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

[Audio Gap] Ann-Marie Campbell, our Senior Executive Vice President; Billy Bastek, our Executive Vice President of Merchandising; Jordan Broggi, our Executive Vice President of Customer Experience and President Online; Mike Rowe, our Executive Vice President of Pro; Dan Tinker our President and CEO of SRS; and Richard McPhail, our Executive Vice President and Chief Financial Officer. Following their presentations, all of our presenters will be available for a question-and-answer session. Before I turn it over to Ted, I would like to remind everyone that today's presentations made by our executives include forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to the factors identified on the slide and in our filings with the Securities and Exchange Commission. Today's presentations also include certain non-GAAP measures. Reconciliation of these measures can be found on our website. It is now my pleasure to introduce our Chair, President and CEO, Ted Decker.

Good morning, everyone. Welcome to the Sears Investor and Analyst Conference. Thank you for joining us today whether in person or virtually. Before I begin, I would like to give an extra special warm welcome to [ Ken Langone ] who is with us here today. [ Ken]. [ Ken ] is a legendary investor longtime board member of the New York Stock Exchange and of course, one of the founders of The Home Depot. Thanks for being with us here, Ken. Appreciate it. So over the course of today, you'll hear from the team how The Home Depot is uniquely positioned to grow and create shareholder value. While our market is under some pressure today, there's a lot to be excited about. We operate in one of the largest sectors in retail. It supports an enormous asset class, the $50 trillion U.S. housing market. We serve a strong customer. The addressable market is highly fragmented, and we have distinct competitive advantages to grow our share of it. Our growth strategy is straightforward and powerful, drive our core in culture, deliver a frictionless interconnected experience and win the pro. Everything we do is rooted in our enduring set of values in empowering culture. Let's start with the market. It's huge, highly fragmented and full of opportunity. We now estimate our TAM to be approximately $1.1 trillion. We estimate the consumer TAM at $500 billion in the Pro [ TAM ] at $600 billion. These figures reflect the opportunity we see across all of North America including the end markets served by our SRS and HD Supply platforms. And even though we are already the market leader in the U.S., Canada and Mexico, our market share is only around 15%. So we have tremendous opportunity to grow. Over the last 45-plus years, we've built one of the most powerful business models in the world. We are building upon a distinct set of competitive advantages. The Home Depot is an iconic brand, universally recognized for a special culture, strong values in passionate associates. Our scale is unmatched. We have the premier real estate portfolio in home improvement, and it simply cannot be replicated. And we have an unrivaled distribution network of over 2,350 stores, 1,200 branches, 325 customer-facing warehouses in a fleet of 16,000 delivery assets. We are the #1 destination for the top brands in home improvement. We have one of the largest e-commerce businesses in retail. We have built a leading supply chain network, including an efficient and flexible store replenishment model in the fastest, most reliable delivery in home improvement. And we are building on our already strong relationship with the Pro through our new Pro capabilities and through SRS, one of the largest multi-platform distributors in North America. All of these competitive advantages advance our growth strategy, drive our core and culture by supporting our associates so they can deliver The Home Depot customer experience, deliver a frictionless interconnected experience regardless of how our customers choose to engage and shop with us, in-store through our digital properties and win the pro, almost all pros shop at The Home Depot and our differentiated value proposition is earning more share of wallet. With some $1.5 billion transactions, our stores remain the core of our business. Our customers come to our stores every day to solve their problems and fulfill their dreams. That's why we're investing in our store experience and our associates to keep delivering the value proposition our customers expect. Helpful service, a broad assortment of quality products, all at a great value. In terms of service, Ann will walk you through more details in a moment, but we are empowering our associates to drive sales by enhancing our training and product knowledge, optimizing process and simplifying tasks and leveraging technology to drive on-shelf availability and productivity. In terms of product, Billy will give you the details, but I think you'll see that product remains king. Our best-in-class merchandising teams partner with leading suppliers to deliver innovation, exclusivity and everyday value. All that said, nothing speaks to the vitality of our core strategy more than our commitment to open new stores. As Richard will detail, they are performing above our expectations, and we plan to open roughly 15 to 20 new stores per year for the foreseeable future. As for our culture, it is what guided us as we revolutionized home improvement, and it will continue to guide us as our business evolves. Our values wheel is our North Star, and our inverted pyramid reminds us who matters most, our customers and our associates. Next is interconnected. Today, we have the sixth largest e-commerce site in the country generating over $25 billion in sales. As Jordan will outline, we are always improving our site and leveraging technology to make an online purchase as efficient as possible. But what makes us different is that we are a project retailer as customers work on home improvement projects, they engage with us multiple times across multiple touch points, weaving in and out of the physical and digital worlds. In other words, this is a journey across channels, so we are investing to remove friction from the interconnected journey, whether that is presale, at point of sale or after sale. A great example is delivery speed. We know that speed is key to customer satisfaction. So we've made a step function change to reduce lead times and improve service. Customers are noticing the difference and conversion and satisfaction scores are increasing with our best-in-class delivery in home improvement. Turning to the Pro. We have an enormous opportunity to grow our Pro business. As we've said, both the market and our business is about 50-50 Pro and consumer. Almost every type of Pro shops at The Home Depot, and we are building differentiated capabilities to better serve them. Our organic efforts will leverage our stores, digital properties and supply chain assets to capture more share with small to large residential Pro who shop across multiple categories. Our SRS platform services specialty trades who tend to focus on a narrow set of product categories. And our HD Supply platform services MRO Pros who focus on maintaining, repairing and renovating multifamily housing and hospitality units. Smaller Pros get most of what they need from our stores. Our key value proposition here is helping that Pro get in and out as quickly as possible. As Ann will discuss, we are relentlessly focused on this customer. We are making investments in the store experience, brands that matter, inventory and fulfillment options to elevate customer service. Larger Pros utilize us for fill-in or emergency purchases. Mike and team are building the necessary capabilities to a greater share of wallet, including a sales force, delivery capabilities, trade credit and order management to deliver the same type of service these customers get today from wholesale suppliers. Our value proposition for these larger Pros is unique. As they consolidate more of their spend with Home Depot, we can make their life simpler and ultimately speed up the cycle time of their jobs. Pros get more jobs done at a lower cost. SRS serves specialty trades. These are Pros who focus on installing one type of product like roofing or gypsum or pool equipment and need very deep assortments in their specific categories. For example, whereas Home Depot may carry up to 10 different roofing SKUs from one supplier in a store, SRS will carry up to 100 SKUs from different suppliers, several different suppliers. SRS is an extraordinary specialty platform as it has strong market positions and growth opportunities in roofing, landscape, pool and now gypsum with its recent acquisition of GMS. And to grow our share among multifamily housing managers, hotels and extended living facilities, we have the leading national MRO supplier in HD Supply. Think of HD Supply as servicing any housing unit outside of a traditional single-family home. Together, these represent a universal set of Pro assets and capabilities. This is an unrivaled set of capabilities. And as we continue to coordinate these businesses, we drive growth. By coordinating sales teams and customer lists, product categories, catalogs and inventory and supply chains and delivery assets, we are able to cross-sell larger Pros with broader product offerings and service capabilities all across the country. Mike and Dan will share some of our early wins, and we are just getting started. Technology underpins nearly every initiative and investment we make. Today, more than ever, our technology investments are not just enabling growth, they are redefining the customer experience and driving operational excellence. For years, we've levered technology across our stores, supply chain and digital assets to elevate the customer experience and drive productivity across the business. And we are increasingly leveraging data science, machine learning models in generative AI. Today, we have hundreds of AI applications in use across our business from our stores and digital assets to marketing and our supply chain, to name a few. Throughout the morning, you'll hear more about these applications from the team. Ann will discuss how computer vision in sidekick have helped us achieve a record on-shelf availability. Jordan will discuss our new capabilities such as [ Magic Apron ] and AI-driven search, which have significantly boosted online conversion. We're also applying AI to optimize delivery algorithms, both at Home Depot and SRS, resulting in more on-time and complete deliveries for our customers. Technology is a foundational capability that will enhance today. We serve a strong customer in a highly fragmented $1.1 trillion addressable market. We are well positioned to grow share through our distinct competitive advantages in operational excellence. We have a clear growth strategy and we are investing to enhance our unique value proposition in our stores, in our interconnected shopping experience and with the Pro. As a result, we will grow our market share and drive shareholder value. Again, thank you for joining us today. I'll now turn it over to our incredible leadership team. Ann-Marie, please take it away.

Good morning. I'm thrilled to be with you. Today, you'll hear a lot about our competitive advantages, our unique positioning in the market and the investments we have made and are making to strengthen our competitive advantages and drive growth. But first, I want to talk about the fundamentals of The Home Depot success; our stores, our culture and our associates. Our stores are at the heart of our business and are the vital to drive an overall company success. We have over 2,350 stores with over 470,000 associates who manage over 1.6 billion transactions every year. They serve millions of customers every single day from do-it-yourselfers to every type of pro customer. Over 80% of our sales are transacted through our stores, including purchases that are transacted online, but fulfilled through our stores and all stores manage nearly all of our returns. Our stores are at the center of our ecosystem and its orange-blooded associates and culture that brings them to life every day. That is the buzz in our stores. I've been here for over 40 years and during that time, our business and our customers' expectations have evolved drastically. But the thing that can't change is a passion for selling. Our co-founder [ Bernie ] left a legacy for us based on the culture of selling. He taught us to never lose a sale. Consumers and pro coming to our stores looking for help. Our core mission is to deliver the best customer experience through associates that have the passion knowledge and expertise to solve customers' problems and fulfill their dreams. This is The Home Depot. This is our brand. This is what differentiates us. This is who we are. This culture, this passion is why we are different. There are several critical elements to a successful store experience, including having highly tenured, passionate, knowledgeable and engaged associates. Having the brands and the products that our customers want on shelf and available for sale and having a strong fulfillment experience. We know that our knowledgeable associates differentiates us in retail. It is our goal to make work in at The Home Depot an enjoyable and rewarding experience and to create an environment where associates are engaged, continuously learning and have the tools to make their job easier and come to work excited to help customers solve their problems and fulfill their dreams. Over the last several years, we have changed the way our associates learn on the job. Training has moved from hours of sitting in the back room watching videos to a more dynamic experience through HD phones. Now through applications like pocket guide, demos on demand and certain product certifications, associates are able to access training and product knowledge quickly and easily in [ our ] driving higher associated engagement and a differentiated development experience. Over the last few years, we have invested billions of dollars in wages and benefits to ensure that we attract and retain the best talent in retail. And this year, we made a significant higher retention rates and tenure for store leadership. I am incredibly proud of this team, and we know that if we take care of our associates, they will take care of our customers and everything else will take care of itself and our investments are paying off. This year, our tenure with hourly associate is the highest it's been since 2017. We know that tenured, engaged associates deliver superior customer service, which drives better conversion rates, higher transaction values and most importantly, loyalty. One of our key benchmarks is our voice of the customer survey. Our customers tell us that our associates are more engaged and helpful than ever. And we've seen our service levels increase across all divisions and regions compared to last year. Our associates drive the most value when they're directly engaged with our consumers and pros and reinforcing our culture of selling as well as equipping them with the time, tools and training to focus on selling and helping customers lead to greater customer satisfaction. To reinforce this selling and customer service culture with our in-house associates, we are transitioning more of our store testing to a merchandising execution team or [ MET ]. This team was established almost 20 years ago and is staffed with highly tenured associates. Originally, MET's primary focus was servicing [ our days]. However, over the years, their responsibilities have grown to include executing price changes, merchandising new products, driving in stock along with [ resets ] and setting events. Their ability to execute at the highest level is best-in-class with a speed that is unmatched. In fact, this team set our holiday assortment across more than 2,350 stores in just 4 days. They are our secret weapon that leads to a better overall customer experience. We know that another critical part of delivering the best customer service and experience in the store is having the right brands in the right quantities, in-stock and on-shelf available for sale. As you know, we have been on a journey to improve our on-shelf availability for years, and we have leaned into technology investments to drive a higher OSA. We started with our overhead management tool, which gave us better visibility into palletized products in our overheads. And then a few years ago, we rolled out [ SiteKick ] and [ computer vision], which gives us greater visibility into the [ unpalletized ] product on the shelf. Together, these tools enable us to have quick and accurate visibility into our inventory position. And through these investments, we have driven better product availability. And today, our in-stock and on-shelf availability are at all-time highs. Our in-stock levels are up 60 basis points since 2023, and our on-shelf availability is up 140 basis points over the same time frame. The beauty of these initiatives is that they also drive productivity. They make it easier for associates to restock product, have greater depth of high-velocity products and maintain high on-shelf availability. As a result, we enable our associates to deliver a better shopping experience. Our stores have been a destination for Pros since 1979. And or bad proposition was simple. We have the brands, categories of our sales with the vast majority of those sales transacted through our stores. Our customer expectations, including our Pros have evolved over the years, and we have continued to invest, to enhance the store experience. We are focused on ensuring we have the [ branch ] or Pros want available for sale in the right quantities and we are developing incremental capabilities to serve them better. Later today, you'll hear from Billy about how we are the product authority in home improvement with the brands, the Pros know and trust. And Mike will update you on the capabilities that we are building outside of the store to better serve large cross-category pros. But first, I'm going to take a minute to share with you some of the exciting enhancements we're making in our stores to better serve or small to medium pros. We continue to invest in our dedicated pro team, including a Pro customer experience manager, Pro ambassador, [ lot loaders ] and other Pro sales associates to better meet the needs of our Pro while building deeper relationships. This unified pro team assist pros with their needs and serves as the main point of contact ensuring a superior and cohesive shopping and fulfillment experience for our customers. As a result, we've seen increased engagement, higher Pro sales, growth in our Pro Extra loyalty program and higher customer satisfaction scores. The beauty of these investments in our stores is that they not only enhance the shopping experience for Pros that primarily shop our stores for all their product needs but they also significantly improved the experience for our stores and large pros when they shop our store. Today, I've shared with you how we continue to invest in our stores. We have dramatically changed our customers' experience in our stores, on our website and in the various ways we fulfill product. Let me bring this to life for you with an example of one of our largest interconnected and associated assisted categories paint. A few years ago, shopping stores for paint was not as easy as it is today. While we had the brand, we didn't have the full depth and breadth of assortment that we do today. For paint, in particular, we had limited fulfillment options and we were missing key digital capabilities needed for all customers, like the ability to look at private jobs, buying paint colors previously used, determine optimal fulfillment options, whether that's buy online, pick up in store, buy online, deliver from store, vendor delivery, et cetera. Our merchants, operators and IT teams work together with incredible -- with our incredible vendor and being significant investment to evolve or paint shopping experience. We enhanced our paint desk with better in-store fulfillment capabilities expanded our assortment of best-in-class products and simplify the ordering process for our associates and pros with the introduction of [ One paint]. [ One paint ] digitally captures and save all orders, making it easy for Pro to find previous jobs, paint colors and quantities, allowing them to easily reorder regardless of where they are in the country. And because all customers in this categories are Pros who need delivery directly to the job site, we added more fulfillment options. Today, our Pros are out of the paint on the job can easily place an order with a click of a button on The Home Depot app. And because their order history is stored in a one paint system, we can quickly mix the correct color of paint and then prepare it for in-store pickup, have it delivered directly to their job site or for really large orders deliver through a [ bend ] of partners. These efforts have enabled us to drive tremendous share gain in this category, particularly with the Pro customer, and since 2019, propane sales have more than doubled, and we have examples just like this throughout the store. We know that our customer expectations will change, and we will continue to evolve our store operations and interconnected experience to deliver what our customers want, when and how they want it. The foundation of this company is anchored by our associates, but it also extends out to our local communities. One of the ways we engage with our local community is through a [ kids ] workshop, which has been a staple in our stores since 1997. These workshops create lifetime memories for customers at a level of unique loyalty to a brand that cannot be replicated. Additionally, The Home Depot Foundation works to improve the homes and lives of U.S. veteran, train new [indiscernible] people to fill the labor gap and support communities impacted by natural disasters. Since 2011, the foundation has invested more than $600 million in veterans houses and improved more than 65,000 veteran homes and facilities. The foundation has pledged to invest $750 million in veterans' causes by 2030 and $50 million in training the next generation of skilled [ trades ] people through the path to Pro program. And together with The Home Depot Foundation, tens of thousands of our associates volunteer each year through [ Team Depot ] invest in their time and sweat equity into strengthening our local communities. We know that in order to win, we must not only run a successful business but also serve our associates and customers while fostering growth in the communities where we do business. This is the power of The Home Depot. Now let me turn it over to Billy.

