Greetings and welcome to the Home Depot Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Isabel Janci. Please go ahead. Thank you, Christine, and good morning, everyone. Welcome to Home Depot's fourth quarter and fiscal year 2024 earnings. Joining us on our call today are Ted Decker, Chair, President, and CEO; Anne Marie Campbell, Senior Executive Vice President; Billy Bastek, Executive Vice President of Merchandising; and Richard McPhail, Executive Vice President and Chief Financial Officer. Following our prepared remarks, the call will be open for questions. Questions will be limited to analysts and investors. And as a reminder, please limit yourself to one question with one follow-up. If we are unable to get to your question during the call, please call Investor Relations at 770-384-2387. Before I turn the call over to Ted, let me remind you that today's press release and the presentations made by our executives include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. 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 in the release and in our most recent annual report on Form 10-Ks and our other filings with the Securities and Exchange Commission. Today's presentation will also include certain non-GAAP measures, including but not limited to adjusted operating margin, adjusted diluted earnings per share, and return on invested capital. Great reconciliation of these and other non-GAAP measures to the corresponding GAAP measures can be found in our earnings press release and on our website. Now let me turn the call over to Ted.

Thank you, Isabel, and good morning, everyone. Sales for fiscal 2024 were $159.5 billion, an increase of 4.5% from the same period last year. Comparable sales declined 1.8% from the same period last year, and our U.S. stores had negative comps of 1.8%. Adjusted diluted earnings per share were $15.24 compared to $15.25 in the prior year. In the fourth quarter, comp sales increased 0.8% from last year, and comps in our U.S. stores were up 1.3%. Adjusted diluted earnings per share were $3.13 compared to $2.86 in the prior year. In the quarter, we saw broad-based engagement across our geographies. Fifteen of our nineteen U.S. regions delivered positive comps. In addition, both Canada and Mexico reported positive comps in local currency. Our fourth quarter results exceeded our expectations, as we saw greater engagement in home improvement spend despite ongoing pressure on large remodeling projects. Throughout the year, we remained steadfast in our investments across our strategic initiatives. Despite uncertain macroeconomic conditions and a higher interest rate environment that impacted home improvement demand, our strategic priorities remain creating the best interconnected shopping experience, growing our pro wallet share through a unique ecosystem of capabilities, and building new stores. We are always improving our interconnected shopping experience. We know that our customers want faster delivery than ever before. Recall that last quarter I shared the progress we made with our investment in our downstream supply chain, including an expanded assortment in our DFCs to allow for faster delivery speeds across more products. We also began leveraging our stores to offer more delivery options. Our delivery speeds are now the fastest they've ever been, and customers are increasing their spend. Billy will take you through these results in a moment. Growing our share of wallet with our pro customers is a key part of our growth strategy. We've continued investing in our store experience, fulfillment options, and sales teams. These investments are delivering incremental sales growth, and Anne will discuss this in detail shortly. In June, we completed the acquisition of SRS, and while we've only owned them for seven months, we could not be happier with the business. The capabilities that SRS brings are both additive and complementary to our strategic efforts. As expected for fiscal 2024, SRS contributed $6.4 billion in sales for the seven months we owned them. Since we acquired them in June, they have opened over twenty greenfield locations and completed four tuck-in acquisitions. We're also focusing on many cross-sell opportunities with SRS. As an example, we've talked about the opportunity with QuoteCenter, our platform that provides real-time quote pricing and different fulfillment options for larger job lot quantities. SRS was already in QuoteCenter but not in all markets. Today, they are in nearly every market with their roofing products, and since making this change, we have seen SRS's sales in QuoteCenter more than triple. Going forward, we will continue to support SRS's momentum. We expect their organic sales to grow mid-single digits in fiscal 2025. Our real estate footprint remains one of our distinct competitive advantages. We are expanding that footprint by investing in new stores in areas that have experienced population growth or where it makes sense to relieve pressure on existing high volume stores. In fiscal 2024, we opened twelve new stores—ten in the U.S. and two in Mexico. We are seeing great results from these stores, which are outperforming our expectations. For fiscal 2025, we plan to open thirteen new stores. For fiscal 2025, we expect total sales growth of comparable sales growth of approximately one percent, and adjusted diluted earnings per share to decline approximately two percent. We remain excited about all our growth opportunities, and we feel confident that the investments we are making will set us up for continued success. I want to close by thanking our associates for their hard work and dedication to our customers in the fourth quarter and throughout the year. Our results reflect strong execution by our stores, merchants, and supply chain teams, as well as our vendor partners as they remain focused on delivering value and service to our customers. With that, let me turn the call over to Anne.

