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Text: Joining us on our call today are Craig Menear, chairman and CEO; Ted Decker, president and chief operating officer; and Richard McPhail, executive vice president and chief financial officer.
Questions will be limited to analysts and investors.
And as a reminder, please help yourself to one question with one follow up.
These risks and uncertainties include, but are not limited to, the factors identified in the release and in our filings with the Securities and Exchange Commission.
Reconciliation of these measures is provided on our website.
I'm pleased to report that we had another strong performance in the third quarter.
Sales for the third quarter were $36.8 billion, up 9.8% from last year.
Comp sales were up 6.1% from last year with U.S. comps of positive 5.5%.
Diluted earnings per share were $3.92 in the third quarter, up from $3.18 in the third quarter last year.
Home improvement demand remains strong.
Our customers remained engaged with projects around the home and we continue to focus on delivering the best experience in retail.
As we mentioned last quarter, we continue to see customers taking on larger home improvement projects as evidenced by the continued strength with our Pro customer, which once again outpaced the DIY customer.
As been the case for the last 18 months, the team is doing an outstanding job of navigating a fluid and challenging operating environment.
Ultimately, this is what has allowed us to respond to the strong home improvement demand that has persisted.
We had positive comps every week despite unprecedented comparison last year and grew sales by $3.3 billion in the third quarter, bringing total sales growth year to date to more than $15.5 billion through the third quarter.
From a geographic perspective, all of our 19 U.S. regions posted positive comps versus last year and both Canada and Mexico posted positive comps.
These results were driven by our associates who have maintained a relentless focus on our customers, while simultaneously managing industrywide supply chain disruptions, inflation and a tight labor market.
While these factors present challenges for retail as a whole, we will use our experience, tools and our scale to manage through this environment with the intent to deliver a strong value proposition to our customers.
Our respective teams have worked tirelessly to build depth in key product categories and to flow products to our stores and distribution centers as quickly and efficiently as possible.
Beyond the current environment, we are focused on positioning ourselves for growth.
We are investing in stores to drive further productivity, which Ted will discuss.
We are enhancing the interconnected shopping experience by investing to remove friction for our customers wherever possible.
And the build-out of our supply chain vision continues to progress and we remain on track with our plans.
We are encouraged by the results that we're seeing from buildings that we have stood up as we optimize and assort these facilities to unlock their full potential.
We believe that the network we are building is unique to the market.
It will not only enhance the customer experience from a delivery standpoint, but also expand the opportunity to capture wallet share gains with both new and existing customers, drive efficiency end to end and leverage our scale to further extend our low-cost position in home improvement.
In the near term, we remain focused on being flexible and agile as we navigate this dynamic environment.
But we also continue to leverage the momentum of our strategic investments to further enhance the interconnected shopping experience in support of our goals to drive growth faster than the market in any environment, further strengthen our position as a low-cost provider and home improvement with a relentless focus on productivity and efficiency and deliver exceptional shareholder value.
Our ability to invest for the future while also managing the most fluid environment in our company's history is a direct result of our associates and their extraordinary efforts.
military veterans since 2011.
This brings us closer to achieving our goal to invest $0.5 billion in veteran causes by 2025.
We had a great third quarter.
There is no question that pressures on global supply chains increased over the last 18 months.
That being said, we could not be more pleased with how our cross-functional teams responded.
The teams took a number of decisive actions to secure more product for our customers while continuing to find new and different ways to flow that product.
Beginning in the second quarter of last year, our merchant inventory and supply chain teams leveraged tools and analytics and work with our vendor partners to adjust our assortments and in some cases, introduced alternative products.
The teams also built depth in job lot quantities and high-demand products.
We improved our in-stock levels in the back half of last year and we've been able to sustain and in some cases, improve our levels, even as home improvement demand remains elevated.
In addition to the challenging supply chain environment, we are also seeing rising cost pressures across several different product categories.
Our seasoned teams of merchandising, finance and data analytics associates are working with our supplier partners to manage through these pressures.
We have effectively managed inflationary environments in the past and we feel good about our ability to continue managing through the current environment while being our customers' advocate for value.
Turning to our comp performance during the third quarter, 12 of our 14 merchandising departments posted positive comps.
Appliances, plumbing, electrical, building materials, tools, kitchen and bath, decor and storage, millwork and flooring had comps above the company average.
Paint, outdoor garden and hardware were positive but below the company average.
Indoor garden was essentially flat and lumber posted a high single-digit negative comp compared with lumber comps of more than 50% in the third quarter of 2020.
On a two-year basis, each of our departments posted healthy double digit positive comps.
Our comp average ticket increased 12.7% and comp transactions decreased 5.8%.
Growth in our comp average ticket was driven in part by inflation across several product categories.
Our commodity categories positively impacted our average ticket growth by approximately 70 basis points in the third quarter driven by inflation in copper and building materials, which was partially offset by deflation in lumber.
On a two-year basis, both comp average ticket and comp transactions were healthy and positive.
Big ticket comp transactions or those over $1,000 were up approximately 18% compared to the third quarter of last year.
During the third quarter, Pro sales growth continue to outpace DIY growth.
On a two-year comp basis, growth of both our Pro and DIY customers was consistent and strong.
Similar to the second quarter, we saw many of our customers turn to Pros for help with larger projects.
We see this in the strength of several Pro-heavy categories like drywall, pneumatics, pipe and fittings and several millwork categories.