Good morning for being here, and thank you all for being here. Listen, I'm super excited to be here this morning and talk a little bit about how we'll maintain our position as the #1 retailer for home improvement and product authority. Being the product authority, home improvement retailer is our secret sauce. Having the right brands, quality, innovation and value are critical so we can help our customers with all of their projects. Whether it's a small home improvement project or a large-scale renovation and I can assure you that no one delivers better than us. Merchandising organization remains focused on 3 main objectives: maintaining our product authority having the best vendors with the best brands with the best innovation to drive growth and leading the retail industry in merchandising excellence. These objectives have been successfully guiding our strategies, and we remain committed to them. We are a sales-driven organization that is winning in the marketplace. Product is king, and our merchants are worldwide authorities in their categories. They are the customers' advocate for value as they select the best products and curate the right assortments in our stores and online. Those in our space may sell the same categories, but not the same products across all channels, and we have outstanding vendor relationships that help bring the best products to market. We are winning together with our vendors through a collaborative and end-to-end process that brings innovation to the market while also enhancing the customer experience. These exclusive relationships and enhanced capabilities drive growth through share gains, bringing first-to-market innovation and creating loyalty programs through product offerings that cannot be replicated. To bring this to life, let me dive into a few examples and why they matter. Earlier this year, we announced an expanded relationship with Behr to exclusively offer KILZ branded primate products in the United States. With our exclusive agreement, The Home Depot is the only home improvement big-box retailer to offer KILZ branded primer products including, KILZ original, all purpose, premium, restoration and more problem-solving primate products and aerosols. This is the primer that pros use. They'll drive past other retailers to get kills at The Home Depot. And while at our stores, they'll pick up other items for their project. This, together with all the investments we've made around the paint experience what has driven our success with the Pro that paints. Let's take a closer look. [Presentation]

We know that our customers' time is extremely valuable. So we continue to partner with our vendors on products that will save them time and offer them great value and added functionality. A great example of this is our universal select light bulb. Everyone in here has had that moment when they're trying to match a light bulb in their home, and it's a challenge to know exactly which bulb to choose. We partnered with [ Universal Select ] to develop a bulb that allows you to buy 1 light bulb and easily select wattage and color with a simple switch of the button. It has 5 settings so you can't go wrong with this 1 bulb. This innovation delivers tremendous value and makes the experience so much easier for all of our customers, and it is only available at The Home Depot. But words do not do this action, do this justice. Let's look at this in action. [Presentation]

Fantastic. We know that brands matter to our customers, particularly our access to the hundreds of tools that are connected within that ecosystem, you remain loyal to that brand. Let's take a look at hand tools and power tools. We have the brands that are customers are looking for with [ Milwaukee], Makita, DEWALT, RIDGID and RYOBI. We estimate that there are [ over 600 million ] batteries in the market today. Our assortment covers the vast majority of these batteries. In fact, more than [ 450 ] million batteries are with brands that are exclusive to The Home Depot in the big box retail channel. This structural advantage has created one of the best loyalty programs that keeps customers coming back to add to their existing battery platforms. Let's take a look. [Presentation]

These products, many of which are exclusive to The Home Depot because of our vendor relationships. And our vendors choose to be exclusive with The Home Depot because of our distinct competitive advantages allowing them to sell more products to more customers every day. But it's not just the products I highlighted a moment ago, it's across the store and across all our departments. Whether it's our unmatched deco holiday innovation, providing tremendous value with many unique or exclusive products, including our viral grand [ detest ] and our popular 12-foot [ scale ] or the [ Diablo Demon Sawblade ] with a carbide blade that has a useful life of 25x the standard blade or our extensive lineup of Pro-leading cleaning chemicals from [ Ecolab ] or our click ready cabinets providing easier and faster installation or the [ Feather River ] smart door with unique proprietary technology that instantly frosts the glass with a flip of switch to provide privacy in seconds. Our [ Den Shield Backerboard], which is a substrate for ceramic tile installation offering easier handling, which saves time and installation effort versus more traditional cement board and the list goes on and on. And the innovation we bring to the market in partnership with our vendors is unmatched. The results in Home Depot having the best differentiated product with the best features and functionality and the best value for our customers. Product remains king, and we bring this to life every day, whether it's the approximately 40,000 SKUs in our stores or the millions of additional product that can be found online with our extended aisle. We have a relentless focus to bring the most relevant product to our customers every day, and it is our unique and highly collaborative vendor partnerships that create a differentiated and over the years, the way our supply chain teams connect and the way we fulfill to our customers has changed quite a bit. The average store might stock 25 different green water heaters. For those water heaters, customers can get a very quick delivery from the store. But that's only if they live a certain distance from the store, they're selecting from 1 of those 25 and of course, we're in stock. And while 25 [indiscernible] sounds like a lot, it's really not. You've got tank size, fuel type insulation level, warranty coverages, et cetera. [ Ream ] has another 100-plus water heaters that are really important for the customer. So we get to work with [ Rem], expanding our assortment and adding more of their best products regionally in our [ DFCs], allowing for next-day delivery through our [ MDO ] last mile distribution points. Importantly, this increased our delivery coverage and speed dramatically even compared to a year ago. Historically, if we stopped it in our stores, you can get it really fast. But if we didn't, it would take anywhere between 5 and 9 days. Now with our enhanced coverage, over half of our extended aisle deliveries are now 1 or 2 days. Not only did these actions improve delivery speeds, but the wider assortment that our customers differing needs. So the combination of speed and vendors assortment meaningfully enhanced the customer experience, which also led to incremental sales. In fact, we've seen over 500 basis points of lift in sales with [ greenwater ] heaters since making these changes. This is just one example of our end-to-end collaboration with vendors, enhances the customer experience and drive sales growth across our organization. And our vendors are taking notice of how we're winning a greater share of the Pros wallet, and they want to be part of this exciting opportunity. They no longer view Home Depot as just a retailer. They see us as a strategic partner who helped them win across all channels. This shift is resulting in vendors adjusting how they do business with us. For example, in our building material categories, where there's a limited amount of inventory available, vendors are giving us a greater amount of their best product allocations because they see our growth and the investments we're making across the business and trust that we are the partner that will win. This elevated partnership is also opening new doors with new vendors and creating opportunities to sell product we haven't sold before including both Pro-specific lines and new incremental opportunities across all of retail. Whether it's building on relationships for exclusive access to products, or extending incremental opportunities via quote center that we previously have not done, all of which are benefiting our customers. And while we're a brand house and continue to be a brand destination for all of our customers, we also leverage private brands in our business where it makes sense. We strategically use private brands in categories where there's minimal brand affinity to fill gaps in our line structure and introduce innovation and we are proud of the private brand portfolio that we have built. We built billion-dollar brands, whether that's through the partnership of our global vendor partners or through brands we develop in-house. And we have consistently received high ratings across all these brands, as we strive to deliver the best product offerings in every category we sell. You've heard us talk about the art and science of merchandising for some time. What we discussed regarding our product authority and the partnerships we have with our vendors to bring first-to-market innovation for our customers, that's the art. Now let me take a moment to talk to you about what we mean when we say science. Over the last decade, we have built capabilities and invested in people, process and technology to leverage our data and develop tools to optimize our business. The investments and progress we have made empower us to win, while also accelerating our speed to market and decision-making. Our assortment and space planning processes allow us to match the right product to the right store while driving macro and micro space productivity. We are using prescriptive analytics and integrated AI tools to drive high-impact changes with greater confidence and reduced errors helping to maximize assortment and inventory productivity. That's the science. Balancing the art and science in merchandising, working with world-class vendors and ensuring we fill gaps with private label products are all critical aspects of running an exceptional merchandising team. But just as important is ensuring we have the right products on the shelf and available for sale that we have strong coordination across our stores, online and other fulfillment channels. and that our field and met merchandising teams are executing at a high level each and every day. As you heard from Ann, our in-stocks are at record levels, and we have significantly improved OSA by increasing holding capacity for our top SKUs. This ensures that we have the right product our customers are looking for and drive greater sales each and every day. You'll hear from Jordan later today about our online business, but the work our teams have done across all our channels and utilizing all of our assets, has created greater connectivity with our merchandising organizations and our stores. The [indiscernible] connectivity and emphasis on speed has allowed us to more quickly get products to our customers how and when they want the products. And our teams, including our merchants, field merchandising and MET are world-class. Our merchants are experts in the categories they own and are focused on bringing the most exciting and compelling products to our customers. This is brought to life across all our channels and in our stores through our field merchandising and MET teams. You've heard from Ann what an incredible asset our MET team is. They ensure [ Bay ] Integrity, provide seamless execution across events as well as help drive localized merchandising. And our field merchants with an average tenure of over 25 years, have deep knowledge about what's relevant for our customers in every market. These teams working together help create a consistent and frictionless shopping experience for our customers. Our vendor relationships, our product leadership position and the power of The Home Depot brand is unmatched. The Home Depot leads home improvement. We are the most trusted name in the business. We lead in home improvement knowledge, and we are a place to bring dreams and feel the power of possibility. And we're bringing this all to life for our customers through our marketing assets, whether it's [indiscernible], March Madness or this upcoming year is FIFA World Cup. Our brand will be on display like no other. Let's take a look. [Presentation]

To close, I'd like to leave you with 3 thoughts today. We are the authority in innovation. We are the authority in collaboration, and we are the overall authority in home improvement. Thank you so much. Have a great holiday, and let me now introduce Jordan.