Thanks, Ted, and good morning, everyone. Our thoughts continue to be with everyone impacted by hurricanes Helene and Milton, as well as the devastating fires in Los Angeles. We are here as these communities rebuild with our associates and suppliers who consistently go above and beyond to serve our customers, and I want to thank them for all that they do. As you heard from Ted, growing our share of wallet with the pro is a key part of our growth strategy, and I'd like to take a moment to talk more about the progress we've made. For the quarter, all OPRA cohorts were positive. It is clear that our initiatives are working. Over the last few years, we've made investments in our stores, as well as through our pro ecosystem to improve the shopping experience for all of our pros, regardless of their purchase occasion. Whether they are shopping in store, online, or getting delivery from stores or distribution centers, we know that nearly all pros shop for stores. Over the years, we have been investing across our stores to simplify and enhance the in-store shopping experience through investments in our preschool process and technology to increase on-shelf availability, investments in inventory to provide a deeper assortment and job lot quantities in core SKUs, enhancements in our labor model, and the introduction of CSMs, or dedicated customer experience managers, and the development of selling tools to provide better insights for our associates to serve the pro. In addition to these in-store investments, our investments in the FTC network have improved the in-store experience by taking many deliveries out of the store, which reduced clutter in the aisles from staged orders. As a result, our in-stock levels have improved and our associate availability is higher. The FTC has also enabled faster delivery, expanded fulfillment options, and more consistent on-time and complete delivery of larger orders directly to the job site. We also continue to build out a more comprehensive set of capabilities in our Pro ecosystem. These capabilities include a broader and deeper assortment of products in the FTC, dedicated sales teams that provide a higher level of service, enhanced selling tools with CRM capabilities to better serve our customers, additional digital capabilities through a B2B website, loyalty, and preferred pricing programs. It is all of these capabilities, as well as enhancements in-store, that have really allowed us to win a greater share of wallet with all our pros. Our initiatives are resonating with pros, and not only are we gaining traction with larger pros that work on complex projects, we're also seeing a meaningful lift in sales with all pros across all purchase occasions. In fact, these investments have driven over $1 billion in incremental sales on an annualized basis in seventeen markets. Even in these seventeen markets, we are in different stages of maturity, and there is still a lot to do to better serve all our pros, from improving our delivery experience to developing new capabilities like trade credit and order management to leveraging SRS and enhancing connectivity with our stores. We know that as we invest across all of our assets, it will allow us to more uniquely serve the pro. We have a lot to be proud of this year. We continue to focus on delivering the best customer experience in home improvement. We've seen great associate engagement and historically high retention rates. Our safety performance was exceptional, and we've made significant progress in shrink driven by our company-specific initiatives. All of these efforts are positioning us well and will allow us to continue to grow with all of our customers. Thank you. And with that, let me turn the call over to Billy.

