we saw the kind of 2 mind frames with the customer. The first was highly engaged in spending. When you look at the success of our holiday programs, whether that's through decorative categories, through appliances, that was -- we had an exceptionally strong season. And so I'd say kind of the base of customer spending is very healthy. When you get to larger-ticket projects, and for us, when you're thinking about a project associated with your home, the larger they get, the more likely they are to be debt-financed. And so we have seen the second mind frame really as a mindset of deferral of larger projects that might be debt-financed. Our customer has the means to do large projects. They have the desire to do them. And they tell us that it's simply just, look, rates are elevated. We're not going to do that right now. We could if we wanted to. We're just -- we're going to wait. Some of this is caused by this anticipation that, well of course, there will be Fed cuts. So maybe we wait a little while to do that larger project. And so the health is there. It's more just, okay, when do we execute that project? At the same time, we're seeing -- what our Pros tell us is that their customers still engage in projects, they're just of a smaller nature. So you might not do your entire -- you might not renovate your entire kitchen, you might do that piece by piece. But very healthy customer.

Excellent. So we'll pull that apart a little bit. Inherent nature of what you sell, there's a lot of replacement cycles and there's different replacement cycles. And when we were all forced to be locked down, we did a lot of replacement and a lot of upgrades in our home. I guess what categories are you looking at to see when should the good spending starts to come back, regardless of the big ticket stuff? Maybe some of those early COVID-winning categories, like paint and appliances and home decor. Are you seeing green shoots? And are there any particular categories that you're focused on as sort of the canary in the coal mine?

I don't think that we would look at any given categories as the sign that this is -- we're back to normalcy. Maybe I'll start with a higher level comment, which is we've talked about 2023 having been a year of moderation after $47 billion of growth for 3 years. At some point, there was likely to be that moderation. We saw it in 2023. There are forces there that are still present that mean that 2024 isn't quite the year where we're back to a normalized market. And you think about those as many economists are calling for a deceleration in PCE. We still have a slightly higher share of PCE than we had back in 2019, so there may be some reversion. There's this mindset again of higher for longer or just higher at the present moment creating this deferral. And then there is what you talk about, which is there was some form of pull-forward in demand. Now where we have seen strength that perhaps surprised us was in appliances, where there was enormous demand during COVID. We didn't know how long, if there was a pull-forward period, whether there would be a lull. Appliances are doing extremely well. A big part of our success in appliances are some of the changes we've made to our customer service model, and we can get into that if you'd like to. But up to a certain product kind of -- or a project price level, demand is really healthy, Chris. So I wouldn't say there's one category in particular. The categories where we are seeing relative weakness through the end of 2023, when you think about larger project spend, kitchen, flooring, those kind of things. Now on the other hand, we see the reverse signals in gypsum, roofing, lumber. And so there's a bit of a mixed bag with respect to what we see in project. Look, we sell across the portfolio of products, and ultimately, our definition of normalcy is when we see a healthy positive growth in ticket and transaction, and we're not quite there yet.

How do you -- the spring season is all ahead of you. How do you look at the behavior in the fourth quarter as an indicator of what could happen this spring, right? Like if home decor did a little bit better, appliance seems like it's a lot of share, frankly, on your side, but appliances doing a little bit better. How does that translate as you think about categories, like grills and patio and garden, that were such COVID beneficiaries?

Yes. Well, we expect that at some point, those outdoor categories do come back. And look, we had a great year in 2023 even in many outdoor categories. Grills and patio where some of the exception outliers where you had so much pull-forward. And I might put it a little bit differently. We are -- so when we look at the pressures that we saw in 2023 and we took a point of view on 2024, there's still pressure there, it's just not quite at the same degree than it was in '23. And so that's why we've guided -- if you think about comp last year in '23, we were a negative 3.2%. If you adjust that for lumber, it was about a negative 2%. And so think of our comp guidance of a negative 1% as all in, all that pressure is relieved on a relative basis, but it's not quite back yet. As far as Q4 goes, look, we had one of the worst weather environments in January in history in terms of temperature and precipitation. And so you sort of have to take Q4 and understand that run rates off of exit comp rates are probably a little bit misleading.