Good morning, everyone. I'm excited to be with you today and share our progress on our interconnected experience. We built the best interconnected experience in home improvement. What's unique to The Home Depot is the combination of having the best products, store locations, associates, delivery assets and digital capabilities that come together to deliver a best-in-class interconnected experience. What you're going to hear from me today are 3 things. First, we have a powerful e-commerce site. In fact, our online business generates sales of approximately $25 billion, making us one of the largest e-commerce players across any segment of retail. Second, we have built an unmatched set of delivery assets that are woven together to get products to our customers when, where and how they want to receive them. And third, we're delivering on a frictionless, interconnected experience. Let me take a minute and define what we mean when we say interconnected. As you've heard us say many times, Home Depot is primarily a project retailer, and our customers come to us to help us -- to help them solve their project needs. And for the customer, there's not a single linear journey, but rather millions of pads across our physical and digital assets. Today, we have over 6 billion visits annually to our stores and across our digital platforms. The interconnected experience includes the entire shopping journey, everything from opening the app to checking product information, to in-store experiences, digital orders, modification, scheduling, returns across channels and customer service. Our focus is to deliver the best personalized experience every time where we understand intent, offer relevant recommendations enable assistance, deliver useful information to the buyer and simplify post-purchase interactions online and in store. The point is that our multiple channels, online, in-store fulfillment, work in a seamless way to serve customers however they choose to be served across purchase occasions. To do this effectively and consistently each time has required investment across hundreds of customer touch points, geared at improving the interconnected experience, all of which are supporting our growth. And while we don't have time to detail out all of them, they encompass everything from search to presentation of product and features to related products to understanding intent, showing more relevant recommendations to clearly showing all fulfillment options, to allowing the customer to choose how and where they want to receive the product. Today, I'll touch on a more recent area of focus that's driving engagement and sales across our business faster and more reliable delivery. Eight years ago, at our 2017 investor conference, we spoke to you about investing in our downstream supply chain assets to get product closer to the customer and increase speed of delivery. At that time, we'd envisioned a 2-day parcel delivery network. Over the last 8 years, we've added nearly 200 new facilities. Today, we have approximately 20 DFCs, which put some of our most popular SKUs close to our customers and handles parcel as well as big and bulky fulfillment. 160 [ MDOs], which are cross-dock facilities and enable us to consolidate and sort big and bulky products, such as appliances, and to extend the reach of our [ DCs]. And 17 [ FTCs], which specialize in big and bulky building materials to better serve our Pro customers while also replenishing our stores. These assets are unique in our industry and play a specific role within our supply chain. But it's the power of these assets working together in combination with our stores that leads to a supply chain network that's unmatched in our industry. Our distribution assets, combined with inventory investments and technology enhancements have significantly increased the speed of our delivery. In fact, on product that we stock, over half of our deliveries or same day or next day. That is more than a 3x increase from 2022. So whether it's a pallet of concrete, 40-gallon water heater, tape measure or a box of electrical breakers, we've gone all in on speed and our customers are responding with greater engagement. One of the big unlocks here is something we call ship from best location, which is a proprietary algorithm that looks across all of our distribution assets to optimize speed determining when, where and how to most effectively ship products to our customers. Our delivered sales have increased significantly and today, they represent approximately 30% of our overall sales. Speed of delivery is important, but there are many other factors that go into successful delivery for our customers, including product availability, reliability, communication and tracking. For example, with our Pro customers, reliability of delivery is one of the most critical factors. If a Pro does not have the product at the site complete when they need it, then their costs increase and it puts pressure on their ability to complete the project on time for their customer. At Home Depot, we can be their cross-category partner. This is why so many of them want to do more business with us and why we're building out our Pro capabilities. But perfect on-time delivery, 100% of the time is very difficult, especially in a cross-category business. There are many opportunities for failure. We've got multiple inventory pools, changes in inventory positions, inclement weather, traffic, difficult job site conditions and more. But we are laser-focused on perfect delivery for our Pro customers. In fact, instead of looking at it on time, we focus on the failures or the misses and how we eliminate them. We don't celebrate that the vast majority of our deliveries are perfect. We obsess over the misses and use each failure as an opportunity to improve our processes. By leveraging all of our assets, reengineering our fulfillment technology and processes, we have dramatically reduced our mis-delivery rate. And during a time when our delivery volumes are growing rapidly, in 2025, we will post the highest customer satisfaction for delivery in our history, and we plan to break that record again in 2026. Another area where we're seeing significant improvement in the delivery experience is in our appliance business. Greater visibility throughout the experience, real-time tracking of deliveries and improved communication have all led to greater customer satisfaction. Our nearly 160 [ MDOs ] in conjunction with the acquisition of [ TEMCO ] in 2023, a leading appliance delivery and installation company provides us greater ownership of the appliance delivery experience end to end. In addition to the progress we've made around delivery, we've also made similar strides in the customer experience across our digital assets through leveraging technology. These investments span from search, recommendations, compatibility, car building, catalog data, sourcing logic, delivery route intelligence, post-purchase support and more and whether it's from better models to faster decisioning or new interactive experiences or a combination of these, AI is accelerating our work. Let me highlight a few examples. One of the first use cases that we leveraged generative AI for was to enrich our catalog data with attributes and images that were previously too costly or cumbersome to enhance, but now can be populated through the use of various AI tools. When we created these tools in 2023, they not only helped our catalog presentation to customers, but also started a flywheel of ideas for where we could apply generative AI across the digital experience. Speaking of which, [ Magic Apron ] is a suite of proprietary generative AI products that help our customers during their online shopping journeys. We were one of the very first retailers across any segment of retail to offer an on-site generative AI experience when we release [ Magic Apron ] in October of 2024. While we knew adoption would take some time, we wanted to be front-footed on the experiential changes that we expect to happen across the shopping journey. In just 14 months, [ Magic Apron ] has since expanded its functionality, usefulness and coverage and has seen consistent growth in customer adoption. Customers use [ Magic Apron ] for that same type of [ Apron ] in-store experience but online. Whether it's for product or project inquiries, looking at customer feedback or as a shopping assistant, the customer experience has improved due to [ Magic Apron], which is translating into higher levels of conversion. Magic Apron has a tremendous amount of opportunity to continue to develop, in particular, with alternative methods for item filtering, selection and speed to transact. We're also leveraging the latest generate AI capabilities to interpret customer needs to determine intent to deliver better search results for our customers. Now AI has been used in our search and recommendation algorithms for many years. But the more recent advancement of large language models has improved our ability to understand intent as well as to contextualized recommendations and related products. These enhancements have improved our search and recommendation conversion rates and elevated the customer experience by delivering personalized and relevant content. We've also begun to use AI to assist the customer in building the project card. While Magic Apron helps describe what is needed for a full project and our recommendations have greatly improved, in particular, with compatibility. Our ambitions for assisting with a project are much greater than just front-end information. Not only have we extended Magic Apron to begin [ cart ] building, we've also made investments to build more complex baskets for our Pro customers. Last month, we announced our [ AI Blueprint ] takeoff tool, which can take a [ PDF ] set of blueprints and turn it into a quote for materials. This is a very complex use case, and the first addition of the tool has already reduced the cycle time dramatically. We're also building a simpler version into our website that will have a cycle time of just minutes or seconds. We've also dramatically improved our sourcing and delivery systems as we use AI in our algorithms to better select inventory locations and proactively identify and address high-risk orders. In this use case, AI enables much more complex decisioning that leverages not just traditional catalog and assortment data, but our own history of customer and job site complexities so that we can proactively address them and deliver an exceptional customer experience. These technologies have helped us improve the Pro delivery experience, which I mentioned earlier. We've also completely refreshed our customer chat and SMS experiences to use the latest generative AI technologies. This change replaced a deterministic bot experience with a true conversational one. Customers are now able to simply describe what they need and receive instantaneous help. So whether inquiring about a return policy or asking for a price adjustment or checking and delivery status, these experiences have become fundamentally more intuitive and the ability for our customers to self-service their needs has tripled, resulting in a better experience at a lower cost. The enhancements we're making, in particular, the ones I've highlighted today around delivery and our digital site are contributing to the growth we've seen in our online business. We're seeing the highest conversion rates in company history and an increase in customer satisfaction. All of our initiatives are leading to more habitual spending and growth in our online business. In fact, not only are we seeing accelerated online comps, we're also seeing incremental spend across channels when those customers who -- with those customers who are more frequently engaging across our capabilities. Now as you've heard today, we've made a lot of progress, but we're not done. Our goal is to be the best interconnected experience in all of retail. And we will invest to drive growth across the business, focusing on the site experience, the delivery experience and everything interconnected. Let me give you a few examples across a number of areas that we are focused on going forward. We will continue to lean into opportunities that are enabled by AI, whether that's enhancing Magic Apron for both customer and associate use cases or completely replatforming our contact center associate technology into an intelligent workflow model to rolling out a series of customer service AI agents that will take action on behalf of customers, we will continue to improve customer and associate experiences using AI. We'll also lean into our leading product authority position online. Customers trust The Home Depot more than any other retailer when it comes to our core tenets of product authority which include things like quality, innovation and relevance. This year, we're making an investment to improve the management of our extended aisle through better tooling and vendor connection so that our catalog remains the best in home improvement. We're also extending our leading catalog on a variety of agentic shopping platforms to meet the customer where they are. We're also making a significant investment in refreshing The Home Depot app, which now has approximately 20 million active users and is increasingly the tool of choice on the job site and in our stores. This refresh will make the app faster, more dependable, more intuitive, more personalized and most importantly, move it from an e-commerce application to an interconnected shopping tool built for the end-to-end customer journey. From inspiration to planning, to building projects, interaction with our stores to transacting and fulfilling to getting support. The new app will help solve our customers' problems and fulfill their dreams. We're also not done with delivery speed, delivery reliability or delivery communications. We will continue to raise the bar on speed, including more same-day and next-day availability for both parcel and big and bulky items. I previously referenced our ambitions for improved delivery reliability, particularly for those most challenging shipments, such as large complex cross-category orders. And with respect to enhanced delivery communications, we are excited to announce that this quarter, we've begun the rollout of real-time delivery tracking for bulky delivery across all categories. This enhancement will give our customers unparalleled visibility and certainty on the timing of their delivery. So whether our customer is a busy parent wanting to know how far away the appliance truck is for that new refrigerator or Pro working multiple job sites and checking to see if his lumber order is getting held up in traffic. This feature will bring a level of clarity and certainty that is completely unique cross-category bulky delivery. There's so much that we're doing that will help improve the customer experience, and we're so excited about the opportunities that are in front of us to continue building on our position as a leading interconnected retailer. Thank you.

Right. Ladies and gentlemen, we're going to take a 10-minute break. Our conference will resume promptly at 9:50. Enjoy your break. [Break]

All right. Ladies and gentlemen, we're going to get started back in 5 minutes. If you don't mind, start making your way back to your seats, and we'll get started back with our next session. [Break]

Welcome back to Home Depot's 2025 Investor Conference. We will continue our discussion with our Executive Vice President of Pro, Mike Rowe.

Be with you here today to share an update on our Pro business. And I'll discuss who our Pro customer is, the size of the market opportunity, how we're planning to win and where we're ultimately going, which is to be the destination for all residential Pro customers. Since we opened our first 2 stores in 1979, we've aspired to be the destination for Pros, having their preferred brands in job lot quantities with knowledgeable associates all under one roof. And as a result of our continued investments geared at improving their experience with us, today, over $90 billion of our annual sales come from the roughly 9 million Pro customers that we serve. To serve these Pros, we have an unmatched footprint. We have over 2,350 stores and 1,200 branches. Traditionally, Pros came to our stores for simple purchase occasions like small repairs or renovations or urgent or fill-in needs and are able to easily find the product and brands they want while getting in and out of stores quickly to get back to their job site. Most of our Pro sales today come from these transactions. And while we serve these customers well, we will continue investing to deepen our relationship with them and increase their spend with us. They are the heart of our business. Now we're going to discuss the significant growth opportunity ahead of us with the medium to large Pro that shops across categories and works on complex projects. These Pros require a different level of service than what we have offered in the past. And while the store is an important touch point, they typically require larger job lot quantities with purchases staged and delivered over time, and they benefit from a singular point of contact as well as other capabilities. And while these Pros are typically in our stores for urgent or fill-in occasions, the majority of their spend comes through planned purchase occasions over time. This customer generally falls into 1 of 3 groups: a medium to large renovator or remodeler, single-family custom homebuilder and single-family track builder. As you heard from Ted, we have an approximately $600 billion Pro total addressable market and an enormous opportunity to grow our share of wallet. We estimate that around 50% of this TAM or roughly $300 billion serves a complex purchase occasion. And while we have relatively little share today, our Pros tell us we have the right to win. In 2019, we started testing the fulfillment of large complex Pro orders from [ 1 FDC ] in Dallas to remove complex orders from our stores and improve our on-time and complete delivery performance in a more efficient operating model. As we tested this, built more FDCs and took on more complex deliveries, we started to see traction with the larger Pros working on complex projects. Well, this led us to better understand what it would really take to win, offering a unique and compelling value proposition that would make their jobs easier to manage and quicker to complete. If we could meaningfully reduce the number of suppliers they have to work with and become their partner of choice, we knew we could grow market share with these Pros. And today, many of these Pros are currently working with 30 or more suppliers to source product and to complete their projects. They have multiple salespeople to interact with. They have multiple websites to navigate, multiple deliveries to coordinate and several invoices to reconcile and their suppliers aren't open on the evenings and the weekends for emergency needs. With this process, it adds time, it adds complexity and slows down their ability to complete jobs. At The Home Depot, we have the right products, the brands and quantities required by these Pros. We can consolidate their purchases and deliveries across multiple categories with one easy-to-use website, fewer points of contact and less invoices to manage and reconcile. And there is a store conveniently located within 10 miles of most job sites in North America that carries the most critical products for Pros that is open early, late and on weekends. So we can simplify the experience for our Pros by reducing complexity, including the number of suppliers they need to transact with, saving them time and money. We've shown you a similar chart in the past. Pros working on large complex projects need an ecosystem of capabilities and services to complete their jobs. They benefit from a single point of contact, the right brands, assortment, depth and breadth, preferred pricing, order management, trade credit and interconnected and B2B experience to name a few. And all of these capabilities work in concert with our stores and distribution facilities to deliver the unique and compelling value proposition that we just described. And while we are investing across our entire ecosystem, there are 6 capabilities that are expected in wholesale distribution that we have not typically offered. We've primarily been a cash and carry business for over 45 years to better serve the cross-category Pro working on complex projects, we've invested in 6 incremental capabilities. a professional sales force, which is a sales infrastructure that includes both inside and outside salespeople. With sophisticated tools, including a customer relationship management platform that leverages AI and machine learning to give our sales teams and store associates a holistic view of the Pro, their projects and upcoming opportunities. Delivery of product directly to the job site staged over the life of the project with consistent communication between our sales associates, our drivers and Pros working on the job site, the ability to finance their project through trade credit and the ability to bill upon the delivery of goods. Preferred pricing programs that are more transparent and curated for Pro-specific needs to simplify the value proposition for our customers. The ability to modify order delivery times because jobs don't always stay on track, but also to understand customer and job site preferences once the truck arrives to the job site to improve customer satisfaction and a best-in-class digital and B2B experience that provides tools for complex project planning, advanced order tracking online and seamless integration of [ trade credit ] online and more. Today, we have many of these capabilities in some of our top Pro markets, which are all in different stages of maturity. And it's the combination of when these capabilities come together with our large multi-category assortment that we deliver on the unique and differentiated value proposition for our Pros. I'm going to introduce you to a few of our Pros who are utilizing our new capabilities so that you can hear firsthand how our ecosystem is revolutionizing the way that they complete projects. A few years ago, they were primarily shopping our stores for emergency or fill-in needs. And today, they're spending significantly more with us than they did a year ago. Why don't we roll the video and you can hear directly from them. [Presentation]