Thank you, Anne, and good morning, everyone. I want to start by also thanking all of our associates and supplier partners for their ongoing commitment to serving our customers and communities. As you heard from Ted, our performance during the fourth quarter exceeded our expectations, as we saw broader engagement across home improvement-related projects. In addition, we also saw incremental sales as a result of the ongoing hurricane recovery effort. However, the higher interest rate environment continues to pressure larger remodeling projects. Turning to our merchandising department, comp performance for the fourth quarter: ten of our sixteen departments posted positive comps, including appliances, indoor garden, lumber, power, building materials, paint, outdoor garden, storage, hardware, and plumbing. During the fourth quarter, our comp transactions increased 0.6%, and comp average ticket increased 0.2%. Inflation from core commodity categories positively impacted our average ticket by approximately twenty basis points driven by inflation in lumber and copper wire. Additionally, during the quarter, we continued to see our customers trading up for new and innovative products. Big ticket comp transactions—those over a thousand dollars—were up 0.9% compared to the fourth quarter of last year. We were pleased with the performance we saw in categories such as appliances, building materials, and lumber. However, we continued to see softer engagement in larger discretionary projects for customers typically using financing to fund the project, such as kitchen and bath remodels. During the fourth quarter, both pro and DIY comp sales were positive, with pro outpacing the DIY customer. In the fourth quarter, we saw strength across many pro-heavy categories like gypsum, decking, concrete, and fencing. Turning to total company online sales, excluding the impact of the extra week compared to the fourth quarter of last year, there are a lot of drivers to our online success, from the focus on continuously improving the shopping and browsing experience to enhancing the delivery and post-delivery experience, leveraging AI to enhance our chat features, product descriptions, and creating rating summaries for our customers. This quarter, I'd like to talk more specifically about delivery. As you heard from Ted, we remain focused on continuing to improve our interconnected experience, and we have made significant progress on the delivery experience for our customers. We have invested in a broader assortment across our nineteen DFCs, established partnerships with third-party last-mile providers, and made technology improvements across our two thousand plus stores to better utilize all of our assets for the benefit of our customers. Today, we have the fastest delivery speeds across the greatest number of products in company history. Our customers also have more fulfillment options than ever before. They can choose what they want when they want, including same-day and next-day delivery. We know that driving a superior customer experience, including speed of delivery, drives greater customer satisfaction, higher engagement, higher conversion rates, and ultimately, more sales. We've seen customers who engage in our delivery capabilities meaningfully increase their overall spend with us across all purchase occasions and channels. During the fourth quarter, we hosted our appliance gift center, decorative holiday, and a Black Friday event. We saw strong engagement across all of these events, with our appliance and gift center events posting record sales years. We're looking forward to the year ahead, particularly with the spring selling season right around the corner, and we have a great lineup of new and innovative products from live goods to outdoor power equipment. We continue to see an industry-wide shift from gas-powered to battery-powered tools, and we have been leaning into this trend for some time. We have the brands that matter most to our customers, including Ryobi, Milwaukee, DeWalt, and Makita. In our spring gift center event, we will provide our largest assortment of battery-powered products with longer run times and enhanced performance across a number of battery lines, including Milwaukee M18, DEWALT XR, and Makita LXT, to name a few. We're also excited about our live goods program. Each year, our merchants partner with a wide network of regional and local growers to ensure that our customers have new and improved varieties in the right localized assortment to enhance the overall garden experience. Investing in our relationships with our growers will allow us to continue to drive innovation to meet our customers' needs and improve their shopping experience while building loyalty to Home Depot. As we look forward to spring, we are excited about continuing to provide a broad assortment of best-in-class products that are in stock and available for our customers when and how they need it. With that, I'd like to turn the call over to Richard.