Yes. And then I guess on the -- as you think about -- which turns first? Is it Pro or DIY? And I guess how dependent is the rate environment on driving that?

Well, larger projects tend to be executed more through the Pro. That having been said, the Pro performed exceptionally well for us on a relative basis in 2023. And I think that's a result of our initiatives. It's really hard to say which turns first. And really, that's not how we look at it and it's not how we run our business. Not to -- hate not to answer the question directly. But it's all end customer demand that we serve, right? Home improvement demand ultimately resides in that end customer. How it's executed, the rate environment is having a little bit of an influence on that for sure. And so we're just going to have to wait and see how that unfolds.

Got it. So good segue into a few macro questions that you always get. Your correlation to existing home sales growth has typically been strong. You've also more often spoken to strength around really that home price appreciation drives your business because you're lifting the entire housing stock of the United States in that situation. Do you think this time, COVID's so weird because of the share of wallet dynamic and pull forward, how do you think about coming out on the other side? Which factor does the correlation or meaningfulness of existing home sales different this time versus prior cycles?

I don't know that you'd say intuitively that it could or should be different. But I do want to just revisit some of those comments and talk about what we've observed over history. There's no doubt that when you see significant shifts in existing home sales from year-to-year, that's going to have an influence. In the year where you purchase or sell a home, you're going to spend double what you spend in any other year with The Home Depot. And so there is pressure when you see existing home sales drop to the extent that we saw over the last 2 years. There's an asterisk to that because there's a counter to that, which is improving in place, but we'll get to that in a second. So when existing homes spike or dip, yes, there is an influence on our sales. But over the long run, if you look at existing home sales over the last 15 years, you're really kind of hovering right around 5% -- 4% to 5% of the housing stock changing hands. So the change in existing home sales is really not that significant. And that's why, while there might be a correlation, there's not enough movement in that number in a normal environment. I think it is interesting to see with respect to existing home sales, what happens when you do see small decreases in mortgage rates, you see existing home sales respond really favorably. And I think that is evidence of the kind of chronic housing shortage that we've built ourselves into as a country, where there are just millions of households on the sideline who want to buy a home and who are looking for the opportunity to do so. Coming out of kind of this period of moderation, I think you have to ask yourself, what are we left with? What's different now than it was maybe pre-COVID? And I go back to the incredible wealth created in the housing stock. That home price appreciation is, we think, the primary driver of home improvement demand, and I expect it to be so in the future. I don't want to forecast existing home sales. But obviously, if rates decline, you're going to expect a response there.

That's my next question.

Yes. Well to finish it off though. I think what was really interesting is we sat here, I think, or at least settling the phone together. And at the beginning of 2023, many economists and analysts were calling for either a home price correction or a home price collapse. And home prices appreciated by 5% last year. And not much really changed in the underlying economy or points of view with respect to the Fed being restrictive. And so you look at that and think, well, why would -- what are the forces pushing home prices down? Hard to identify. And so we think that the fundamentals are there for -- and given the housing shortage, it took us 10 years to build ourselves into a housing shortage, by the way. It's the -- we have the lowest vacancy rate in the housing stock in the history of the statistic, which I think goes back to 1970. So you have a 54-year history, and we are now at the low point of vacancy in the housing stock. If you look at the chart, we've built ourselves into that position over 10 years of kind of underbuilding. It's going to take us a long time to build out of that. So that's why we think there's support for home prices going forward.