And this is just a sample of Pros. As you heard, we are offering a unique and I'm hearing more and more stories like this. And what's exciting is that we're just getting started and we are continuing to evolve our ecosystem. Now for our customers, delivery is a key capability needed. We currently have 17 flatbed distribution centers or through the utilization of these invest in delivery more broadly, we've increased job delivery. As we've optimized utilization and delivery from the FTC, we've unlocked more capacity. Earlier this year, we began deploying a new type of delivery method called [ Relay]. [ Relay ] leverages our existing FDCs to enhance our performance in our current FDC markets and broadens our reach across a greater number of markets. Here's an example of how this works in one of our top markets. Delivery drivers from our Atlanta FDCs are now able to drop off flatbed trailers overnight in certain local store parking lots, which are then delivered to the job site the following morning. This allows us to get greater coverage in our Atlanta market while also extending our reach into adjacent markets like Chattanooga, Tennessee. And we've done this in several FDCs, which has allowed us to expand into an incremental 18 markets. So we're excited to enhance our reach and serve these markets more holistically. When we first started building additional capabilities in the Pro ecosystem in 2022, we had approximately 300 sales resources. And today, we have over 1,500 across the country and are continuing to build out our teams. We've also made significant strides with our order management system. And today, we are able to reserve inventory for Pros, effectively capture delivery preferences, modify delivery times and build upon the delivery of goods. And this has enabled us to more easily manage Pro product deliveries throughout the life of their project. In fact, with our over 2,500 delivery fulfillment locations, including our stores and distribution centers, we've seen an increase in delivered sales of greater than 40% over the last 2 years. We are also leveraging SRS as we roll out our trade credit program. Pro customers tell us that it is imperative for them to have access to credit and that they are built upon the delivery of goods. Today, we have over 7,000 Pros on Trade Credit. And while early, those Pros are engaging with Trade credit are spending 30% more with us. Going forward, we will continue to roll out Trade Credit, while at the same time, working on creating greater connectivity with our stores and online, allowing our Pros to use Trade credit in an interconnected way. What is important to know is that it is not one capability, but rather the entire ecosystem working together. These are great proof points that the capabilities we are building are working. But what really drives our conviction for what this may become is the feedback we are receiving from our Pros. They aren't just engaging in capabilities. They are telling us we have the right to win in this market. And as they experience the new capabilities firsthand, their spend with us doesn't just increase, it accelerates. And while this journey takes time and we are making progress, let me be absolutely clear that the opportunity in front of us is a double-digit billion dollar opportunity. We have the strategy, we have the capabilities, we have the customers, and we will win more of their business. And we are winning in partnership with SRS. We are capturing opportunities we otherwise couldn't and have identified a multitude of cross-selling revenue synergies. This partnership exemplifies the enterprise effect where combined capabilities create greater value. And let me give you an example of an SRS roofing customer that evolved into an enterprise customer. Several months ago, SRS won a bid to supply roofing to reroof 20 homes in a subdivision. As SRS was on the job site, it became evident that the general contractor managing the large-scale renovation of these 20 homes was also in need of windows of doors and molding packages. So SRS took this opportunity to introduce its roofing customer to the full Home Depot ecosystem of capabilities, which allows us to serve as a one-stop shop for these product categories. Well, this handoff or easy introduction to the general contractor allowed us to meet the contractor, visit the site, build a quote and close a much larger sale. This is a great example of a general contractor that we have not worked with in the past on large-scale projects that has now become a regular customer of both Home Depot and SRS. And as a result, this contractor has spent hundreds of thousands across multiple categories with us today. This is one contractor and one example. And there are hundreds more across the network. In fact, over 500 of our outside salespeople have already sold jobs through SRS. Our efforts are working. Our Pros are telling us that we have the right to win. We are building a one-stop shop for our Pros, transforming wholesale just as we transformed home improvement over 45 years ago. We could not be more excited about the capabilities that we are building, and we know that we will win and grow share. And with that, I will turn it over to Dan.

It's a privilege to be here today to speak to you about SRS distribution. I've spent almost 30 years in building products distribution and what we are building here is nothing short of transformational. Today, I plan to provide an overview of SRS, how we win how we grow and how we are now stronger as part of Home Depot. So let me start by bringing you up to speed on SRS. SRS today is already on a stand-alone basis, one of the largest building material distributors servicing North America. We have over 1,200 branch locations, over 8,000 trucks capable of servicing tens of thousands of deliveries per day and a team of 18,000 dedicated associates. Part of our secret sauce is that similar to Home Depot, we have a people-first culture. We attract and retain the industry's top talent, fostering a culture of entrepreneurship that leads to hyper engaged and passionate associates, focused on delivering exceptional service to our customers. We also benefit from a very experienced management team, collectively having hundreds of years of industry experience. Our entrepreneurial spirit allows SRS to adapt quickly to local market opportunities and bring solutions to a large inside and outside sales force of thousands nationwide. Unlike Mike's team that focuses more on the cross-category Pro, we are laser-focused on specialty trade contractors like roofers, landscapers, pool builders and drywall installers. Another competitive advantage we feel we have is a leadership position in technology. We operate largely on one ERP, and we integrate acquisitions to our ERP on day 1, which most just cannot do in our industry. Our advanced digital tools from fully integrated CRM platforms to e-commerce to AI solutions result in a superior customer experience and operational efficiencies. In addition, the scale we have built affords us several advantages. First, we work with the industry's best suppliers, and our long-term partnerships ensure access to market-leading products and consistent supply. We stock these suppliers entire catalog, including every color or feature readily available for our customers. Our inventory breadth and depth is something our B2B customers rely on every day from us to earn the right to be their primary supplier partner. We also support our customers with trade credit. The extension of trade credit and homeowner financing options help fuel our customers' growth and enable them to offer homeowner solutions to facilitate larger ticket transactions. Lastly, we control the last mile logistics to deliver to tens of thousands of job sites per day with very specialized equipment that can get the contractors a complete order to them on time and boom to where they need those bulky and heavy products to be installed. Let's take a quick look at a video that will show you these delivery capabilities in action, along with some footage of a few of our distribution locations. [Presentation]

All right. As you saw in the video, we deliver building materials exactly where they are needed on the job site. We generally deliver these products to the specialty trade contractors like roofers, drywall installers, pool builders and landscapers that in turn, install them for property owners, homebuilders and general contractors. As a result, [ SRS ] enjoys a diverse customer base spanning residential and commercial markets. We have several core verticals, the largest of which is the original SRS platform that started in roofing and now has expanded to include a full line of exterior building materials, including residential and commercial roofing, siding and specialty windows and doors. In outdoor living, [ Heritage Pool Supply and Heritage landscape ] supply focus on pool supplies, hardscapes, irrigation and outdoor lighting. Basically, everything for the yard or outside the home. And our most recent addition through the acquisition of GMS is our interior building products vertical, which includes gypsum acoustical tile, steel studs, stucco, insulation, drywall tools and other complementary residential and commercial products. So on to our growth strategy. Ever since our inception, we have been maniacal about growth. We have a 4-pronged growth strategy that has served us well for the last 17 years. Our growth has been a combination of same-store sales, greenfields or new branch locations, tuck-in acquisitions and digital sales growth. First, we remain laser-focused on driving organic growth through superior service, expanding product lines, fleet and facility investments, geographic territory expansion and sales force expansion. To boost this organic growth, we also opened new branches in high-growth markets. These greenfield locations take minimal investment and generally become EBITDA positive very quickly. We do plan to open 40 to 50 new locations per year to both enter new markets and enhance our footprint in existing markets. We have also established ourselves as the acquirer of choice in our core verticals. Attractive tuck-in acquisitions will remain part of our playbook as they strengthen our geographic footprint and add complementary products to our offering. We currently have a robust pipeline of opportunities that are active within each of our existing verticals. And the fourth prong is our customer-facing digital tools that are a differentiator in the market and are delivering double-digit growth year-over-year. We plan to continue investing heavily in technology to improve customer engagement, drive sales and continue to streamline operations. As a result of this 4-pronged growth strategy, we expect to deliver above-market growth going forward. So we've been part of the Home Depot family now for 18 months. In that time, we have realized that the combination of Home Depot and SRS could not be a better fit. It's our shared vision, our people-centric approach, our similar cultures and our collective excitement around creating a unique value proposition for the Pros we serve. SRS' partnership with Home Depot exemplifies the enterprise effect where combined capabilities create greater value. Together sharing each other's respective product catalogs, leveraging each other's logistics and supply chain and each other's competitive advantages, we have been able to unlock a myriad of new cross-sell opportunities. As you heard from Mike, we've already seen success working more closely together. SRS contractors are spending more at Home Depot than ever before. They are doing this through the Pro desk and often using their SRS trade credit. And by exposing SRS' catalog through Home Depot's marketplace for bidding projects, which is called Quote Center, SSRS has been able to win more jobs across more markets. In fact, SRS' sales in Quote Center have tripled over the last 18 months. While GMS just closed in September, SRS and GMS are also already finding ways to better serve their customers and grow sales together. By bundling GMS' interior products with SRS' exterior offerings, we can now provide customers more solutions, increasing wallet share and customer retention. In addition, we are standing up a national account team to serve homebuilders, property owners and multiregional contractors. These customers had previously only been buying from HD, SRS or GMS separately. They're now choosing to bundle all 3 platforms, concentrate their spend and become enterprise-wide accounts. For example, GMS recently introduced SRS to a large national homebuilder that provided SRS the opportunity to be awarded the roofing and siding for tens of thousands of homes in 2026 alone. And we are leaning into many, many other opportunities as well. Using Home Depot's existing Pro referral program, we have created a homeowner referral program for our specialty Pro contractors. While early, we are seeing meaningful traction with those customers in the program. Lastly, as you heard from Billy, our vendor partners have recognized our strong position in the market and want to be part of our growth and success. This has created greater opportunities for us with access to new and incremental product lines all across the country. SRS is focused on becoming the leader in building products distribution in North America. Our competitive advantages, our commitment to people, our culture and customer relationships underpin our strategy for balanced growth, both organically and through targeted acquisitions. And by harnessing the enterprise effect with GMS and HD, we will deliver unmatched value to our customers and partners. Going forward, we plan to deliver mid-single-digit organic sales growth and even higher total sales growth. With a relentless focus on innovation, operational excellence and strategic expansion, we remain dedicated to consistent earnings growth and returns. SRS' unique value proposition, rooted in our people, our partnerships and our performance, make us the distributor of choice for today and for tomorrow. Thank you all. And I'll now turn it over to Richard.

Right. Morning. How you all doing? Good. Good. So thanks for being with The Home Depot team today. The Home Depot is the largest home improvement retailer in North America, and we've built a track record of leveraging our scale and competitive advantages to grow share with our consumer and our Pro customers in all markets. Today, I'll discuss current market conditions and our short-term financial outlook, the long-term drivers of home improvement demand, our plans to invest for growth and drive productivity and our recovery case. I'll start by reviewing our 2025 guidance. Today, we are reaffirming our fiscal 2025 guidance. We expect total sales growth of approximately 3% and comp sales growth to be slightly positive compared to fiscal 2024. Our gross margin is expected to be approximately 33.2%. We expect operating margin of approximately 12.6% and adjusted operating margin of approximately 13%. Our effective tax rate is targeted at approximately 24.5%. We expect net interest expense of approximately $2.3 billion. We expect diluted earnings per share to decline approximately 6% and adjusted diluted earnings per share to decline approximately 5% compared to fiscal 2024 when comparing the 52 weeks in fiscal 2025 to the 53 weeks in fiscal 2024. Now let's turn to current market conditions. We are observing several dynamics that are pressuring housing and home improvement demand at the moment. First, the elevated interest rate and mortgage rate environment since 2023 has stifled housing turnover as a result of the mortgage lock-in effect. Approximately 80% of outstanding mortgages carry rates below today's current 30-year rate of approximately 6.3% and over 70% of outstanding mortgages carry rates below 5% with an average effective mortgage rate of 4.3%. Simply put, at today's mortgage rate levels, homeowners have a significant financial disincentive to move. As a result, housing turnover has remained at historical lows since 2023, which has significantly reduced demand for projects associated with buying and selling a home. The current mortgage rate environment and the significant increases in home prices since 2019 have also impacted housing affordability. We believe affordability concerns are pushing the housing market towards equilibrium as home prices are trending towards flat on a national level and are now declining in a significant number of markets. We know that home price appreciation influences home improvement demand. And while we see these price corrections as a short-term healthy step on the way to market equilibrium, we know that pressure in home prices has an impact on our customers' intent to spend on large projects. Our customers also tell us that concerns over general economic uncertainty, including inflation, growing job concerns and higher financing costs are causing them to defer larger expenditures, including home improvement projects. Looking forward to 2026, we anticipate these pressures will persist as we have not yet seen a catalyst or an inflection in housing activity and this view is captured in our 2026 preliminary outlook. For 2026, we expect the home improvement market could see outcomes between a contraction of negative 1% to growth of positive 1%. We expect to continue to grow our market share. And so our preliminary outlook is for comp sales to range between flat to 2% growth with total sales growth of between 2.5 -- sorry, approximately 2.5% and 4.5%, reflecting the contribution of the [ GMS ] acquisition, new stores branches and tuck-in acquisitions. In the 2% comp scenario, we would expect to see deleverage and acquisition mix impact of approximately 20 basis points offset by productivity of 20 basis points, resulting in an adjusted operating margin of approximately 13% and adjusted EPS growth of approximately 4%. We will provide further detail on 2026 guidance on our fourth quarter earnings call in February. While housing is currently pressured, we believe the fundamental support for long-term home improvement demand are strong and are in a much stronger position than they were at the beginning of the last housing recovery. First, homeowners hold an unprecedented amount of equity value in their homes. Since 2019, the value of the U.S. housing stock has grown over 60% and home equity values have increased $16 trillion or approximately 80%. The housing stock is now only levered at around 27%, which was 54% at the beginning of the last recovery in 2011. Households are sitting on more dry powder to use for home improvement projects than ever before. And in the past several years, have tapped this equity at lower levels than usual during this period of high interest rates. The aging of the housing stock will be a long-term persistent tailwind for home improvement. As homes age, they require higher levels of maintenance, repair and renovation spend. The U.S. housing stock is getting older every year. In 2011, only 42% of homes were older than 40 years. Today, 55% of homes are older than 40 years. In addition, a large cohort of existing homes built in the great buildup of the early 2000s are now hitting prime years of significant repair and maintenance spending. This trend of aging shows no signs of reversing. We faced the most chronic housing shortage in modern U.S. history, with estimates of up to 5 million homes required to meet the current shortfall. This shortage will require years, if not decades at the current pace of homebuilding to catch up. And in the meantime, this shortage should support long-term home price stability and appreciation, while a catch-up wave of building would support further growth in our market. And finally, there is a tremendous amount of pent-up demand for larger remodeling and renovation projects that continues to build. We believe our industry has largely worked through the pull-forward demand we saw during the pandemic. And our customers tell us that their pent-up demand for home improvement projects has been building since 2023. This pent-up demand could be greater than $20 billion and at some point will be a significant tailwind for home improvement. As a result of these factors, we are bullish on the long-term fundamentals of home improvement demand and have consistently invested for future growth. While the capital investments we've made in our business are strategically significant, we've made these investments in a disciplined manner with CapEx remaining steady at a 2% to 2.5% rate of sale since 2017, and we intend to maintain capital expenditures of approximately 2.5% of sales moving forward. This discipline requires us to focus on only those investments that will generate the highest return among all our opportunities. I'd like to provide a little more color on where we've invested to date and where we're leaning in moving forward. Our investment program supports our strategy of driving the core, delivering a frictionless interconnected experience and winning the pro. Our strategy of driving the core is centered on our 2,359 Home Depot stores of which we own and are the hub of our customer experience. We will always take care of our stores and ensure that they reflect our brand and support a great customer experience. From 2023 to 2025, we ramped up capital significantly to support maintenance and brand standards in our existing stores, many of which were built between 20 and 25 years ago and are at an age where infrastructure refreshes are needed. Capital investment in our existing stores is now at a level we expect to sustain for the foreseeable future. Another component of driving the core and a growth vehicle for us are our new stores. In 2023, we announced plans to build 80 new stores over a 5-year period and are pleased to report that we have built 37 new stores in the past 3 years and our new portfolio of new stores is exceeding our expectations. We intend to complete our 80 store program in 2027, and we'll continue to build 15 to 20 stores per year for the foreseeable future thereafter. And now that we are on a regular cadence, we expect the capital expenditures required for this expansion to remain steady from this point forward. Turning to our interconnected experience. Our online business is an engine for growth, and we will invest in our site experience, our app and our emerging AI capabilities on an evergreen basis. And as you heard today, we've built tremendous advantages in our ability to deliver product to the home and to the job site, a cornerstone of the evolution of our customer experience. Through our investment program, we have essentially completed our [ FDC, DFC and MDO ] networks. We have sufficient capacity for years of growth and we'll now turn our attention towards unleashing the capabilities of these assets to gain share with consumers and pros. And we will continue to invest to win the Pro. You can think of our investment to win the Pro as being at the intersection of investments in our stores, our supply chain our digital experience and our technology investments. All that we do actually goes to support our entire Pro business from small pros in our stores every day to the larger Pros interacting with the elements of our entire Pro ecosystem. This investment extends to SRS. SRS now with the addition of GMS is an engine for significant growth with the Pro, and we will support their organic expansion model through the addition of 40 to 50 branches per year. Finally, technology enables everything we do, and we will continue to lean into technology and AI to drive growth, support our interconnected experience and drive productivity and operational excellence. We will make these investments to power growth while also leaning in to driving productivity to enhance our earnings power. Productivity has always been a hallmark of The Home Depot. We have continuously driven productivity across our business. Moving forward, we intend to drive higher levels of productivity in our model faster than ever before, enabled by automation and AI. We will continue to create productivity in our stores through enhanced freight flow management and more efficient tasking in our supply chain by optimizing the flow of product within our facilities across our network and in our delivery operations. And we will also continue to streamline central processes. Over the next few years, we intend to drive billions of dollars in productivity and will strike an appropriate balance between flowing that improvement through to earnings and reinvesting in the business. Now let's talk about our expectations once we see recovery in the housing market. Our market recovery case reflects our performance expectations. Once we see momentum in housing activity and increased spend on larger projects driven by pent-up demand. We believe that pressures in housing will correct and provide the home improvement market with support for growth faster than the general economy, and we expect to continue to grow faster than our market. We also believe we could see pent-up demand unlock as homeowners choose to improve in place regardless of the interest rate environment. We expect to grow faster than our market as a result of our competitive advantages and our investments. We drove similar performance for many years after the great financial crisis, and we are an even stronger competitor today than we were at that point with significant opportunities for growth through our investments in the core, in our interconnected experience, and through our Pro strategy leveraging organic investments and the acquisitions of SRS and [ GMS]. This supports a target of 4% to 5% total company comp sales growth. In addition to comp sales, we expect noncomp sales growth of approximately 100 basis points annually from new stores, new branches and tuck-in acquisitions, resulting in a target of 5% to 6% growth in total sales. Once we see recovery, we expect to drive operating profit dollars faster than sales balancing benefits from productivity and leverage between reinvestment in the business and operating profit dollar growth. We will target mid- to high single-digit adjusted EPS growth. In an accelerated recovery case, a sharper recovery in housing would drive sales and EPS growth faster than our market recovery case. Now let's talk about capital allocation. Our business generates exceptional cash flow and our capital allocation approach remains unchanged. We will use our strong cash flow generation to invest in the business first, pay the dividend; and finally, return excess cash to shareholders in the form of share repurchases. As discussed, we will reinvest in the business at the rate of approximately 2.5% of sales for the foreseeable future. This includes our new stores and our -- and SRS' greenfield expansion. In addition to our CapEx target, we will support SRS' historical strategy of making tuck-in acquisitions in their current verticals, and we expect those acquisitions to be completed at significantly lower earnings multiples than that of The Home Depot. We will continue our disciplined approach to capital allocation and expect our ROIC to grow as we grow earnings. In closing, I'd like to leave you with 4 points that reinforce why we are uniquely positioned to grow share and drive shareholder value. First, we serve a strong customer in a highly fragmented $1.1 trillion addressable market. Second, we are well positioned to grow share through our distinct competitive advantages and operational excellence. Third, we are investing to enhance our unique value proposition in our stores, in our interconnected shopping experience and with the Pro. And finally, we intend to create shareholder value through our disciplined approach to capital allocation. Thank you.