In the fourth quarter, total sales were $39.7 billion, an increase of $4.9 billion or approximately fourteen percent from last year. Fiscal 2024 included a fifty-third week, which added approximately $2.5 billion in sales for the quarter and the year. During the fourth quarter, our total company comps were positive 0.8%, with comps of negative 1.7% in November, positive 6.6% in December, and negative 2% in January. Comps in the US were positive 1.3% for the quarter, with comps of negative 2% in November, positive 8% in December, and negative 1.4% in January. It is important to note that holiday shifts positively impacted December while negatively affecting November and January. Our results for the fourth quarter include a net contribution of approximately $220 million in hurricane-related sales, which positively impacted total company comps by approximately sixty-five basis points for the quarter. Additionally, foreign exchange rates negatively impacted total company comps by approximately seventy basis points for the quarter. For the year, our sales totaled $159.5 billion, an increase of $6.8 billion or 4.5% versus fiscal 2023. For the year, total company comp sales decreased 1.8%, and US comp sales decreased 1.8%. In the fourth quarter, our gross margin was approximately 32.8%, a decrease of twenty-five basis points from the fourth quarter last year, reflecting a change in mix as a result of the SRS acquisition, which was in line with our expectations. For the year, our gross margin was an increase of approximately five basis points from last year, which was in line with our expectations. During the fourth quarter, operating expense as a percent of sales increased approximately thirty basis points to 21.5% compared to the fourth quarter of 2023. Our operating expense performance was in line with our expectations. For the year, operating expenses were approximately nine percent, representing an increase of seventy-five basis points from fiscal 2023. Our operating margin for the fourth quarter was 11.3% compared to 11.9% in the fourth quarter of 2023. Excluding intangible asset amortization in the quarter, our adjusted operating margin for the fourth quarter was 11.7% compared to 12.1% in the fourth quarter of 2023. Our operating margin for the year was 13.5% compared to 14.2% in 2023. Excluding intangible asset amortization, our adjusted operating margin for the year was 13.8% compared to 14.3% in 2023. Interest and other expenses for the fourth quarter increased by $150 million to $608 million due primarily to higher debt balances than a year ago. In the fourth quarter, our effective tax rate was 22.9% and for the year was approximately 23.7%. Our diluted earnings per share for the fourth quarter were $3.02, an increase of approximately 7% compared to the fourth quarter of 2023. Diluted earnings per share for fiscal 2024 were $14.91, a decrease of 1.3% compared to fiscal 2023. Excluding intangible asset amortization, our adjusted diluted earnings per share for the fourth quarter were $3.13, an increase of approximately 9.4% compared to the fourth quarter of 2023. Adjusted diluted earnings per share for fiscal 2024 were $15.24, essentially flat compared to fiscal 2023. During the year, we opened twelve new stores, bringing our store count to two thousand three hundred forty-seven at the end of fiscal 2024. Retail selling square footage was approximately two hundred forty-three million square feet, and total sales per retail square foot approximately six hundred dollars in fiscal 2024. At the end of the quarter, merchandise inventories were $23.5 billion, up approximately $2.5 billion versus last year, and inventory turns were 4.7 times, up from 4.3 times last year. Turning to capital allocation, during the fourth quarter, we invested approximately $1.1 billion back into our business in the form of capital expenditures. This brings total capital expenditures for fiscal 2024 to approximately $3.5 billion. During the year, we paid approximately $8.9 billion in dividends to our shareholders. Today, we announced our board of directors increased our quarterly dividend by 2.2% to $2.30 per share, which equates to an annual dividend of $9.20 per share. Finally, during fiscal 2024, we returned approximately $600 million to our shareholders in the form of share repurchases. Computed on the average of beginning and ending long-term debt and equity for the trailing twelve months, return on invested capital was approximately 31.3%, down from 36.7% in the fourth quarter of fiscal 2023. Now I'll comment on our outlook for 2025. As you heard from Ted, we feel great about the investments we made in 2024, the progress we've made throughout the year, and the significant opportunities we have as we look ahead. While there are signs that the home improvement market is moving towards normalization, uncertainties still remain. As we look ahead to fiscal 2025, we expect the underlying momentum in the business that we saw in the back half of 2024 to continue into 2025. However, we are not assuming any meaningful changes to the macroeconomic environment. We expect our consumer will remain healthy. We are not assuming a change in the rate environment nor improvements in housing turnover. As a result, we would expect continued pressure on larger remodeling projects. Given these factors, our fiscal 2025 outlook is for total sales growth to outpace sales comp with sales growth of approximately positive 2.8% and comp sales growth of approximately positive 1%. Compared to fiscal 2024, total sales growth will benefit from the SRS acquisition, the new stores we opened in fiscal 2024 and plan to open in fiscal 2025. For the year, we expect SRS to deliver mid-single digit organic growth. Our gross margin is expected to be approximately 33.4%, essentially flat compared to fiscal 2024. Further, we expect operating margin of approximately 13% and adjusted operating margin of approximately 13.4%. This primarily reflects natural deleverage from sales and continued investments across the business, as well as reflecting the mix impact from the SRS acquisition. Our effective tax rate is targeted at approximately 24.5%. We expect net interest expense of approximately $2.2 billion. We expect our diluted earnings per share to decline approximately 3% compared to fiscal 2024 when comparing the fifty-two weeks in fiscal 2025 to the fifty-three weeks in fiscal 2024. We expect our adjusted diluted earnings per share to decline approximately 2% compared to fiscal 2024. On a fifty-two week basis, it would be essentially flat compared to fiscal 2024. We plan to continue investing in our business, with capital expenditures of approximately 2.5% of sales for fiscal 2025. We believe that we will grow market share in any environment by strengthening our competitive position with our customers and delivering the best customer experience in home improvement. Before opening the call for questions, we are pleased to announce that we will be holding an investor conference on December 9, 2025, in New York City. We will share more details in the future, but for now, please hold the date. Thank you for your participation in today's call. Christine, we are now ready for questions.

Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of Laura Ng with Morgan Stanley. Please proceed with your question.

Good morning. It's Simeon Gutman from Morgan Stanley. My first question is on the macro housing backdrop and the ingredients to a one percent comp. Existing home sales look like they're set to grow mid-singles. If that's the case, home improvement demand could arguably be a little stronger than maybe a one comp or whatever assumption you're using. What's your take on that? I know Richard said we're not assuming any improvement in turnover. Is there anything changed about your forecast due to people staying in their homes longer and rates being stubborn?