So it is actually my next question. So if the -- I mean, as Jamie talked about last night, we'll see how the Fed actually plays out. But a year from now or beginning first quarter of next year, the market is basically pricing in -- if the 10-year -- 30-year mortgage rates move with a 10-year, like we're going to come down to like 6% from 7% mortgage rate. You spend a lot of time on econometrics. How do you think about what that would mean for existing home sales turnover against the dynamic of, one, the positive of -- you do see a lot of elasticity to rates; versus two, the locked-in effect?

I don't know how to balance those too, Chris. We're interested and curious observers of economics and econometrics. But I think to try to give a view on what the Fed might do and when is obviously the central subject of conversation last night and today. So we don't want to make a prediction there. I would expect that you would see a beneficial reaction from rate decreases, but we certainly haven't factored benefits of any kind of Fed cuts into our 2024 expectation. And you mentioned the lockup effect. Just simply don't know. Is it a factor of folks waiting for rates to decline? Or is there a mindset shift that becomes accustomed to a higher rate environment and says, "This is normal, I have to upsize, I have to improve in place." We just -- it's too hard to quantify. But we think it all points towards fundamental support for home improvement demand. I mean, there's just no question about that. And that's why we're so long housing and why we are so confident in the strategy that we've laid out for many years now.

Absolutely. Another housing question until we move on to some other topics. So we've heard from some other retailers and maybe West Coast sort of started a correction first, both on the consumer side and certainly with the housing metrics side, but some demand trends in the West Coast have sort of maybe seen some secondary improvement. As you look at your regional performance, how would you describe? And are you seeing any of that factor?

Well, again, I'm going to -- I'll limit my comments through the fourth quarter. Last year, we actually wondered. In the first quarter of 2023, we saw significant weather impacts in the West. We weren't sure whether were macro or weather. From our observation, they were weather. And the West -- really all 3 of our divisions, western, northern and southern divisions, all behaved similarly. And we don't see a lot of dispersion in our geographies right now, which is interesting.

Understood. So maybe we'll segue here into SRS. Always a -- congratulations on the acquisition. It seems like a very great growth asset. So I know you've received a lot of questions, so this is more of an open mic. What points would you want to emphasize to investors about the SRS acquisition, based on the feedback that you've heard over the past week?

Great. Well, thank you for the question. Look, we have an opportunity at The Home Depot to sell to every occasion that, that residential Pro has, right? And residential Pro is broadly defined. What's so exciting about this is I think we're the first company ever to be positioned to sell across really all types of residential Pro. And so what the acquisition of SRS does is it complements efforts that we have had underway for many years to sell more to the renovator/remodeler, the property investor, to the generalist Pro, to the general contractor who buys across our product categories. And we're excited with the momentum we have in our organic efforts, we've seen great successes. And that's why we continue to roll out our capabilities. We will be -- we'll have our suite of capabilities in 17 major markets by the end of the year, and we continue to build some of those central capabilities like order management and trade credit, more on that if you'd like. So excited about what our organic efforts have meant in selling to that remodeler who tends to buy across categories and is what we would call maybe a cross-trade Pro. SRS opens up really what I would call the second component of that residential Pro or second segment, which is the specialty trade Pro. So you have the generalist and you have the specialty trade Pro. SRS sells to the roofer, to the landscape contractor and to the pool contractor. These Pros have always purchased from the Home Depot, but much more so on a convenience basis through our stores. There are ways of serving that specialty trade Pro that SRS, we think, is the best in the world at, and that our organic capabilities haven't necessarily been designed to serve. And so what you're getting now is the combination of the Home Depot serving that general contractor; and SRS with, we believe, a best-in-class model serving the specialty trade Pro. And we'll talk about the sort of orders of value creation there. But first, let me just talk about the size of the market. So up until SRS, we had defined our addressable market's $950 billion. There were elements of that specialty trade Pro, the roofer, the landscape contractor Pro that we didn't feel were addressing. With the acquisition of SRS, it will open up another $50 billion of addressable market for us. So it expands our market because we are acquiring a new customer type, and that's what's so exciting. So SRS provides us with capabilities to begin to better serve that general contractor, that renovator/remodeler. It provides us an entry way into that specialty trade Pro to get all of their wallet, not just the convenience part of their wallet. It allows us to begin to learn. Look, we're building distribution capabilities for that renovator/remodeler. This is distribution. We will continue to build those capabilities out. Nothing changes there. But now we have a best-in-class distribution company with exceptional management who we can learn from, and we can trade notes. SRS is going to operate as a stand-alone company. They're going to do what they do best, but we're going to learn a lot, and they're going to teach us. And so we're going to have gains from that. And look, there are going to be cross-selling opportunities. Think about exposing SRS' product catalog to our customers, which is not a hard thing to do. Think about that roofer who's using a nail gun, right? Nail guns are now transitioning quickly to cordless and battery-powered. Think about the power of being able to put a Milwaukee handgun (sic) in those SRS roofers' hands. Think about the power of onboarding SRS customers on to Pro Extra to provide benefits when they purchase at The Home Depot. So there's some low-hanging value creation there. And we just -- we couldn't be more thrilled. This is -- Chris, we are a growth company. We are full stop a growth company at The Home Depot. This is a growth company buying a growth company and partnering with them to accelerate our growth. We get, in the acquisition, a management team with an exceptional track record of growing sales and earnings every single year since inception, regardless of cycle. A team who not only excels in their historical verticals, and they grew up in roofing, but has successfully acquired and attached new verticals in pool and landscape. So we're getting a company that grows really in 3 core ways: Organic same-store sales, exceptional track record; greenfield new branches, significant growth through new branches; and I'd say one of the best acquirers, if not the best acquirer and integrator I've ever seen. So we're just getting so much in this combination of the 2 companies, and we couldn't be more excited.

