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Text: Questions will be limited to analysts and investors.
[Operator instructions] If we are unable to get to your question during the call, please call our investor relations department.
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.
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.
As you know, this is my last earnings call, and it has been a blessing and an honor to serve our customers, associates, shareholders, and communities for the last seven and a half years as CEO.
I'm extremely proud of the progress this team has made together, but perhaps our greatest accomplishment has been nurturing the culture of our company, which I believe is a competitive advantage.
I am confident that this leadership team will effectively guide The Home Depot through its next phase of growth.
But before we talk about that, let's first discuss our results for the year.
Fiscal 2021 was another record year for The Home Depot as we achieved the milestone of over $150 billion in sales.
We have continued to navigate a challenging and fluid environment with agility.
This resulted in double-digit comp growth for fiscal 2021 on top of nearly 20% comp growth that we delivered in fiscal 2020.
We've grown the business by over $40 billion over the last two years.
For context, prior to the pandemic, it took us nine years from 2009 to 2018 to grow the business by over $40 billion.
So to achieve that level of growth in two years' time is truly a testament to our investments, our teams, and their exceptional execution.
None of what has been accomplished over the past two years would have been possible without our orange-blooded associates.
Our associates have maintained their relentless focus on the customer while simultaneously navigating the ongoing pandemic, industrywide supply chain disruptions, inflation, and a tight labor market.
The tenure and strength of our relationships with our supplier and transportation partners has also been key to our success.
Our respective teams have worked tirelessly to build depth in key product categories and flow product to stores and distribution centers as quickly and efficiently as possible.
Their extraordinary efforts in fiscal 2021 resulted in record Success Sharing, our bonus program for our hourly associates.
We finished the year with another exceptional quarter as home improvement demand remained strong.
Sales for the fourth quarter grew approximately $3.5 billion to $35.7 billion, up 10.7% from last year.
comps of positive 7.6%.
During the fourth quarter, all our regions and merchandise departments posted positive comps.
Departments of comps above the company average were plumbing, electrical, building materials, millwork, decor, and storage and paint.
Our kitchen bath department was in line with the company average.
And hardware tools, lumber, flooring, appliances, and our garden departments were positive but below the company average.
During the fourth quarter, our comp average ticket increased 12.3%.
Comp transactions decreased 3.8%.
The growth in our comp average ticket was driven primarily by inflation across several product categories.
Core commodity categories positively impacted our average ticket growth by approximately 185 basis points in the fourth quarter driven by inflation in lumber, building materials, and copper.
Lumber prices remain volatile.
For example, in the fourth quarter alone, the pricing for framing lumber ranged from approximately $585 to over $1,200 per 1,000 board feet, an increase of more than 100%.
On a two-year basis, both comp average ticket and comp transactions were healthy and positive in the fourth quarter.
Big-ticket comp transactions or those over $1,000 were up approximately 18% compared to the fourth quarter of last year.
We saw continued strength in both our Pro and DIY customers.
During the fourth quarter, Pro sales growth outpaced DIY growth.
Sales growth for both our Pro and DIY customers accelerated in the fourth quarter relative to the third quarter and showed strong double-digit growth on a two-year basis for both customer groups.
Sales leveraging our digital platforms grew approximately 6% for the fourth quarter and approximately 9% for the year.
Over the past two years, sales from our digital platforms have grown over 100%.
Our focus on delivering a frictionless, interconnected shopping experience is resonating with our customers as approximately 50% of our online orders were fulfilled through our stores in fiscal 2021.
We feel great about our position as the No.
1 retailer for home improvement, and we look forward to serving our customers in the busy spring selling season.
Over the last year, we faced a number of challenges, including rising cost pressures, disruptions throughout the supply chain, and the ongoing pandemic.
We're extremely grateful for the way our cross-functional teams work with our partners to mitigate these challenges while staying focused on serving our customers and communities.
In the fourth quarter, total sales were $35.7 billion, an increase of approximately $3.5 billion or 10% -- 10.7% from last year.
Our total company comps were positive 8.1% for the quarter with positive comps of 7.3% in November, 10.2% in December, and 7% in January.
were positive 7.6% for the quarter with positive comps of 7.2% in November, 10.9% in December, and 5.4% in January.
Our results in the fourth quarter were once again driven by broad-based strength across the business and our geographies.