Hi, Simeon. Yes. At this point, while we've seen a little life in turnover in Q4, we're not expecting a meaningful increase from that forty-year low. We've likely reached the bottom of housing turnover at about three percent of units. However, we're not expecting a big rebound nor significant increases in new housing starts. However, if you just step back, I mean, if you look at our customer, they remain very healthy. We look at our customer today; they have an average income of about one hundred ten thousand dollars. Those incomes have been growing. We've talked about the increase in home equity values, which are up fifty percent since the end of twenty nineteen and the wealth effect through the stock market and other investments. So our customer is very healthy, and as you say, if they're staying in their homes longer, they will take on larger remodeling projects as opposed to moving—those that are locked into lower interest rates or not wanting to get mortgages with the higher rates. But we are not anticipating a large decrease in mortgage rates. It will be more an issue of consumers getting used to these higher rates and taking on a larger project, which is usually financed. We have started to see a little increase in cash-out refinances as well as draws on HELOCs. But there's literally trillions of dollars of equity built up in U.S. housing. As homes continue to age and people stay in those homes, realizing that we're highly unlikely to see the low interest rates we saw over the past two to three years, they'll eventually tap that equity and undertake larger remodeling projects. We are just not sure that turn comes in twenty twenty-five at a dramatically accelerated pace. To follow up on the one percent, just to explain that, Simeon, obviously, this is a triangulation. We look at exit run rates of the business, and as we said, keep in mind that Q4, while certainly showing signs of momentum, growing from Q3, still had some benefits from hurricanes that won't fully repeat in twenty twenty-five. So a slight dampening of the run rate and then the assumption of continued pressure on larger projects, with the shape of the year increasing slightly through the year, which also includes the inclusion of SRS in our comp. You'll see them in our comp for the last seven months of the year.

K. That's helpful. The follow-up: if comps do end up being a little stronger than one, does each point flow through at this ten points of leverage to the margin? Is there a scenario—whether it's, you know, better DIY, more pro, more complex projects, or do you spend more? Is there a mix shift that could alter that relationship above one?

No. I think, look, the ten basis points is a good rough estimate of leverage from that point.

Our next question comes from the line of Christopher Horvers with JPMorgan. Please proceed with your question.

Good morning, everybody. I wanted to go at a similar kind of question, maybe on a different angle. Appliances were up. You know, was that volume-driven? To what extent do you think the category was up versus Home Depot continuing to gain share? As you look forward, the replacement cycle dynamics should get better from fourth-quarter levels. You'll be five years out now. Ted, you've talked about in the past that every well was painted in the U.S. and twenty twenty, but we're getting further from there. So doesn't that replacement part of the business further accelerate? I'm curious if you would say, like, well, you know, x percent of the business is replacement versus y percent is, you know, more like big-ticket remodel, which would, you know, we expect to continue to be an anchor.

Sure, Chris. Let me make a broad comment, and then Billy can give some detail on particular categories. Look, if we just step back and look at this quarter, we're happy with it. Sales exceeded our expectations, and we're happy with positive comps, obviously, for the first time in two years, and particularly happy with positive transaction comps, which have been negative for over three years. Engagement in repair and smaller updates and decor-oriented updates is strengthening, and Billy can give some detail on the categories. Yeah, you know, as Ted mentioned, the broader base performance I talked about—ten of the sixteen departments that posted positive comps—we had an outperform, Chris, as you mentioned, in appliances in our gift center business, where we had record sales candidly in those areas across the store. So we had a healthy balance of transactions and unit performance, which, as Ted pointed out, we haven't seen in a while. With that said, there’s still pressure in finance projects. We had great performance across many of our pro-heavy categories. I mentioned gypsum, decking, concrete, and fencing. While there was some hurricane impact, we are pleased with the broad base of performance not only across the merchandising department but certainly across the country. But there's just no denying the deferral that we're still seeing. We are pleased with the pull forward that we think is largely behind us at this point, and so all those things bode well, but still the pressure in some of the more finance projects is still continuing to exist.

Got it. And then, Richard, can you talk about the monthly U.S. comps adjusting for the holiday shift? There have been a lot of questions, I think, over the past five, six weeks on what's going on with the consumer. I saw F and D talk about a slowdown relative to what they saw in the fourth quarter, and they talked about weather. So can you talk about whether you think that the weather had any influence on the business in January, and any comment on exit rate? Thanks very much.