So I have a couple of follow-up questions. So my first question is there's a lot of subcontracting industries out there. There's specialty plumbing, there's specialty electrical. Was there -- how would you contrast like the capabilities of the company and the management team versus the verticals that they operate in, in comparison to other potential verticals?

Look, there's power in both. And the -- and both were compelling. It's the quality. So it's the attractiveness of the end markets that they're in today. Look, roofing is really noncyclical. If you think about a vast majority of roofing is replacement, repair, it's not new construction. Same with landscape and pool. And so the beauty of those end markets is not only are they're attractive from an economic perspective, but they have lots of room to grow in all 3. SRS has developed into a leadership position in all 3 in a very short period of time, and we want them to continue to grow in those verticals just as they have done historically. More importantly, it's the management team, their approach to business, the cultural fit, their ability to execute. This is a unique company because it has a unique management team and a unique culture. And if you -- I'll tell you, do your diligence. Ask anyone who knows SRS, they're known by everyone as exceptional strategic thinkers, but also operators. They have a track record of faster growth than any other scaled player in any of their verticals over the last decade. So they're the fastest-growing company in the both top and bottom line, they're the best acquirers, and they have a culture that fits seamlessly with ours. And we think the culture is an advantage of The Home Depot that no one has been able to replicate. SRS has one that fits like a glove with us. So it really is both. Great end market verticals with plenty of room to grow, but an exceptional management team and an approach to growth that we haven't seen anywhere else in distribution.

They've grown organically and they've also grown through acquisition. How do you think about their ability to continue to grow? Are there any sort of, I guess, handcuffs that you're putting on them once you integrate them? And how do you prioritize them to focus on the existing verticals or optionality on new verticals?

Well, look, the deal isn't closed, and so they are -- right now, they are an independent company. And so what I will tell you is, there, they have fantastic discipline when it comes to capital allocation and capital return. They are one of the -- they're an outlier in return on investment. They know how to grow through acquisition in a return-accretive manner. And we want them to continue to do what they're great at, which is that. And so look, we're -- we certainly aren't looking to put any handcuffs on SRS. They've proven they can grow, we want them to continue to grow.