Ladies and gentlemen, we're going to take our final break of the morning. This is a 15-minute break. We're going to start back with our question-and-answer session at 11:00 promptly. [Break]

Ladies and gentlemen, we're going to get started with our question-and-answer session in just about 5 minutes. So if we'll start making our way back to our seats, we'd like to get started right at 11:00. [Break]

Ladies and gentlemen, please welcome back Isabel Janci.

We will now be moving to our question-and-answer session with the broader team. We have 3 of my colleagues from the Investor Relations team, [ John, Michael and Stuart], they will have microphones. If you have a question, please raise your hand and wait until the microphone gets to you. We want those joining us on the web to be able to hear your question. Also, please limit yourself to 1 question and 1 follow-up. And before asking a question, please state your name and the firm that you're with. Thank you. Let's get started.

Let's start with Steve.

Steve Forbes, Guggenheim Securities. [indiscernible], the 4 greenfield locations [indiscernible] even here, if you could maybe help frame the bigger picture of [ our ] opportunity as we look out over the next couple of years? I guess, one, is there a way to think about growth by vertical sort of thinking are [indiscernible] today in specialty trade space? And then you think about like the end, how many [indiscernible] state growth you see for the brand count? And what is sort of end-state centration as you look at national coverage across [indiscernible]?

Yes, it's a great question. So I would say we are basically #2 in most of the industries we serve in those core verticals we talked about. And to finish the network to have a complete coverage map, we still need hundreds of additional locations in each of the verticals, so there's significant white space. That's not just new markets. It's also expanding existing markets. It will be certainly in all 3 and has been all 3, consistently in our growth for 17 years, and in GMS' growth since they started their company. Every year in and year out, we are adding new greenfields to the -- and they're very low capital investment and they're very quick to turn to profitability. But there's not a set branch count. But if you look at some of our bigger peers in each category, you can kind of do the forward look and see how big each vision, if you will, a vertical could become. And some of that will come through M&A as we continue to acquire, like I mentioned, tuck-in and bolt-on great low family companies that give us more share or new products in a market. But also think about each vertical can grow significantly through product adjacencies like outdoor is pool and landscape heavy it is eventually going to have nursery and decking and fencing. So you start thinking about how organically can do that, and you don't need a completely different branch network to do that. Exterior same thing. We started as roofing. Now we're into siding. We're adding 100 new locations in the SRS side are adding heavy siding board just in the next 12 months alone. So again, huge organic even without the greenfields on top of products even more broad.

And then maybe a follow-up for Ted or Mike. Winning with the Pro, one of the assets up there that was highlighted was construction resources. Curious if we could maybe just take a step back and talk about how you envision that asset benefiting HD ecosystem and sort of what the outlook is for that showroom concept.

We'd love construction resources as we were preparing this material, I felt bad that we didn't highlight construction resources more and got a mention on that win the Pro slide. But that is really interior decor. And it's the same concept of simplifying the Pros points of contact to do a project. So construction resources for you that don't know that business are about 10 interior categories, so countertops and cabinets and lighting, in flooring, fashion plumbing, et cetera. And custom small builder, remodeler, an architect designer, is taking their customer to a construction resource showroom. It's almost all by appointment, and you do your product selection at construction resources and then later, that is delivered and installed. So it's the same concept of helping the Pro increase their turn time, simplify their business. It's a terrific business. It's based in Atlanta. They've opened up and done some tuck-in acquisitions as well into South Carolina, Florida, up the coast into the Northeast. And we are super, super happy with the growth prospects and growth that they've actually achieved in 2025. And that will also continue to build out and complement everything you heard about Pro. It's very much a building material focus today, but construction resources is doing the exact same thing for the interior decor-oriented space.

Yes, like you said, very pleased with what we've seen in 2025. We've had a build-out of studio in sort of Central Atlanta and Buckhead and then a larger showroom over on the West side. The intent is to expand that further into other markets is what [ Mitch ] hires the CEO of the company is seen there's just tremendous growth with that awareness. We're saying the other day that felt was known by everyone around Atlanta and -- but what the Westside showroom has done has really made them very well known and there are certain contractors that have discovered them in that period of time. And so we're looking forward to expanding it further.

Let's go to Greg in the front, please.

Greg Melich with Evercore ISI. My question was on the CapEx spending, that 2.5% of sales and then the discussion of M&A. So now that that's an important part of the growth, and we talk about it there. I think, Richard, you may have mentioned that we'll continue to do it, but it will be at prices less than we've seen in the past or multiples lower. Can you sort of frame how much a percentage of sales? Or how should we think about what would be allocated located to M&A over the next 5 years?

Sure. Pretty straightforward over SRS' history they've done, call it, low to mid hundreds of billions of dollars -- sorry, hundreds of millions -- millions. Sorry, we have been talking billion -- hundreds of millions of dollars in acquisitions. So I'd say normal [indiscernible], [ 400, 500 ] and top line that we cover [ 1 million ] in top line revenue and also in consideration. You're talking about single digit cash flow multiples, right?

Yes. Historically, most of the deal flow is in that mid- to high single digit, and that's all pre-synergy. We don't see that changing. Our capability to acquire 10 to 20 great small regional tuck-in or bolt-on acquisitions per year is certainly there. We've been doing that steadily. And again, like I mentioned, our integration capabilities are outstanding, putting everybody on our ERP literally if we close, a company on Friday on closes for inventory and opens back up on Monday on our ERP system. They don't operate on single day on their old legacy system. So we can harness synergies immediately and start putting in and installing our growth playbook. And what we're really proud of is on average, after we've owned the company for 5 years, we've more than doubled its revenue. And that's on average, of course, but that's throwing like no bad deal out over a cohort of 150 examples.

Great. And then my follow-up is just on tariffs. It didn't come up in the presentations, but obviously, we've had a lot this year on that. I'd just love to -- if you could just walk us through how you guys have mitigated it, how you've gotten through it and what you think we are now going forward? How much have we seen in inventory? How much has had to flow through or pass through in AUR or anything along those lines?

Yes, Greg, thanks for the question. We did not have any prepared materials for tariffs today. We talked a lot about it. And I would just -- I would anchor back to what won't be new for many of you. But if you think about over 50% of our goods are manufactured in the U.S. So if you start with that, our position as it relates to just the sheer percentages of that is very strong. We have a really diversified supply chain, which is not something new. We didn't start doing that in light of recent tariffs. We've been working on that for several, several years. As we mentioned on a couple of our calls now, we have passed on some modest price increases as inventory. Your question is inventory is flowed into the stores with the balance of what comes outside of the domestic product. What I would say is this, I mean, we have taken a portfolio approach, and I give a lot of credit to the merchants and the teams talked about them today. They've done an incredible job. And we are going to protect the project, no question about it. So while we passed on some modest price increases, we've done a great job when you go across our store and look everywhere in flooring and bath and so forth, we're very project-oriented businesses. We've really been laser-focused on continuing to ensure that we can keep that project at the lowest cost possible. And we've got many examples where we've been able to do that across those specific businesses.

We'll go to Simeon next.

Simeon Gutman, Morgan Stanley. My first question is on sales. If you can share what or how you informed the minus 1 market scenario. I realize it's been a few years since we've been waiting for housing to recover. It took a step back, and yet we talk about all this pent-up demand. At the same time, that 5% to 6% case in a market recovery given all of the assets that you've invested in, I would think that could be a little bit higher. We came for the Supercharge bull case here. So to think about what that looks like.

Well, so with respect to 2026, first of all, it's early. We typically love to have a full year of information before we set guidance for the following year. So we're trying to set some ranges to be as helpful as possible with the information we have today. You can look at our expectation for market performance of a contraction of negative 1 to a growth of positive 1, really just to reflect the fact that currently, the home improvement economy is more pressured than the general economy. And at the moment, we don't see a catalyst yet and haven't seen a catalyst that would change the inflection of home improvement demand. We know that there's a level of uncertainty out there in our customers' minds. We've seen the consumer confidence scores through the year. We know that there are concerns over jobs, as we talked about in the prepared remarks. And so it's really -- that range is, call it, an early point of view on the fact that our market will see more pressure on it than the general economy. And then our assumption that we will continue to grow market share regardless of the market environment is what our comp estimate for next year is based on.

But Simeon, on the bull case, I mean, we're trying to be very responsible here. When does this turn? As Richard just said, we don't know what the catalyst is near term. We use [ John Burns ] a lot, publicly available, you get his information. This time last year, he had [ 25 ] at a plus and he has [ 25 ] probably minus 1 now at this point. And that's who we use in an expectation for 26 sort of the flattish, call it, could be slightly down. But Richard used the term bullish the long-term fundamentals are still just so strong. I mean it all starts with fundamental shortage in housing, which has led to the dramatic increase in price. It's not a speculative price move in housing, like we saw right before the great financial crisis, we have up to 10 million units over the next 10 years. That will be short, that's what's supporting the price. The home is aging. Of course, homes always age. Why are we disproportionately aging? Because we're underbuilding. So your curve on age keeps getting pushed out. So there's just tremendous support for the long term in housing. The pent-up demand number, that's a function of how much is spent on an annual basis on housing in how much was spent during the COVID period. So that was the pull forward, that's why on that graph, we saw above the curve, a lot of pull forward. But now we've not only worked our way through that, but because of the underspend the last few years, again, [ John Burns ] number, $20-plus billion, which will continue to mount as homes age. So there is a great bull case that we're super and super confident in and that supports that recovery case. But when to call it in how bullish.