I think that, so, you know, the monthly progression was absolutely influenced by holiday shifts. Again, to the benefit of December and to the detriment of November and January; but no doubt weather was horrible in January. We’ve had two years in a row of tough Januarys, but this one was particularly tough. That's why we don't read a tremendous amount into it when we think about exit run rate, but no doubt weather had an impact.

Great. Thanks very much. Have a great spring.

Thanks.

Our next question comes from the line of Michael Lasser with UBS. Please proceed with your question.

Good morning. Thank you for taking my question. What market share assumption have you embedded into your twenty twenty-five outlook? And why wouldn't it be reasonable for us to assume that Home Depot's market share gains do accelerate from here, given that you now have SRS as well as many more capabilities, considering the investments that have been made over the last several years? Is that a sign that you think your DIY market share is starting to peak, and that could have an impact on the overall share gains for the enterprise?

Hi, Michael. Thanks for the question. As we look at the overall market for twenty twenty-five, we see it overall being flat—maybe up slightly. Those expectations have come down over the last several months. Our outlook for sales compares to last year's has been a continuation of some underlying strength in the business and our initiatives that we are absolutely gaining incremental sales. So that's why we peg our comp growth at one percent. Now, if you look at how we are driving share gain for both pro and consumer in the core, it is all about the capabilities that we're putting in the marketplace. We talked extensively about interconnected and all the investments we've made on the interconnected journey. Then, certainly all the investments in our pro ecosystem, and I'll have Jordan spend a few minutes more on what we're doing on interconnected. When you add what we're doing with SRS, you know SRS will grow faster than the core, and we believe they're taking share in each of their three verticals. We're very pleased with what SRS is doing. So all that, with our new stores which are starting to add some meaningful dollars to our growth, gets us to the one percent comp and 2.8 percent overall growth in a flat market. We wouldn't say our share has peaked by any means in DIY or pro.

Sure. I mean, we Billy shared the excitement we have had on dot com sales performance, and that's really across both the consumer and the pro, both up healthily online. It's been a combination of investments that we made that have helped deliver that, from the site experience and really making that journey so much better in finding the right product to the fulfillment. Billy mentioned that we've had the fastest delivery speeds in the history of our company, same-day delivery, next-day delivery, whether that's concrete and lumber or whether that's a light bulb or power tool. It's been really fast, and all of those investments come together to really drive an improvement in conversion rate on the site. What we see is increased engagement across the channels with more purchases that come in-store. We're really excited about the momentum and see the investments we’ve made really paying off.

Thank you for that. My follow-up question is on what's been happening as of late. There's been a lot of focus on the impact that government efficiency measures and/or immigration policy implementation could have on the U.S. consumer. How did you factor that and those considerations into the guidance? While you had just indicated that weather was really the underlying cause of some of the results in January, are you seeing any evidence that these factors are having an impact on the business? There's been talk about housing inventory in the mid-Atlantic starting to creep higher. Anything you could provide would be very helpful.

Michael, I don't think we've seen anything specifically. If you tick through some of the things you mentioned, I'd add that tax policy would be one of the most important. For Home Depot as a full taxpayer, we would be very pleased if the corporate rate stays at twenty-one percent. Tariffs are obviously a lot of discussions on what rates and which countries would be impacted and what categories of goods. We've been through that before, and I think we have the best team to manage through any tariff environment, which would impact the industry broadly. Our diversification efforts out of certain concentrations in countries have been quite good over the last six or seven years. You mentioned immigration; we've talked about having a shortage of skilled tradespeople in the country for some time. We believe we are about four hundred thousand tradespeople short. I’m not sure how that number would change with any meaningful change in immigration. Then specifically to government efficiency in the mid-Atlantic—no, we’ve not seen anything there.

Thank you very much, and good luck.

Thank you.

Our next question comes from the line of Scott Ciccarelli with Truist. Please proceed with your question.

Good morning, guys. Anne talked about a billion dollars of incremental sales in the seventeen markets where you've started to build out complex pro capabilities. How do you actually measure that? What kind of ramp should we expect in those markets in twenty twenty-five as you continue to phase in order management, credit expansion, etcetera, and some of the other capabilities you've discussed? Thanks.