Understood. So I'm going to ask a margin question and then we'll open it up to the audience for Q&A. So there's, I think, a healthy debate around The Home Depot's margin structure. In terms of investors recognize that you're about growing the bottom line, 5% to 8% earnings base case, seems a little conservative. The bullish case given all these structural factors once the cycle comes back seems more realistic. But specific to the margins and excluding SRS, you've spent a lot of money over the past 6 years investing in the large Pro build-out. So there's a view that you're actually under-earning from a margin perspective. And so there's -- that's the first part of the question. And the second part of the question, if that's true, is the under-earning simply, is it more like the investment dissipates? Or is it more that building this fixed asset base? And then once you -- the asset base is in, you start to leverage that asset base, and that's just not occurring yet?

Well, there's certainly a component of being early with respect to -- or being early days with respect to leveraging all of our supply chain assets. And we knew that there would be a bit of a headwind in margin in that respect. But I want to zoom out a little bit to answer your question because our primary financial objectives are to grow sales and earnings per share as fast as possible while generating an exceptional return on investment. In a base case scenario, we would expand -- we would expect to expand margins. We would expect flat gross margin. There's a whole lot of productivity underneath the surface there that we reinvest. And then in operating expense, there's investment in there, too, embedded in there. But net, we would expect to generate operating expense leverage during a normalized environment and our base case calls for 3% to 4% top line growth, and that leverage creating mid- to high single-digit EPS growth. When we think about an acceleration from that case, we are focused on sales growth, earnings per share growth with exceptional return on investment. There's nothing to say that -- or maybe put differently. Absolutely, as we begin to leverage fixed assets that we've invested, there are gains to that. Those gains provide the ability to reinvest in the customer value proposition, right? And so that's why we aren't setting long-term guidance more definitively than base case and the accelerated case. I also think it's important to note that we didn't -- so we're playing the long game. We are playing in a $1 trillion addressable market. We have a small share of that market, and it is incredibly fragmented. The long game means it's never going to stop. We didn't build 10 years of capacity in our supply chain. They're all -- as we grow and as we can prove growth and the ability to generate return on investment, we will always invest in our company. And so there's not a moment at which investment in The Home Depot stops. And I think that's the best way to answer it. It's a flywheel. And as the scale player and the low-cost provider, we create room for ourselves every year to out-invest others in our space.

Understood. Excellent. So please, if you ask a question, if you could grab the mic so everybody could hear you on the webcast. Yes?

So you guys manage the business very conservatively. And last night at the fireside chat with Jamie, he talked about preparing for a range of potential outcomes in the business. He said it would be wise to prepare for potentially rockier times ahead and even threw 7% or 8% 10-year rates out there. So I would just be curious how you guys are thinking about that and what kind of internal discussions you've had thinking about preparing for potential range of outcomes. I know everyone is really eager and excited anticipating the inflection of potential recovery in home improvement demand, but just if you could address that...