Do we want to be on the number? If you look the recovery from the great financial crisis, we had about an 8-, 9-year run of an annual CAGR of about 5, but it started at 3 and guidance by -- so a CAGR of 5-ish over multiple years, we would see a similar extended recovery case. It's just a matter of when that starts.

And the core business used to do incremental margins in the low to mid-20s. The building product distribution looks like it's low to mid-teens. Maybe that's not the right number. Is it not right to mix those out as we think how the margin progression of the entire entity can perform when we get to that mid-single-digit sales growth scenario?

Well, first of all, the margin structures are intact. The way to think about fixed variable and contribution of marginal profit is -- has held in our business and held in wholesale distribution. I wouldn't think so much, though, when we're talking about the other assumptions in the margin recovery. I wouldn't think about it as there's a mix shift. As much as it is, like we know that our business generates leverage at a certain point of comp sales right now, it's at 3%. After that point, what we've said and said this for a few years is we're going to make sure that, number one, we take that leverage and generate productivity in our business. And then we balance that benefit between investment in the business and driving profitability faster. And so there's not -- I wouldn't say there's a strict algorithm or a reset in an algorithm now that we own SRS and GMS. I think what they've done for us in the market recovery case is they have increased our expectations of comp sales and noncomp, by the way, right? So they are -- they have historically grown faster than the Home Depot organically over the last 15 years pretty consistently. And so we see them as a tailwind to comp and they're a platform to make bolt-on acquisitions. It's how they grow and to grow through greenfield. And so a noncomp contribution that we didn't really even call out in 2023 is now a point when you think about new stores, new branches and tuck-in acquisitions.

Let's go to Michael Lasser.

It's Michael Lasser from UBS. You outlined the factors that you are thinking about that are going to either hold back or drive a home improvement recovery over the next few years. How does the elevated indirect cost of owning a home through factors like insurance, property taxes, utilities? How does -- how do those factors influence your thinking about the timing and magnitude of a recovery from here? And then I have a follow-up.

Well, that -- so I gave to Simeon's question kind of the bullish side of the ledger of what supports housing right now, what's the issue is affordability, the fact that turnover is essentially frozen and then add general uncertainty and some of the uncertainty is for the reasons you said, broader inflation increases in property taxes and the like so in insurance. So you've got a great side of the ledger for the bull case. You have to unlock housing turnover get economic uncertainty to normalize and then people will either move and you'll get housing activity to increase or people will improve in place. The improve in place is a much bigger piece of the market. We love turnover but at the end of the day, you have 3-odd percent of the housing stock turning, you have 97% being repaired or remodeled. With the massive amount of equity in the housing, again, which is very different than when we came out of the great financial crisis. There's all the powders Richard said is dry to do that in proven place. We need to get through this general economic uncertainty, which I think we're seeing some decent signs. I mean inflation is coming down interest rates and mortgage rates have come down, tariff-driven, the fear of real spike of inflation never really materialized. I mean, inflation is now under 3%. So there are things working through that. It's just a confluence of when is there enough positive on that side of the ledger to unfreeze activity as well as get people to be confident enough to tap that equity and do larger projects. And that's what we can't call.

My follow-up question is, we, as outsiders in the past throughout the 2010s, had been accustomed to The Home Depot generating mid-single-digit comp growth, leading to more than double-digit earnings growth, in part by deploying technology to improve the productivity of the business. Today, the message is mid-single-digit same-store sales growth should lead to mid- to high single-digit EPS growth. So why is the model different than it has been in the past? And what needs to happen in order to get back to the double-digit EPS growth that we've become accustomed to?

Well, first of all, you have to look at the scale of our business. We're a very different business than we were at the earlier part of the decade. I would also say that, that part of our business' history was a great repairing of The Home Depot. We had a lot to learn about our cost position, a lot to learn about operating cost of goods sold position, cost of goods sold, evolution, operating expense leverage. That had as much to do, just sort of the point at which we were coming from than it did what we were actually doing. I'd also say that spend investment spending growth if you think about what the market environment was from 2 -- really more like 2013 to 2018, kind of the highest comp years, you had significant sustained home price appreciation and sustained elevated turnover. So the tailwinds in the housing economy were tremendous and unprecedented. And so I think when you combine those 2 things, unprecedented macro tailwind with a business that was -- I mean many of us were there learning how to generate earnings productivity. Those were the early years of that. Now today, what we see is the competitive environment hasn't gotten any easier. We're a lot bigger. We are also set with a much bigger opportunity than I think we had back in the middle of the decade. And when you look at the white space in Pro, we were not set for that and we are today. We are so much stronger than we were a decade ago. And so the point now about the earnings algorithm is, we have to make sure that we continuously invest for the future success of the company, and that really begins with top line velocity. If we don't create the best customer value prop in the market, then we're not going to win. And that value prop is selection, value. It's -- now it's delivery speed. It's site experience. It's so many things where we've got to make sure we're investing to win. So you'd say there's a combination. Number 1 of -- there's less low-hanging fruit. We run a very lean business with really some of the highest operating margins in retail history. And we're proud of that. And we also are intent on investing to win. And so that's what drives our algorithm now.

But ultimately, higher sales.

Yes. Higher sales, higher earnings -- I mean earnings. Yes.

Let's go to Chris Horvers.

Chris Horvers for JPMorgan. A follow-up question to that. Made a lot of very positive comments, investment cycles caught up. The beachhead has been built for large Pro. The store is in a great spot, it grows now at a consistent level. And you took up the sales outlook in the longer term. But the earnings growth rate is still mid- to high single digits. So that does beg the question, is the cost to do business, the cost of share just simply higher?

Well, first, in '23, we did say expectation of mid- to high single-digit growth. I think our bias is now towards the higher end of that range, but we're still setting that range. So if you can allow for some movement in those words, we do expect that the case that we've laid out today in the market recovery case has higher EPS growth than our base case assumed in 2023. And then there's just a measure of flexibility we want to make sure we maintain to invest to win in the future.

Got it. And then Dan, we get a lot of questions on what's going on in the roofing market right now. You have a competitor out there that talks a lot. And there's this view that given storms last year, no storms this year and whatever else that we have this sort of extended downturn going on in the roofing market. Can you talk about what you're seeing is? And as you think about cycles like this that you've seen in the past, how long does this typically last?

Yes, I think the biggest difference between this year and the previous few years, it is a below-average storm year. And remember, storm demand over a long period, so I'll say over the last 25 years. And again, these are large storms. And not every time it hails on 4 houses do we call out a storm, right? So big hail events, hurricanes traditionally drive only about 7% on an average year. It could be less than that, which it is this year. It can be higher than that. It usually is never more than mid-teens. So just keep that in mind for perspective. But we certainly have had some favorable years back to back ahead of this year. But even the projections that I'm hearing early from the manufacturers for next year, there's no carryover -- there could be storms that have a carryover benefit to the following year, but there's no carryover drag because as soon as storm season comes next year, we could right away in April be in an above store market environment right away. So that really -- the only near-term optics we have on demand is kind of that cycle to the end of calendar Q1 right now, which -- and that's why everybody is just kind of, I think, being pessimistic. And then you have some manufacturers just out there because there's some channel destocking that would make the [ ARMOR ] report maybe feel a little less than really out the door on our end. But certainly, we were at a really high elevated level even if it comes down low double digits, it's still producing demand above like a 20-year normal average.

Let's go to Scot Ciccarelli.

Scot Ciccarelli with Truist. I think we can generally understand the complex Pro initiatives. But are there any data points or numbers you guys can point to so we can better understand how the complex Pro efforts are working?

Well, I mean, I'd say just a couple of very high-level numbers to kind of keep in mind. First of all, if you just look at market share at the highest level since 2019, and this kind of takes all the COVID noise out of it, we've gained 120 basis points or so in [ N41]. And then we obviously keep track of companies who are competitors in the complex space. And Mike, maybe you want to talk about that.

Yes. The series of competitors that provide public information on a quarterly basis that we're able to compare to and -- if you look back over the last couple of years, you can see that they have often generated negative single-digit comps and in some quarters, negative double-digit comps. And in that period of time, our Pro sales have positively comp. And it's looking at it from an apples-to-apples standpoint, as to what are the products that they are selling compared to exactly the products that we're selling, feel that the investment that we've made around the complex Pro is one of the elements that's helping us to be stronger against that tide and have the positive comps that we've got. If I take it back to the remarks that I would have shared earlier, around trade credit has been strong for us in terms of the sales that we've generated and the lift that we've generated. We still have some work to do in order to make that a more interconnected experience, and we'll do that in 2026. It's not available online today. It's not available at the front end of our stores today. So we're looking forward to bringing that out in 2026, so that it can be seamless for the Pro in order to be able to engage. We've got some plus customers that are on that capability today, we expect that soon to be in the tens of thousands and to grow from there. We talked a little bit about delivery in my prepared remarks earlier as well and 40% growth over the course of the last couple of years for pro box and flat sales out of our FTCs and yes, out of our stores as well. Jordan touched on this before, what we've seen is some of the highest levels of customer satisfaction than we've ever seen before. And that has to do with the input metric going into that around our delivery reliability and the ability to be on time and complete. And then further, as we've learned more about the complex Pro, we want to be able to address their pricing needs better and more around transparency around our preferred pricing program. We're a little bit opaque today in terms of how the customer sees it, happy with the value that they're getting, but may not understand it completely. And so we've got a market where we've been testing changes to that, which increases the transparency. Not just for the customer itself but for the associate as well, which is great because they can get behind it within our culture of selling. And what's really important about it is the engagement that they are creating. You think about in the airline industry or in the banking industry and the ability for customers to engage more fully in terms of the rewards that they're getting. And that's the kind of capabilities that we're bringing out in 2026, far beyond this one market that we've got. So there's just kind of 3 elements of light that we're really pleased with, with the growth that we're seeing and expect more in 2026.

And then quick related hopefully. Historically, you guys are giving us some data around kind of small, medium, large pros. Can you provide any updates regarding whether it's sentiment or activity from those different customer segments?

I'll start just on [ the from ] a small properties. We talked about of our sales is from these growth they're inside our stores and they're shopping every single day, and in some cases, every single week, and we continue to invest in or small to medium Pro. And what's critical to talk about here and why we continue to invest in the resources and see the benefits of that is that over time, we save 50%, but they may be stores that are at 70%. So it's that are at 40%. And we have been very dynamic using tools behind the scenes to better understand the complexity per store and align resources. So when I speak about the Customer Experience Manager, or Pro account sales associate or the pro pain specialists or delivery specialists. We have a better understanding of what's happening in each store and making sure that we deploy the right amount of resources to really deepen the engagement. And so we have been extremely pleased with this evolution that we've had. And to Mike's point, as we build the CRM tools and we talk about pro ambassadors, those ambassadors know a lot more deeply about what's happening on the outside sales business, and they all shop our stores, so we continue to engage. So inside of our stores, that's mall to medium pro like 50% and continue to drive high levels of interactions and engagement with our stores.

Yes. And on medium to large. I mean, I gave some examples before that we're showing the benefits of the capabilities, and we're taking that further as well. And Jordan talked about this in his prepared remarks around Blueprint takeoffs that we now have using an AI tool in order to be able to do that, just launched over the course of the last number of weeks. And that's not about the Pro having to engage in AI to see how does that experience happen. It's a matter of speed. And where it was often taking us a week or more in order to be able to get those blueprints back with the quotes back to the customer, we can do that now in a day. We've invested further for the medium-sized Pro and large-size Pro in terms of our B2B experience as well with a tool called projects online, where they're able to now phase out their project over time versus they had to independently come up with separate orders in the past. Well, now that can be all under the umbrella of 1 order and depending on how that's going according to schedule with weather issues that are favorable or unfavorable, can more easily change the schedule of those deliveries. And you saw it from [ Ruben]. I think in the video, he's 1 of the biggest proponents of the digital tools that we've got. And we're seeing great take-up with our customers, engaging more and more digitally online.

Okay. Let's go to Steve from Citi.

Steve Zaccone from Citi. I had a question on cross-selling between SRS and the core kind of Home Depot business. Obviously, it's early innings, but can you talk about the opportunity there over the longer term, right, even with GMS now being a part of the platform? Like where is the opportunity to kind of combine those 2 businesses?

Maybe I'll start. I mean from a relationship management standpoint, I touched on -- and Dan touched on it both earlier some great examples of identifying where there is opportunity at the job site to do cross-selling. And that works both ways. And I mentioned, we've got 0 of our outside sales reps who have already recommended relationships that have resulted in greater sales with them. And I gave one example and there's many more that have ended up working the other way. You heard both Billy and Dan talked about quote center, which is a great application that we've had in our stores for a number of years now that often a pro is certainly where I want to be served. And then certainly for the cross-category Pro, who may not be engaging in large-scale roofing projects or large-scale drywall products, but they may need 3 bunks of drywall or 6 bunks of lumber for what they're working on versus a lot of Dan's customers because of the velocity that they've got, they will take half truckloads, full truckloads and more of that product, but the quote center application is one where these customers, these cross-category pros can come inside the stores, and they can get to a sale that's serviced through SRS because of the added services that they offer, and we saw that in Dan's video in terms of boom and scatter and kind of up to the third floor and up to the fourth floor and beyond. So both from a relationship management standpoint, working, I think, quite effectively today, happy with the application that we've got in store. And I think there is the opportunity from a CRM standpoint, to have more understanding of leads that can go back and forth between the companies, and that's what we're starting to do a little bit of discovery work today. I don't know, Dan, if you wanted to add?

Yes. The other thing I'll say is, keep in mind, a lot of our customers are getting bigger, significantly bigger. Private equity investment in contracting. Home Services is exploding the pool industry, the landscape industry, the roofing industry are now full of 30, 40, 50 different private equity firms rolling up that space. We win in that environment because they may have been just buying. They bought 3 companies, 1 in Dallas, 1 in Florida and 1 in Charlotte and they all bought from 3 different distributors. And now that they're all owned by 1 private equity, they're saying, now I need a supplier that is in all 3 markets, so I can lever that spend. So I'd say with the growth of the high-end Pro and the ability to cross-sell multiple categories, yes, [indiscernible] by roofing, a lot of gypsum installers by gypsum, but they're Keep in mind the end customer, we do see a movement from homebuilders, property management companies and large multiregional contractors to want to start moving more direct into the purchase decision-making, but also consolidate their spend in a much bigger way. Our job is to make sure we coordinate that well between Mike's team, our team and GMS' team, and that's why we're building that not only strategic account team, so we don't have confusion with the customer. They know who their relationship manager is -- and in that person, whether they started in roofing, started and gypsum or started, maybe a Mike's team with lumber now knows how to extend that offering and whatever they might want for any project. Whether it be a single-family home or remodeling project, a commercial project, a multifamily project. So we have to -- we've already stitched together all of the against the customer visibility to where we make sure we're stripping over each other on specific projects or quotes or customer relationships.