Yes. Thank you, Scott. As we mentioned, we're incredibly pleased with what we've seen so far. We're generating a billion dollars and growing, so that's been fantastic. The way we measure that is the incremental sales in the seventeen markets versus what we see in the top forty markets. So the billion dollars of annualized sales is that in those seventeen markets, we have been outperforming all the top forty markets. We’re focused on really maturing the capabilities in these seventeen markets, which is really important. Not only maturing the existing capabilities but rolling out new capabilities as well. Whether it be delivery, expanding our sales force—those are key things that we will continue to focus on, as well as new capabilities like trade credit, order management, and account management. There are opportunities for us to continue to grow in twenty twenty-five. As Ted talked about SRS, there’s also an opportunity for us to really drive cross-sell opportunities across SRS's portfolio. Last but not least, we have more FTCs in the pipeline. We have three FTCs under construction, and we have more in the pipeline. So we’re incredibly pleased with what we've seen. In twenty twenty-four, when you think about the seventeen markets across the company compared to the top forty markets, we’re excited about what we will do in twenty twenty-five and beyond. Thank you.

Appreciate that. What’s the biggest sticking point as you roll this out? Is it building a specialized sales force? Is it recognition from your complex pros, etc.? What’s the toughest piece that you’ve learned that you need to tackle?

Yes, Scott. What we continue to find is that this is an entire ecosystem. It’s not just one component of the ecosystem. When we talk about outside sales or delivery, or order management and account management, it's all of those things working in concert. What’s always a little difficult is that as you roll these capabilities out—and they have different levels of maturity—our focus is to refine and really perfect what we're seeing. That takes time in a market, especially when you're building relationships. We don't want to create new relationships with our new capabilities with our pros and then face major failure points. The difficult part is ensuring that we're doubling down and moving at a speed that drives outcomes, but at the same time that we're focused on perfecting within the market. It’s incredibly complex, and it’s really important that we get this right. In twenty twenty-four, we saw some really, really great progress, and that's what makes us excited about what we will do in twenty twenty-five and beyond. Thank you.

Our next question comes from the line of Karen Short with Melius Research. Please proceed with your question.

Hi. Thanks very much, and good to talk to you. I had one question regarding guidance and another unrelated. So, actually, intangibles in terms of operating margin guidance: should we look at that as the right way to think about the relationship between sales growth and operating margin growth? I.E. excluding the intangible impact from SRS on your guidance.

Yes. Yes, Karen. We believe that removing the noncash amortization expense related to the amortization of intangible assets is the best way to look at our underlying operating margin. That’s where we have guided for the last couple of quarters and will continue to guide on that basis moving forward.

Okay. Thank you. So how should we think about the relationship on total sales growth versus operating margin or operating profit growth on the way you define it?

Reverse deleverage is essentially the same. When you're looking at adjusted operating margin versus GAAP operating margin, so there's no change needed in the way that we've talked about leverage or deleverage in the past.

Okay. And is two point five percent of sales the rate run rate to think about on capex?

So, you know, historically, we've said two percent is a rough expectation. We have increased that percentage to reflect two things. Number one, we’re happy with the investments we've made; they are generating exceptional returns, and so we're leaning into those investments. But second, a big part of that investment portfolio are our new stores. It’s worth calling our new SOAR program out. In twenty twenty-three, we announced we would build eighty stores over five years. Including the year twenty twenty-three, we are twenty-five stores into that program. So far, the results have been fantastic; we're tracking ahead of expectations. We’re going to continue, and we will complete that program this year. It will be the third year of the program, and we will complete it by year five, which is twenty twenty-seven. So that two point five percent of sales reflects that new store program as well as leaning into investments that are working.

Our next question comes from the line of Steven Seguin with Citi. Please proceed with your question.

Hey. Good morning. Thanks very much for taking my question. I actually want to follow up on Karen's question there and maybe dig into the SRS contribution a bit more. Can you comment on the bottom line tracking versus expectations? Did dollars to our top line from seven months of ownership hit that on the button? We feel great about their P&L, top to bottom. From a pro forma impact of SRS, there's about a forty basis point full-year mix impact to the Home Depot. Think about Home Depot, in total, being impacted by about forty basis points, but that's a mix effect. We'll take that all day long. They are leaders in their spaces, they're performing exceptionally well, and we're happy with that. Okay, thanks. The follow-up question I have was just on maybe the pricing environment. In the past, I think you've talked about prices kind of settling. Do you feel like we're at a point now where we should see a natural return to a normal environment for pricing? How does the potential for tariffs fit into that view?