Yes, thanks for the question. And I think there are 2 parts to the answer. The first one is, during COVID, we learned that it's much more important to be great executors than it is to be great predictors of the future. We could have never predicted a 20% comp. We wouldn't have had a plan that even allowed us to comprehend what it would take to push that much volume through our system, and yet, we did it. We got our hands on the inventory, we got our hands on staffing and it worked. And that's because we know how to execute. We operate on a short cycle basis. At the end of the day, what are you really managing over a short period of time? You're managing inventory and you're managing staffing. And of course, there's pricing and cost and all that. But you're setting appropriate inventory levels for anticipated demand and you're staffing those stores with the associates so that they can provide the level of customer service that's second to none in our space. And so we know we can do that regardless of the environment. The -- and so if you think about upside or downside, look, we took last year as an opportunity, and this is kind of the second part of the question. First of all, we delivered on our expectations. We did -- we set guidance after Q1. And in terms of sales and margin rate and EPS and we nailed a little bit better than the midpoint. We knew exactly where we were headed, and we proved that we could operate the business as great stewards in a negative 3.2% comp environment. We knew the levers that we would pull. Those were all short-cycle levers. It was the natural reduction in staffing as transactions decreased. And there are some other levers in the P&L that we pulled that were short term in nature. The lever we did not pull was the investment lever. We have tried to be very clear that we have the ability to pull back on investment. But given our belief in the long-term fundamentals of the strength in home improvement demand, we're focused on the next 5 to 10 to 20 years, and we're not going to pull back on investment unless the environment truly demands it. And we don't think that we're in that spot. And so really, the second part of the answer is, I feel more confident at the end of '23 than at the beginning of '23 about our position in running a great business and being ready for whatever comes our way. We took last year as a year to get some things right. We had, had $47 billion of growth. After that much activity, you kind of have to take stock and say, "Where do we stand?" We needed to reduce inventory. We were fine but we weren't happy with our level of inventory. And if you look at the reduction in inventory, down 20% from the peak to the end of 2023, we did exactly what we felt we should do to be prudent stewards of our balance sheet and our capital. Number two. At the same time, we improved in-stock. That's incredible. Our in-stock is basically back to where we want it to be, back to pre-COVID levels. And so to do those 2 things simultaneously, we have really, I could say probably never felt better about our inventory level and our in-stock level at the same time up to the degree we feel now. We certainly -- we're operating in a, in some respects, deflationary environment last year. So managing costs down and appropriately pricing ourselves in the market while costs came down was another huge project for us in 2023. For the last few quarters, we believe that prices and costs in our market have largely settled. And so we're on a mission accomplished with respect to successfully managing through the disinflationary environment. And then finally, retention. Associate retention was that last thing we had to get right. At the beginning of '23, we were not in the spot we wanted to be. In 2022, we saw that retention decline more significantly than we would like. There's so much more value in a 9-month associate versus a 3-month associate. And so if we can get associates to get comfortable and really learn the ropes for that first 3 to 6 months, they become so much more valuable. Our retention rates are now back to pre-COVID levels thanks to an investment we made at the beginning of last year, $1 billion in wage. So our to-do list, check, check, check. We're in a fantastic position from an operational perspective and we're ready for whatever environment.

I have a financing question around SRS. You've mentioned that you want to get back to 2x levered within a few years. You're going to raise about $2.5 billion of financing. They've got a little over $5.5 billion of debt that you'll -- assuming are paying down when you bring them on. What's your thought in terms of putting in short-term versus long-term debt that you can use as part of your deleveraging? And is the debt you're assuming from them, is that assumed just to be paid down with cash that you've generated over the year?

So to be clear, the purchase price of $18.25 billion is on a cash-free, debt-free basis. Their current debt we expect to be paid off at closing. So then it's really Home Depot financing at that point. We expect to raise proceeds in both short and long term, so both in the form of commercial paper and also longer-term debt. And we're going to be flexible as market conditions evolve towards closing. But a significant part of that financing will be in the form of commercial paper. And we're doing that because our cash generation allows us to be able to pay down debt very quickly. And so we've suspended share repurchases. That will allow us to build cash towards closing. And then whatever remains in terms of financing need, we will -- it will depend on market conditions. But a significant part will be CP so that we can pay it down over what we think is roughly 24-month period to get back to 2x leverage. Thanks.

I actually have 2 questions. One is just, what are the like the limiting factors on additional M&A? Like are there enough targets? Are there big-enough targets? Are there enough quality management teams? Is it leverage or ratings? How do you view like the limitations here?