Okay. Follow-up question. The preliminary '26 outlook. Maybe help us understand, you referenced to a weaker home improvement economy. How does that factor for your outlook for DIY versus Pro? And then how does SRS growth kind of fit into that preliminary '26 outlook?

We've seen DIY and Pro behave pretty similarly, at least in our results. I think some of that is because we're taking share in Pro right, and perhaps offsetting some of the weaker market force in large project with our share capture. So there's -- I'm not going to put too fine a point on our expectation on how that splits next year. We're trying to grow both. And as you heard today, we're making investments across every single customer. With respect to SRS, maybe you want to talk a little bit, Dan, I think there's probably a misconception of -- and I heard it from several people on okay, we had some storm absence of storm pressure at Home Depot in the fall that, that impact SRS will that impact SRS next year. I don't know if that's behind your question, but I have heard it a lot. So maybe talk about the nature of what next year looks like and how [ resin ] works.

It's kind of what I mentioned earlier, the storm demand that we enjoyed at the end of last year from a smaller type size hurricane probably had a more bigger profound effect on the stores than it did us. and it was largely worked and completed pretty quickly. Now if you have a big category 5 hurricane that hits across the entire state of Florida or hits the Texas Coast, some of that demand could be elevated for us on the roofing side for 3, 4, 5 quarters. But generally speaking, if it's not a massive event like that, the contractors come in quickly, the insurance companies activate and the storms get worked pretty quickly. And think of the roof is the first thing that has to get done to protect the rest of the investment. So they're coming in there right away to get those risks done. And there's a huge cohort of roofing contractors called [ storm chasers ] that go wherever they're needed. Whether a hail what we call [ Ice Diamond's ] fall from the sky or heavy wind or hurricane [indiscernible] market, there's a lot of mobile contracts that will come in and work it quickly. So you see a quick elevation, but then it's not a -- like it's going to -- it's not like it's a pull forward a minute because it's -- again, it's mostly an insurance claim driven. And it doesn't matter if that roof was 1 year old or 20 years old when it got a storm, it's getting replaced.

And one higher level comment I would make about just the success of SRS and one of the reasons that we wanted to combine forces is the consistent track record of share capture with SRS. I just want to kind of point you toward what [ Mike Rowan ] was mentioning. Go out and look at the building products distribution companies' results this year. SRS is going to be positive comp growth. and positive total growth as well. Compare that to everything else you see out there in the space, and you'll see why we're confident that regardless of the market environment, we're going to take share at Pro.

Let's go to Peter Benedict.

Peter Benedict, Baird. Ted, curious what your Washington contacts are kind of sending you signals on in terms of potential, maybe unconventional ways to address housing affordability, housing turnover, if anything? That's my first question.

Well, I think that the government has certainly taken note that housing is in a stagnant position right now. And there are a lot of initiatives being worked and we're actively in conversations in the input phase of that. I mean, there have been things flow to like a 50-year mortgage, but there's a general understanding that we have a shortage of housing that turnover is almost frozen at the moment and there's affordability issue. So you see a lot of focus on how do we get interest rates down, which I think is tracking in the right direction. So first inflation comes down. We've lowered the Fed funds rates. We've seen mortgage rates. I think they peaked almost as high as 8%. Now we're down toward low 6s. So there are a lot of policy issues being generated, how do we build more homes, how do we build more affordable homes? How do we get interest rates down? We're engaged with a number of parties, both government and private on the idea generation of how we come together as an industry and drive more activity in housing.

No silver bullet, which again is why we don't point to '26 and say, "Oh, we've come up with the silver bullet that's going to kick this thing off in the first part of '26".

And then maybe one for George. On the -- I think you mentioned that you're going to refresh the app this coming year? Can you put the fine or tune the [indiscernible] timing there? Is that going to be out before the spring selling season? And just give us a sense of how that's going to influence kind of the DIY side of the business versus the Pro. Like what are we going to see different with the new app?

Sure. Well, it will be a phased rollout. And there's so many technical components in the app itself. Don't think of it as like a big bang on a certain date. Think of pieces kind of under the hood getting rebuilt and reworked and sort of over the course of the year coming out. On the usage of it, it is -- we have the app for both the pro and the consumer and there's a different experience for our Pro customer when they log in as a pro customer. It serves both on a relative basis, the pro over-indexes towards our app pretty significantly, as you'd imagine, with any app, the more frequent you work with that company, the more likely you are to be engaged with their app, we see that with our Pro customer, very, very heavy user and the enhancements that we have planned are going to be for both.

Let's go to Eric Bosshard.

Richard, I think you commented that the, call it, the legacy FTC, DFC MDO, those assets are built out now for where you are I'm curious on the complex Pro, which is the incremental growth emphasis of the business. You spent $25 billion to put these assets together do you now just lever all of this or to get this outsized gross on the complex Pro? Is there a need to add more investments, add more capabilities? Dan's got ambitions about categories to add? Do you need to add other assets not necessarily businesses but even distribution assets or service points.

We -- thank you. We are, in essence, built out you think about that FTC network, and that was bootstrapped and built on the backs of a new bulk distribution network. So actually, the main function of those FTCs is to replenish building materials to the stores. we added extra space to them in order to enable job site delivery. We're happy with the footprint now and we'll add -- we'll probably add 1 to 2 more over the next year or so. But any addition now of space is going to be purely volume-driven and it's going to be more market specific. Is there a specific market where this is going to work now better than delivering from the store? So the blunt answer is no. We do not feel that we need to build out further distribution assets. Obviously, greenfields will continue with SRS. But we're heads down working on how to leverage the power of these 2 businesses together. There's a little bit more IT work left on the Pro capabilities. I think people have kind of overestimated the amount of actual investment in organic Pro, The Home Depot. Call it a few hundred million has been invested in that IT base and it's largely complete. But now, yes, it's time to phase into sweating the assets, leveraging the assets. When we talk to [ John Deaton ] all the time, the Head of Supply Chain, what is the capacity of this building? We don't know because we haven't pushed our limits and pushed ourselves to solve. And you're talking about a group that figured out how to ingest $47 billion of growth in 3 years. So anyway, the answer is we do not see a build-out of physical assets required in the near future to begin to lever the power of this company.

And as I talked about earlier, what the -- relay that John's team pioneered this year that's allowing us to get into 18 more markets. Some of which are more significant markets, some of which are more adjacent markets. That's just the start of that. There will be more markets to come over time. But there's further efforts we've got to in terms of taking some congestion away from the stores. So when it comes to windows and door deliveries, they often have to go through the store that adds friction to our network and adds time and cost. And so we're going to be bringing those through our supply chain network in 2026, either through the FTCs or through the MDOs to get out to the customer. And now with GMS on board together with SRS, with the multitude of assets that they've got is the opportunity for a little bit more enterprise level ship from best location versus simply at the brand level.

Yes, I'll give you an example, too. Like one of -- since the GMS acquisition, they had a national builder buying exclusively from them other than one city because they didn't have a physical location or a DC there. And quickly, we mobilize with the supplier partner, and we put actually those gypsum assets in that market and a roofing or exterior building products location to immediately service the business and take that up. Now once that grows enough that can sustain its own standalone [ Gypsum ] location, it will eventually graduate up to that. So those are -- I know a lot of people like to think. I think sometimes don't understand like every single product doesn't have to be isolated in its own warehouse and our side of the house. So again, we can get a much broader on product assortment at the physical distribution yards we already have. So there is a lot of untapped potential in the existing network. We expect every single branch in our company to grow and outpace the market every single year regardless of what's going on. Then you add the greenfields on top, and then you add bolt-on M&A. So on our side, we do need more assets to finish the footprint. We do need -- it will be not surprising to see us add over 100 locations per year going forward just from greenfields and [indiscernible] and bolt-on in the existing group.

Yes. This is an important distinction, greenfield branches versus kind of the platforms as we thought about them at Home Depot. One of the things we should clarify is actually the return characteristics of wholesale distribution. And so if you -- I want [ Dan ] to elaborate on this, but if you take a Home Depot store in an SRS branch, the SRS branches return on invested capital is going to grow much faster, much higher than the ROIC of a Home Depot store, and we love the ROIC generation of our [indiscernible]. Maybe just talk about what a branch looks like, Dan.

Yes, I mean, a branch -- they're different in size is based on the verticals. Our Building Products group and our pool group are much larger branches, the landscape divisions a little bit smaller, and the GMS is kind of more on the upper end as well. But when we do a greenfield, it's a limited investment, but it could do several million dollars in year 1. It could be approaching double-digit millions in revenue by year 2 or year 3. And then it continues to significantly grow and mature over almost like a 10-year period to where it's getting to its full potential. So it's not like retail where you open the store and you're in that proximity and the revenue is coming in right away. You're building it slowly but significantly stronger.

On the initial outlay of an initial branch.

It's only a couple of million dollars because we're not buying our real estate. We're traditionally leasing, so the outlay and that includes working capital. Obviously, the inventory, the receivables offset somewhat by vendor trade payables that give us float. So our net working capital is very efficient. And so that allows us to, again, grow significantly tailwind markets, but even as Richard just mentioned, we're in this tough market across all of our verticals, we are significantly outpacing the competition.

Let's go to David Bellinger.

Thank you, David Bellinger from Mizuho. A question on trade credit. So you've got more than 9 million Pro customers, less than $10,000 using trade credit today. So how does that get more fully rolled out? Is that a 2026 thing? Or does that bleed out into '27 or after? And then just regarding the 30% sales uplift, what exactly is that? Is that more a project velocity going into other categories? And maybe, [ Dan], you could chime in on the importance of trade credit for SRS over the last several years?

Yes. The -- like you saw just over 7,000 customers that we've got today, there is a little bit more build out in 2026 to happen, but largely is when we expect the more accelerated growth to move from under 10,000 that we've got today to some tens of thousands throughout 2026. So I mentioned that it's not an interconnected capability today. So a Pro that is shopping online can't transact that way. They've got be in touch with their outside sales rep or their inside sales rep in order to be able to do that or go buy the Pro desk through some things that they end up buying in the store. So we're going to be providing those capabilities online. Jordan talked about the things that we're bringing online, both for the Pro and the consumer a very significant one for the Pro is to bring that online. Then as well, if there's a significant purchase that they're making in the store, to be able to go through the front end of the store as well. So we'll make it very 360 in terms of how they use that. There's some other sort of edge cases around the inability to do will calls with trade credit. And so we'll have that taken care of very soon as well. But the key is -- right now, our awareness level around trade credit is here and it needs to be here. And so together with our marketing efforts, together our pro desk in communicating the amount of those customers that you see that are on trade credit today are largely outside sales accounts managed by our outside sales force, not entirely. There are some unmanaged accounts that are done within the store. But we'll fill out those use cases. We will drive awareness, which can then lead to greater adoption by those Pros. And yes, they are largely cross-category Pros that we're serving. And it's products that we weren't getting their full share before what they were buying. You think about windows and doors, it's probably one of the best examples. In the past, they would buy from us or if they were to buy from us and often that they didn't because they would have to pay if they were using, say, their Home Depot commercial credit card or any other form of nontrade credit they would have to pay 30 days later after they bought it. But windows and doors can take 6, 8, 10, 12 weeks in order to arrive. And so therefore, they were paying us long before the product arrived to them. Now with the coordination with our order management systems and to be able to build upon the shipment of those goods or the delivery of those goods, helping them manage their cash flow better than upon arrival of those windows 10 weeks out then the 30 days ends up kicking in. And so it's those kind of products that the cross-category pro weren't -- were shying away from us because essentially they had to lend us money. And in this case, now we're getting those kind of sales, and that's a product category when we look at trade credit has sort --

Yes. And we have hundreds of thousands of contractors obviously on trade credit. So we're much more mature. Wholesale distribution companies have had trade credit for all the way back. So it's a very vital part of the business. And the larger the contractor, the obviously, the more appetite, the more consumption they need to have working capital to help fund their business. So we're very good at it, and it is an accelerant to grow. We're about 75% trade credit revenue, about 25%, what I call cash sales. We do have a tranche of customers that do not want trade credit for various distress, and that's okay, and we're fine with that. And then the other thing I'll bring out a lot of people don't realize, it isn't just giving them a credit line for [ Triple X ] contracting or [ AAA ] roofing and saying, okay, you've got a $100,000 credit line to tap into monthly to buy all your projects from us. It can also be incremental project credit line. So they are doing a stadium and they need a $0.5 million credit line just for that project. And so we would stand up a job credit that has lean rights and has protections, we make sure the general contractors license spotted all that to protect the company. So if we're extending something beyond just, I'll call it, a revolving line of credit, we have protections on that. So we're really protecting that receivable out there. But those are things that it's not as applicable to [ Mike ] side yet, but as we mature some of those cross trade pros as they get bigger and bigger, they'll eventually start wanting job credit as well, not just a --

And the last thing I'll add because you see 7,000-plus customers there. And yes, we expect it to be tens of thousands over time. But these are our most significant customers in terms of what they buy. You talk about the millions of customers that we have, but the average spend by a pro customer proctor customers better than a non-pro extra customer, but you're still dealing in around say, $10,000 for an average Pro. These are pros that are buying hundreds of thousands of dollars worth from us and enjoyed the opening up of [ Trade Credit ] and therefore, we're seeing the wallet share gain.

Great. One more on the Pro. You mentioned earlier that certain suppliers are not open on the evenings or the weekends for these emergency type needs. Is that something that we could see as a competitive edge for the Pro desk? Have you tested longer hours, weekend hours for the Pro desk and sort of an easy win for Home Depot to pick up that share?