All 19 U.S. regions posted positive comps, and Canada and Mexico, both posted double-digit positive comps in the fourth quarter.
For the year, our sales totaled a record $151.2 billion, with sales growth of $19 billion or 14.4% versus fiscal 2020.
For the year, total company comp sales increased 11.4%, and U.S. comp sales increased 10.7%.
In the fourth quarter, our gross margin was 33.2%, a decrease of approximately 35 basis points from last year.
And for the year, our gross margin was 33.6%, a decrease of approximately 30 basis points from last year, primarily driven by product mix and investments in our supply chain network.
During the fourth quarter, operating expenses were approximately 19.7% of sales, representing a decrease of approximately 120 basis points from last year.
Our operating leverage during the fourth quarter reflects comparisons against significant COVID-related expenses that we incurred in the fourth quarter of 2020 to support our associates, the anniversarying of $110 million of non-recurring expenses related to the completion of the HD Supply acquisition in the fourth quarter of 2020, and solid expense management for the quarter.
During the fourth quarter of fiscal 2021, we also incurred approximately $125 million of COVID-related expenses.
For the year, operating expenses were approximately 18.4% of sales, representing a decrease of approximately 170 basis points from fiscal 2020.
Our operating expense leverage in fiscal 2021 reflects a decrease in our COVID-related costs compared to last year, partially offset by wage actions taken at the end of 2020 as well as throughout 2021.
Our operating expenses for the year included a consistent level of investment in our business, which we intend to continue.
For the year, we are very pleased with the operating expense leverage we were able to deliver.
Our operating margin for the fourth quarter was approximately 13.5% and for the year was approximately 15.2%.
Interest and other expense for the fourth quarter was essentially flat with last year.
In the fourth quarter, our effective tax rate was 25.5% and for fiscal 2021 was 24.4%.
Our diluted earnings per share for the fourth quarter were $3.21, an increase of 21.1% compared to the fourth quarter of 2020.
Diluted earnings per share for fiscal 2021 were $15.53, an increase of 30.1% compared to fiscal 2020.
During the year, we opened seven new stores and added 14 new stores through a small acquisition, bringing our store count to 2,317 at the end of fiscal 2021.
Retail selling square footage was approximately 241 million square feet at the end of fiscal 2021.
Total sales per retail square foot were approximately $605 in fiscal 2021, the highest in our company's history.
At the end of the quarter, merchandise inventories were $22.1 billion, an increase of $5.4 billion versus last year.
And inventory turns were 5.2 times, down from 5.8 times from the same period last year.
Moving on to capital allocation.
During the fourth quarter, we invested approximately $830 million back into our business in the form of capital expenditures.
This brings total capital expenditures for fiscal 2021 to $2.6 billion.
During the year, we paid approximately $7 billion of dividends to our shareholders.
We look to grow our dividend every year as we grow earnings.
And today, we announced our board of directors increased our quarterly dividend by 15% to $1.90 per share, which equates to an annual dividend of $7.60.
And finally, during fiscal 2021, we returned approximately $15 billion to our shareholders in the form of share repurchases, including $4.5 billion in the fourth quarter.
Computed on the average of beginning and ending long-term debt and equity for the trailing 12 months, return on invested capital was 44.7%, up from 40.8% in the fourth quarter of fiscal 2020.
Now I'll comment on our outlook for 2022.
The broader housing environment continues to be supportive of home improvement.
Demand for homes continues to be strong, and existing home inventory available for sale remains near record lows, resulting in support for continued home price appreciation.
On average, homeowners' balance sheets continue to strengthen as the aggregate value of U.S. home equity grew approximately 35% or $6.5 trillion since the first quarter of 2019.
The housing stock continues to age, and customers tell us the demand for home improvement projects of all sizes is healthy.
While we are encouraged by the consistent and resilient demand we've seen for home improvement, broader uncertainty remains with respect to the impact of inflation, supply chain dynamics, and how consumer spending will evolve through the year.
Given these factors establishing full year 2022 guidance based on macroeconomic fundamentals remains challenging.
We adjust this dollar run rate for our historical seasonality to calculate our sales outlook for 2022.
Based on this approach and assuming there are no material shifts in demand, we calculate that sales growth and comp sales growth will be slightly positive for fiscal 2022.
We expect our 2022 operating margin to be flat to 2021.