Well, I think the bottom line limitation is can we -- would an acquisition provide -- enable us to accelerate our strategic efforts faster than organic efforts and also provide a better return on investment, right? So there's always a buy versus build question. And so in that respect, acquisitions will always be an option for us. The limiting factor though and such an important factor in the SRS acquisition is you just can't overstate the importance of quality management and all that's associated with running an exceptional company. They are exceptional operators. Think about how they integrate businesses. When they make an acquisition, they closed an acquisition on a Friday. And that Monday, that company is up on their ERP. That's the mark of an exceptional management team and an exceptional acquirer. So I think quality is maybe the most important limiting factor when it comes to making acquisitions, quality of management, quality of business platform, quality of end market. Now all of those are important.

And I guess the second question is just, are you more confident in the NC State men's team or women's team?

Both. It will -- no, thank you for asking the question. I'm a multi-generation NC State grad and have been a massive fan all my life and I absolutely expect both teams to win the title this year. And so place your bets. And I couldn't be more proud of them. We're excited. So it's been a big couple of weeks for me. And it's going to continue through the weekend. We're really so proud of both teams.

A quick follow-up on SRS. I'm just curious if the ambition is to go after the more complex Pro in end markets that you're not in. You mentioned roofing and landscape and pool. And in order to enter another market, say, HVAC, plumbing, take your pick, can you do that organically? Or would you need an additional acquisition to go into one of those more specialized complex Pro verticals?

Again, the nature of SRS and the nature of that specialty trade Pro, it would have been hard for us to penetrate that specialty trade pro in any material sense without SRS, without an acquisition. And that's why it's so exciting. This is opening up a new customer for us. There are many verticals. They're in three. We fully expect them to evaluate further verticals. But it comes back to discipline. They're a disciplined acquirer. We're a disciplined acquirer. There's not a necessity to take on every single trade vertical. And I don't want anyone to get that perception. But where we can generate acceleration to sales and earnings per share growth and generate exceptional return on investment, that's always going to be an opportunity that we look at.

Additional questions? Scott?

Richard, just why now? What was -- was there some magical thing that happened while you were watching the game? Just why now? Is this something presumably you've been working on for a long time? Et cetera.

So we have -- we've learned a lot in our evolution in going after the residential Pro. We have several years of developing these capabilities in our major markets, the distribution capabilities, the selling capabilities, and then the emerging platforms of order management and trade credit, the true enablers. And that has been going as well as we could have -- as well as we had hoped, right? Our Pros -- prior to SRS, our Pro customers tell us we have the right to win because we're providing a value proposition that no one else in the market ever has. We can sell across all product categories to that renovator/remodeler. And we know that when we're able to execute, we get that order. We're taking our time. And we're doing that because, as we build capabilities, we want to make sure we don't over-extend ourselves to our customer. We don't want to win an order that we can't fulfill with excellence. And some of those order management capabilities aren't quite there yet. So we're going to continue the expansion of what we have been building. Nothing changes there. The SRS opportunity was really a unique window in time for both of us. We've learned more and we've become more optimistic over the past few years about truly being able to address what is one of the largest end markets in the U.S. economy that has one of the most solid sets of fundamentals. And again, going back to that $45 trillion asset class, we want to sell to every residential Pro occasion. And I'd say a combination of increased optimism and attractiveness of that end market, coupled with the opportunity to acquire what we think is the best-in-class distributor in specialty trade was an opportunity we were not going to miss. So the bottom line on it is, this acquisition will accelerate our ability to grow sales and earnings per share faster with the Pro, which means faster than the base case we laid out in June.

Great. I think that's -- we actually have one more over here.

I'm just curious to hear, with other secular growth drivers to talk about for home improvement industry, do you see the industry growth rate for the next 5 to 8 years be actually higher than where it was for the last decade?

I do think that those underlying supports mean that this is one of the most attractive consumer markets in the U.S. And definitely on a comparative basis versus the general economy, I think it's advantaged from a fundamentals perspective, yes.

Great. Well, thank you very much for your time, Richard. We really appreciate it. Awesome.

Great. Thank you, Chris. Thanks to JPMorgan. Take care. Thanks, everyone.