Home Depot Exec VP and CFO Richard McPhail discusses company outlook. He speaks with Bloomberg's Matt Miller, Emily Graffeo and Nina Trentmann.
We have a special guest. As I said, the cf OH of Home Depot joins us, Richard McPhail. I guess I'll just kick it off with one to Richard. As we kind of gauge the strength of the US consumer and the housing market, you're in a perfect position to give us an outlook on both. How do we look, you know, four days ahead of Black Friday?
Well, Matt and Emily Nina, thank you for having me.
So.
Look, as we've said now for the last year or two, the US consumer remains healthy and strong and engaged in home improvement. We had a third quarter that just ended in October where we actually saw performance better than expected. Now we attribute most of that to the fact that weather was exceptional across the country.
We also have some impact from hurricanes obviously, but you know.
It's a good sign when the sun is out, customers are engaged and outdoors doing projects.
So we think the customer mindset is healthy.
Now, you know, you ask about the state of housing, there is some interplay here with home improvement.
You know, if you think about the last five years, since twenty.
Nineteen, we've seen unprecedented increases in home values and home equity. Home values up right around fifty percent since twenty nineteen, home equity positions up or right around eighty percent, and so you've seen unprecedented wealth creation in housing. What's interesting about that is typically that drives human improvement demand and home improvement spend as homeowners invest in their homes. What our customers tell us, though, is that the interest rate and environment is still sticky. You know, we actually saw mortgage rates increase since the September FED meeting.
So that's led to a this incentive for folks to move do projects.
That are oriented with moving, and if you think about those larger remodeling projects that are oftentimes financed by debt drawn against from equity positions. Our customers tell us, while those rates are decreasing slightly, they're still around eight before to eight and a half percent, and so they're saying, look, we're just gonna we're deferring large projects for the moment until.
We see what happens with rates.
So you have a healthy customer with a deferral mindset when it comes to larger projects.
Richard, maybe I can follow up on that. During our interview, we also talked about the impact of your business potentially simming from tariffs as the new administration comes in next year, talk to us a little bit about that, how you navigated that in twenty nineteen, and also how are you thinking about that going into next year.
Sure, well, first, it's too early to speculate on what the administration might might be thinking here, So we don't want to speculate in particulars. In twenty seventeen, we saw tariffs of significant.
Degree in certain classes of goods.
There were some appliances classes that saw tariff subworbs of twenty five percent. Look, that's something that we sit down with our supplier base and work through.
And so we've.
Got a lot of experience in this and we are ready for whatever in environment we're going to be operating in. Again, too early to speculate, but you know, we feel like if there's anybody who can manage through this weekend and you know, unique to the home deeperp perhaps over half of our products are actually manufactured in the United States, and so if you think about the kind of the less than half that is manufactured or sourced from foreign countries, we've been diversifying our countries of origin really for the last fifteen years we're in a different position than we were in twenty seventeen in respect to diversification.
That's something we're going to continue.
So, Richard, I'm wondering, what is the strategy to grow the business right now when we're in an environment where home sales are at the lowest level in over a decade.
How does Home Depot kind of combat that?
Well, you know, Emily that there's so much improvement we can make in our current model. We have the fifth largest e commerce business in the United States, even though folks don't normally think about that, but the uniqueness of that business is it is interconnected with our stores. Virtually all of our customers who shop online shop in our stores as well. But there still there are too many points of friction when you think about customer returns, order modifications, and the delivery experience. We're making huge gains and taking friction out of the process for our customer, but we're nowhere near where we want to be. We know if we begin to delight customers more, that absolutely translates into higher sales. Another huge opportunity for the Home Depot is with the professional contractor. Roughly half of our sales are coming from that professional contractor who's working on behalf of the homeowner. We've made significant investments in an ecosystem to really drive into that larger remodel. And so while the market is soldware remodeling, our ability to capture market share really shouldn't depend on what the external environment is.
We've invested in.
A digital experience, in rolling out a salesforce across the nation, and fulfillment assets and capabilities, networks of platbed distribution centers that will be in seventeen markets this year where we can get products straight to the job site, not even touching the store, straight to the.
Job site same day, next day.
And the uniqueness of Home Depot is while there are plenty of companies serving the pro like that, we're the only one who can serve them across all products boys so we can simplify the pros lives. And they turned us because they know that.
They can rely on us.
And I should say, actually, one thing that I think is unique to the Home Depot.
You know we're building stores again.
We really stopped in any material sense building stores in two thousand and eight. In twenty twenty three, we announced an eighty store build that will roll out over five years. By the end of this year, we will have built twenty five of those new stores, and we're so excited about what we're already seeing.
It's one of the best investments we can actually make it. Home Depot all.
Right, Richard. Great to have a little bit of time with you, and I hope we can get you back either here on Bloomberg Business Week or are you join me on my show every day nine to eleven on Bloomberg Open Interest. David McPhail there, the CFO of Home Depot,