Oh, absolutely. We are relentlessly focused on the Pro and have -- when we think about order open Monday through Sunday. And in certain markets, based on this penetration, as I said, we ensure that we look at data sets to kind of say when should we be available? So you'll go into some stores on Saturday, the pro desk is open from 6 a.m. to 6:00 p.m., right? And on Sundays, they may be open as well. And one of the things that I think is super, super important, as I mentioned in my prepared remarks, is that we have been relentlessly focus on this customer and our evolution is making sure that we understand what their needs are and that we respond to their needs. Across to 2,300 stores, you're going to have operating hours that meet the needs of the small Pro and the medium-sized Pro, and I want to lean into one more thing because Mike brought up the customer relationship management tool. And some of those Pros as we say, all pro shop for stores. And what's key about what Mike is doing and piping in to our stores, the data set, along with the capabilities like Pro trade credit. We don't want those customers to come in on a Sunday and they want to speak to someone at the desk and we're not there. So we are responding as needed, and there will be different hours based on location but we have stores that are 70% Pro penetration. They're going to operate with different hours to make sure we meet the needs of that customer. But all of our stores are always open from a.m. anyway to 9:00 p.m. and 8 to 8 on Sunday. And if we don't serve them at the Pro desk with our pro team, we'll serve them service test, and we are always there to serve our Pros.

Let's go to Kate McShane.

Kate McShane from Goldman Sachs. My first question was just back to the macro. I think in addition to well, I mean, housing turnover is the biggest driver. But there have been other macro drivers that I think you've highlighted before with regard to HELOCs coming down and the upcoming tax cuts for the middle income consumer in 2026, which could act as a stimulus. Just curious what's being assumed for those couple of items and the 2 scenarios are presented today if there can be any upside as a result.

Those are upsides for sure. So while mortgage rates haven't come down as much as the Fed funds rate, the HELOC rates have tracked the decreases in the short-term rate. And we have started to see a little more HELOC activity, $75-odd billion in the quarter but that's still way below when what was tapped back in the recovery from the -- you mentioned the tax bill. I mean we haven't put a lot of that into our assumptions. I mean you could say that somewhere probably in the minus 1 plus 1 or the flat to plus 2, but there should definitely be a boost to the consumer from the tax bill. But again, all those things are known and we're still seeing pressure on overall consumer sentiment, whether it's more in consult or University of Michigan tracking that the consumer are each down still from the start of the year. But those would be 2 positives for sure.

And then our second question was with regards to automation and how it's helping to speed your capability to delivering to the Pro site within the supply chain. Do you have a penetration level of automation or a goal of where you want to be when it comes to that over the longer term?

So there's automation, there's a lot in that. There's process improvement and I wouldn't call it automation so much, but technology-driven process improvement in the store that Ann talked about and whether it's the handhelds, directed tasking. We talked about our machine vision, our met team, which is our principal tasking team in the store. They have tremendous technology in their handhelds and how they direct and do their workflows. If you look at our supply chain, we're doing a lot of automation in supply chain and robotics. So a number of our big DFCs now have robotics that bring the product to the packing station. We're also now in pilot in one of our larger DFCs, I was just down last week where we're putting in a next level of automation in robotics to take human workflow out of the building, unloading trucks as well. with robotic arms. And then we talked a lot about delivery and the opportunity, again, not with robotics, but with technology to continue this concept of ship from best location. And this would be -- that's why we think that scale picture is so important because nobody has the set of assets that The Home Depot has between our stores our distribution facilities, our sales forces and our delivery assets. Over time, with the use of advanced technology we will be able to leverage ship from best locations. So if there is a big order, we look at that customer, the customer profile, the geography, the assets and inventory positions we have in place real-time decisioning on where that should be fulfilled. Real-time optimization, are you optimizing for customer service because you know this is one of your best pros. And it is absolutely key to get that product delivered are you optimizing for inventory level. You might take a little extra delivery cost you want to bleed some inventory down in this location? Or do you look at routing and what is going to be the quickest drive time and therefore, the lowest delivery cost. So all of that, again, not robotic, but certainly automation and machine learning and data science to how do you ship from best location satisfying the customer at the lowest cost, given all those assets.

Let's go to Max from TD Cowen.

Maksim Rakhlenko, TD Cowen. So it sounds like the expectation is maybe more trade credit and order management to be pretty scaled by the end of 2026. And then with that, I'm guessing that the outside sales force will get built out pretty quickly. So in the past, Ted, you gave, I think, a $1 billion revenue out of the flat beds. How should we think about the scaling of that $1 billion? Where do you think it can go over time? Just any parameters for us to think about.

So that was the number that Mike gave? I mean, clearly, we think this is a multibillion-dollar opportunity, $600 million pro space, $300 billion white space of those larger customers in their complex purchase occasions where they need these capabilities, right? They want to point of contact with the sales force. They want to be built upon delivery et cetera. So it's a multibillion-dollar opportunity to get the share of that $300 billion. One thing is building the capabilities and building out the supply chain as Richard said, is largely complete. I mean that big build, you see the number of facilities we have. That's largely complete. It's really a matter of awareness and adoption in repeat. And don't forget everyone now all these customers, that $600 billion space, it is being fulfilled by others right now. So as people become aware of our capabilities, give us trial in adoption, and we become the principal product supplier in that larger purchase occasion. That will take time. So as Richard said, about sweating the assets, it's largely built out, it's go-to-market get people aware, get trial win that business. And over time, this will just continue to build and allow us to get the multiple billions out of that $300 million in a platform like SRS and GMS we briefly mentioned construction resources, those are great assets because that customer truly is using us on those platforms as a wholesale supplier. So as they know that's part of the Home Depot ecosystem, that's where you get the cross-sell opportunities and the acceleration of our organic efforts.

Got it. And then, Richard, on the cost side, what do you view to be the biggest gross margin efficiencies as you look to offset some of the mix pressures?

I missed -- would you just repeat that question?

We're out gross margin efficiencies, where do you see opportunities for cost outs just as you work to offset some of the pressure?

Well, I think a lot of it comes from the supply chain automation that Ted was talking about. I mean we have a track record of decades of -- I didn't mention that when I was talking about the previous decade, but [ John and Stephanie Smith ] over there were part of building the RDC network out, right? So we have a history of driving our supply chain cost down. That's both upstream, meaning product to stores and downstream product to the job side of the home. So I think that's probably the largest area where you'll see productivity. And we -- at the same time, we've taken the stance of reinvesting that, right? I mean we are -- we want to be the customer's advocate for value. And so when you think about efficiencies and gross margin. For the most part, we've held our assumption of relatively steady gross margin. We've had a little bit of a mix shift from SRS and GMS, but when you account for that, I think you'd say the expectation is steady. We let the customer benefit from productivity that we've generated. But really, we're generating productivity across the business. And Ann's team has done just a tremendous job. If you think about where our major cost pools are they all have to do with moving product, right? I mean, it's either moving product upstream of the stores or moving product once they're in the stores to the Bay. And the level of enablement by AI in the stores has provided tremendous productivity. Again, a lot of which we've reinvested in the customer experience. But under all of it, under our expectation for operating profit growing faster than sales, there's a tremendous amount of productivity and reinvestment of that productivity.

Yes. Richard, you mentioned in your prepared remarks, the freight management tool which is a significant component as we think about go forward, how we drive productivity in the back end of our stores. We look at this productivity map what is the set of opportunities? What can we simplify, what can we eliminate and what can we automate? And in the simplification process, one of the things I spoke about is the fact that we've simplified so much of the core tasking that the MEG team can now absorb that task in from an efficiency standpoint. There is so many other opportunities within our uses of labor that we say to ourselves, these are not customer-facing activities. And as we can continue to drive the levels of efficiency, whether it be in the back end of our stores, in what we call the old book, where we used to cut money, right, or in areas that we don't see benefit or value in the customer -- direct customer engagement that's what we continue to work through. So still a ton of opportunity, especially on the back end from a point management standpoint, that work has just begun. But I am super proud of the team around using the machine learning and AI to drive the productivity across the stores we're in now met, who is like super, super talented and very, very efficient can start absorbing that task for us because of the levels of efficiency that we've driven.

Let's go to Chris from BNP.

All right. First question would just be, how do you think of leverage at this point in the cycle. By my estimates, you have about $38 billion of purchasing power at 3x leverage. You have a large competitor looking to do deals in this complex Pro space. So how do you balance the need to fill in gaps and be able to get an acquisition that you've been able to get, maybe you wait to deleverage? Just curious how you think about M&A from here and leverage.

You're talking about sorry, [indiscernible] you clarify that?

How do you think about leverage to do more deals? Like -- are you -- will leverage --

Yes, balance sheet leverage. Got it. We have a target that we've held for quite some time of being levered at 2x debt to [ EBITDAR]. That actually provides us room to be able to fund deals and SRS and GMS, which were really 2 of the largest deals we've done in our history, that financial flexibility allowed us to flex that ratio up but we do intend to delever back to 2x and hope to reach that towards, call it, the end of 2026. So that's our intention with respect to leverage.

Okay. And then on CapEx, like 2.5% of sales target, it sounds like stores will be constant. It sounds like the DC investments will slow doesn't seem that capital intensive on the branch cost per branch. So where's the differential go? Where are you ramping up investment to hold that 2.5% CapEx to sales ratio?

Well, certainly, we've ramped up stores as they've aged and then maintain that level, building new stores on this regular continuous basis, that was also a piece of the ramp-up. And then technology investments, you heard us talking a lot today about technology and machine learning and AI, et cetera. And so there's a step up in technology.

And the ramp down in supply chain didn't just happen during this year. In fact, it was -- over the last few years, that's ramped down. And then the -- as Ted says, the investment in the new stores and existing stores ramped up as an offset. So really, we have been on the kind of cusp of a steady state with respect to those categories for a while. And as Ted said, IT fills out the remainder of.

Okay. Let's go to Brian Nagel next.

Brian Nagel from Oppenheimer. So I have 2 questions. I'll just put them together and you can answer them separately. But the first question on the Pro business, and I think this is going to be a bit of a follow-up. But as we're thinking about the development of the business and what Home Depot is doing from a market share perspective, over time, will the margin profile improve? Are there scale benefits as the business grows? And then second, I guess, more on the macro environment. In the presentation we talked today about home price declines in certain markets. Historically, home price declines have been a negative. But are you looking at that dynamic as we think about the macro backdrop for maybe '26 is maybe different this time that given the affordability issues out there, home price declines could actually be somewhat of a positive?

Well, I mean, it's a double-edged sword on the home price. As you say, it's a positive in that you'll get to equilibrium. It would be a near-term offset because people are very aware of the value of their home, you want to make a larger investment in your home as you see your market, if you're living in a city or a particular part of a city that home prices are going down, where we've seen a lot of delistings, for example, that people are pulling their homes off the market because they've seen the prices drop and they just don't want to sell at that price. So longer term, equilibrium is a great thing. shorter term, some near-term pain. And I think that's what's part of the reason for '26, one of the reasons of concern is home price. When we say what's different in '26 versus '25. We've said for a long time, home price appreciation of all the things we track is one of the tightest correlation with sales. So in a year where more markets are potentially turning down, then that's part of the caution in the watch out for the potentially negative overall industry in '26. In terms of the scale question in driving profitability, absolutely. I mean, as we said, we are the largest. We're scaled across North America. Obviously, our Home Depot store business, all the things we're building with our pro organic capabilities, SRS being one of the truly largest distribution companies and not just largest but multi footprint and all the different verticals that they play in, those businesses, the retail business and the wholesale business will definitely become more profitable with scale.

And we have time for one more question. Let's go to Peter Keith.

Peter Keith with Piper Sandler. So I'll follow up on Brian's question, just on the margin. So the pre-COVID EBIT margin was 14.5%, and today, you sit at 13%. Is there a world where we have a strong market recovery and you get back to that prior peak? Or conversely, maybe the enhancements with complex Pro and wholesale distribution are lower margin and therefore prevent that?

Well, I think, as Ted said, I'll take your question backwards. There's nothing preventing any part of our business from expanding margin. SRS has a history of expanding their margin over their 15-year history, and we certainly have that same. When you're comparing to 2019, you've got really kind of 2 things. The first is just the mix of the acquired businesses, right? So you can think of if you combine SRS and GMS together on a pro forma basis, and you're not going to kind of see this anymore because it's embedded in our business. But that makes a 60 basis point difference, right? That's the mix impact of SRS. Then you look at what were outsized wage investments that we made through the period. And I'll start with what we were dealing with, and I'll tell you where we stand, sort of 2022 beginning in '23, the entire market saw incredible pressure on labor retention. We weren't immune to that. We called it. We made really kind of 3 significant step-ups in wage at The Home Depot. We now feel great about where we stand. Retention and tenure are higher than they've been since pre-COVID, right? And obviously, we'll always look to manage wage locally. But that, for the most part, is now settled, and we're in a great position. Just those 2 alone are significant impacts. And then third, I'd say is there was ramp-up alongside capital investment, as we said, you invest in IT, ramp up IT investment. You're going to have associated IT expense growing with it through that period, that was the case. I think we are -- now when you look at the CapEx to sales intent, the relatively steady profile of our investment plan. That's why when we lay out the market recovery case, we do expect to grow operating profit faster than sales, which means margin expansion.

Okay. Helpful. And then lastly, just on the competitive environment. So we'll say we're kind of coming out of -- hopefully, coming out of a housing depression, we'll call it, the last 3 years. And as the competitive environment, is it any different than the great financial crisis, where that pushed a lot of companies into bankruptcy and out of business, and it created this large share capture. Is it different now with fewer bankruptcies? Or is there more companies going out of business? And I'm curious both on the retail and as well on the wholesale distribution side?

I don't know if there's certainly nowhere near the bankruptcies on the individual homeowner or companies. I mean -- and that will influence the slope of this recovery when it starts, you can say on one hand, you could have a sharper slope because the consumer, the equity in their house -- there weren't as many bankruptcies in all the various distributors or Pros. But on the other hand, you weren't anywhere as deep of a trough to pull out of that you did in the GFC. So those would be the 2 factors that we play off in our heads, which one will have the bigger impact on the slope of this thing. A, it wasn't as deep, and b, though, people are in a much better position with all this, we know pent-up demand on spend and loads of dry powder with equity in their homes and that will be the balance that we'll have to work through to ultimately determine what the slope looks like.

This concludes our question-and-answer session. Thank you for joining us today and for your interest in The Home Depot. And thank you, first and foremost, to our executive leadership team I would also like to thank the corporate events team and our production partners. And I'd like to give a huge shout out to my incredible Investor Relations team. [ Jaco, Rachel, Luke, Don, Michael, Stuart and Frank]. Thank you. This concludes our presentation today.