Well, thanks, Steven. It's Billy. Listen. Regarding the just the general pricing environment, and then I'll talk briefly about tariffs. We are in a very rational market, just by definition, and prices have settled, as we’ve mentioned on the last couple of calls. No differences in promotional activity than what it has been pre-COVID. As it relates to tariffs, we've been through this before. We'll continue to assess how these impact our business from a go-forward standpoint. We’ve been focused on diversifying sourcing for several years, so we’ll continue to assess that. Our number one job in merchandising is to be the customer's advocate for value. We have great vendor relationships, and with our scale, we feel that we're as well or better positioned than anyone in the marketplace to navigate the environment going forward. I want to go back one question and just follow up on Steven’s question. So, Steven, just to put a year-over-year comparison together and talk about how SRS impacts year-over-year from an operating margin perspective: as we can see from our guidance, we're guiding to a thirteen-point-four percent adjusted operating margin from a thirteen-point-eight percent. That’s a forty basis point decrease. Here's how that forty basis points breaks down: coincidental to the pro forma impact. The year-over-year is different. So that forty reflects twenty basis points of natural deleverage, and recall that we think this business leverages about a three percent comp. At a one percent comp, we're getting about two comp points of deleverage. So two times about ten basis points each is twenty basis points. Inclusion of twelve months of ownership of SRS compared to seven months of ownership is reflected in fifteen basis points of mix shift. So you've got about a fifteen basis point impact of that year-over-year comparison of twelve months versus seven months. Finally, the comparison versus a fifty-three week year also shifts margin by five basis points. You've got twenty basis points from natural deleveraging, fifteen from SRS impact, and five from the fifty-third week comparison. Within that, I think it's worth saying that we are leaning into investments. We're paying for those investments through productivity, and so that's also within that operating margin guidance. There's productivity inside it as well as leaning into investment. I hope that makes it a little bit clearer.

Yeah. That answers my question. Thank you so much for that follow-up.

Our next question comes from the line of Seth Sigman with Barclays.

Thanks. Good morning, everyone. I do want to follow up on that last point around the flow-through. If you step back and look at your sales over the last several years, I think since twenty nineteen, sales are up maybe forty-five percent. SG&A is actually up a similar percent. Along the way, there have been investments and plenty of cost pressures. I guess the real question is, to the extent that comps start to improve here and progress throughout twenty twenty-five, are we at that point where sales should grow faster than expenses, and you can really start to see that flow-through come through?

Seth, you know what? I would point you back to our investor conference back in twenty twenty-three. Once this market normalizes, we would expect a base case of three to four percent top-line growth. We would expect within that flat gross margin as kind of a base expectation. Then, we do expect operating expense leverage. That takes you to the earnings per share expectation of mid to high single-digit growth once our market is normalized and we are back to that level of sales growth. That view hasn't changed since twenty twenty-three.

Okay. Great. Thank you for that. And then just on that point around the gross margin: you are guiding flat in twenty twenty-five. You still have some SRS dilution wrapping into this year. Can you talk about some of the underlying assumptions for core Home Depot and speak to the offsets that would be helping mitigate that SRS dilution? Thanks so much.

You’re right about that. We still have a little bit of a lapse, and so there’s pressure from SRS mix. Just two great callouts. One, our outstanding supply chain and merchandising teams finding productivity—you know, I could go on and on about it. But the benefits we’ve seen in supply chain productivity alone are really encouraging. We would call out our fantastic store operations team, who have now driven improvements in shrink for about a year and a half, year over year, quarter by quarter. We expect that to continue into twenty twenty-five. So it’s really a story of SRS mix being offset by supply chain productivity, some other great things the merchants are doing, and our fantastic store operations team.

Christine, we have time for one more question.

Hi. Thank you so much for taking my question. Just a final quick one: how does your Complex Pro initiatives impact your long-term ROI expectations, taking into account that you are extending more trade credit and potentially holding more inventory with a broader assortment from here? Thank you.

I wouldn’t expect a meaningful impact on ROIC through capital investment. Driving incremental sales and profit dollar growth in that business has a different margin profile, but certainly drives incremental sales and profit growth. But it’s really a reasonably asset-light investment. We lease the DCs, we lease trucks, and we bring on sales teams that are commissioned sales forces that earn their keep as they build their portfolios. Trade credit, as we scale that, has tiny exposure at the moment, but as we build that, it’s just not going to be a meaningful balance sheet item given the scale of our overall balance sheet.

Miss Janci, I would now like to turn the floor back over to you for closing comments. Thank you, Christine, and thank you everybody for joining us today. We look forward to speaking with you on our first quarter earnings call in May.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.