We remain encouraged by what we are hearing from our Pros as they tell us their backlogs are healthy.
Sales leveraging our digital platforms grew approximately 8% for the third quarter, which brings our digital two-year growth to approximately 95%.
Our customers continue to shop with us in an interconnected manner as approximately 55% of our online orders are fulfilled through our stores.
While we navigate these challenging environment, we continue to invest in our business to enhance the customer shopping experience while also driving productivity and efficiency.
We believe we have a significant opportunity to further optimize space productivity in our stores by balancing the art and science of retail.
This is a continuous process that we believe leads to better, more productive assortments and space allocations, which ultimately drives value for our customers.
Let me take a moment to comment on some unique capabilities we've built that showcase what I mean.
More than a year ago, we started to test in some of our higher-volume stores.
The idea was, how can we further drive space productivity and improve the shopping experience at the same time.
Our cross-functional teams applied a combination of space optimization models in conjunction with the expertise of our local field merchants, many of whom have more than 30 years of tenure with The Home Depot to create store-specific outcomes that adjust assortments and improved space utilization.
The results exceeded our expectations.
Sales per square foot improved, on-shelf availability improved, Voice of the Customer scores improved, labor utilization improved.
And during the process, we were able to add net new base to the stores.
As a result, we went from a small test to now targeting more than 400 stores this year with more in the pipeline for next year.
I want to recognize all the teams helping drive this success.
As we turn our attention to the fourth quarter, we are excited about the upcoming holiday season.
During the third quarter, we hosted our Halloween event and cannot be happier with the results.
We saw record sales and sell-through as customers responded to our exclusive product offerings and innovative approach to the category.
During the fourth quarter, we intend to continue this momentum with our annual holiday, Black Friday and gift center events.
Like last year, we extended these events to cover a longer period and not just focus on one day.
In the third quarter, total sales were $36.8 billion, an increase of $3.3 billion or 9.8% from last year.
Foreign exchange rates positively impacted total sales growth by approximately $190 million.
During the third quarter, our total company comps were positive 6.1% with positive comps in all three months.
We saw total company comps of 3.1% in August, 4.5% in September and 9.9% in October.
Comps in the U.S. were positive 5.5% for the quarter with comps of 2.2% in August, 4% in September and 9.6% in October.
In the third quarter, our gross margin was 34.1%, a decrease of approximately 5 basis points from the same period last year.
While there are many factors that impact gross margin, during the third quarter, our gross margin was negatively impacted by higher transportation costs and mix of products sold, which was partially offset by higher retail prices.
During the third quarter, operating expense as a percent of sales decreased approximately 130 basis points to 18.4%.
Our operating leverage during the third quarter reflects the lapping of significant COVID-related expenses that we incurred in the third quarter of 2020 to support our associates, as well as payroll leverage.
Our operating margin for the third quarter was 15.7%, an increase of approximately 125 basis points from the third quarter of 2020.
Interest and other expense for the third quarter was essentially flat with the same period last year.
In the third quarter, our effective tax rate was 24.5%, up from 24.1% in the third quarter of fiscal 2020.
Our diluted earnings per share for the third quarter were $3.92, an increase of 23.3% compared to the third quarter of 2020.
At the end of the quarter, inventories were $20.6 billion, up $4.4 billion from last year and inventory turns were 5.4 times compared with 5.9 times this time last year.
Turning to capital allocation.
After investing in our business, it is our intent to return excess cash to shareholders in the form of dividends and share repurchases.
As we have mentioned on previous calls, we plan to continue investing in our business with capex of approximately 2% of sales on an annual basis.
We also plan to maintain flexibility to move faster or slower depending on the environment.
A good illustration of this is what you heard from Ted.
We built capabilities to drive productivity across some of our higher-volume stores, we tested them, we saw strong results across key performance metrics and we moved quickly to expand the investment.
During the third quarter, we invested approximately $700 million back into our business in the form of capital expenditures bringing year-to-date capital expenditures to approximately $1.7 billion.
And during the quarter, we paid approximately $1.7 billion in dividends to our shareholders and we returned approximately $3.5 billion to shareholders in the form of share repurchases.
Computed on the average of beginning and ending long-term debt and equity for the trailing 12 months, return on invested capital was approximately 43.9%, up from 41.6% in the third quarter of fiscal 2020.
As you have heard from Craig, we're very pleased with the strong performance we saw during the third quarter, particularly as we lap the unprecedented growth we saw this time last year.
Customer engagement remains strong and demand for home improvement is healthy.
We've been pleased with our team's ability to navigate the challenging environment.
However, we do not believe we can accurately predict how the external environment and cost pressures will evolve and how they will ultimately impact consumer spending.
As we've mentioned on previous calls, our teams are managing our business on a relatively short cycle and we will continue to execute with flexibility and focus on what has driven our successful performance to date.
Longer term, we remain committed to what we believe is the winning formula for our customers, our associates and our shareholders.
We intend to provide the best customer experience in home improvement.
We intend to extend our position as the low-cost provider.
And we intend to be the most efficient investor of capital in home improvement.
If we do these things, we believe we will continue to grow faster than our market and we will deliver exceptional value to our shareholders.

user
compname announces q3 earnings per share $3.92.
q3 earnings per share $3.92.
q3 sales rose 9.8 percent to $36.8 billion.
qtrly comparable sales in u.s. increased 5.5 percent.comparable sales for q3 of fiscal 2021 increased 6.1 percent.

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