And we would expect low single-digit percentage growth in diluted earnings per share compared to fiscal 2021.
Over the course of fiscal 2022, we plan to invest approximately $3 billion back into our business in the form of capital expenditures, in line with our annual expectation of approximately 2% of sales going forward.
We believe that we have positioned ourselves to meet the needs of our customers in any environment as evidenced by our results.
The investments we've made in our business have enabled agility in our operating model.
As we look forward, we will continue to invest to strengthen our position with our customers, leverage our scale and low-cost position to drive growth faster than the market, and deliver shareholder value.
With that, I'll hand it back to Craig.
And again, let me congratulate the team on an exceptional year.
In a few moments, Ted and Richard will share their thoughts on the next phase of growth for our company.
The leadership team has spent a lot of time over the past year talking about what's next for The Home Depot, and I have never been more excited about the opportunities that are ahead of us.
While change is constant in our business, our strategic priorities remain consistent: deliver the best customer experience in home improvement and extend our low-cost provider position.
Our objectives to grow market share and deliver exceptional shareholder value are also unchanged.
And as Ted will detail, the investments we have made and will continue to make in differentiated capabilities throughout the business will unlock the opportunity to deliver a value proposition that we believe is unique in our industry.
We are well-positioned to leverage our distinct competitive advantages to capitalize on a compelling growth opportunity in our space.
We have a world-class leadership team who have the vision and experience to guide our company to new heights.
We have a team of approximately 500,000 associates who are committed to the culture that our founders instilled in our business over 40 years ago.
These associates have demonstrated exceptional execution and an unwavering commitment to our customers regardless of the operating environment.
I believe that the greatest days for The Home Depot are ahead of us.
Let me take a moment to express my sincere appreciation for all that you have done for this company throughout your 25-year career.
You're a tremendous steward of our culture, ensuring our values guide every decision we make as a leadership team.
You led us through a transformational period and positioned us well for the future.
I believe that Home Depot is an organization unlike any other.
Our success is driven by our orange-blooded associates, unique culture, customer focus, and operational excellence.
This is the power of The Home Depot and why we are the No.
1 retailer for home improvement.
I'd like to spend some time talking about the future, what's next for this great company.
We've seen several inflection points in our company's history, all spurred by a desire to maintain the growth mentality and entrepreneurial spirit created by Bernie and Arthur when they revolutionized the home improvement industry over 40 years ago.
Over the years, we have used these inflection points to adapt to changing market conditions and customer expectations.
Approximately 15 years ago, we pivoted from new stores as a driver of growth to growth driven by productivity.
Years later, we began building capabilities to better enable a multichannel shopping experience through an end-to-end approach.
In recent years, we focused on a customer-back approach to deliver the best interconnected shopping experience in home improvement.
Customer expectations continue to evolve, and there is little tolerance for any friction in the shopping journey.
So we will continue to adapt to stay ahead of the customer.
We have seen a tremendous amount of growth in the past decade.
We could have never predicted the more than $40 billion in growth since the end of 2019.
With this growth, we are reimagining new milestones for the business.
Our objectives to grow market share and deliver exceptional shareholder value are unchanged.
Aligned with these objectives, our goals are: first, to grow the business to $200 billion in sales, which represents incremental growth of approximately $50 billion from where we are today; and second, and just as importantly, deliver best-in-class operating profit dollar growth and return on invested capital.
We believe that we will achieve these goals through what we are confident is the winning formula for our customers, our associates, and our shareholders.
We intend to provide the best experience in home improvement, extend our position as the low-cost provider and be the most efficient investor of capital in home improvement.
Over the last two years, as we've grown by over $40 billion in sales, our addressable market has also grown.
We now estimate that our total addressable market in North America is greater than $900 billion.
We have invested in capabilities that improve our competitive positioning and allow us to pursue opportunities we could not meaningfully address in the past, which provides significant growth opportunities with both consumers and Pros.
We estimate that each of these respective customer groups represent about 50% of the total addressable market.
We also estimate that each of these important customer groups represent approximately 50% of our total sales.
For Pro, we believe this addressable end market is over $450 billion.
Within this end market, we believe our addressable maintenance, repair, and operations, or MRO space, has expanded to over $100 billion.
So while we are the No.
1 home improvement retailer across all of our geographies, we represent a relatively small part of a large and fragmented total addressable market that has expanded significantly over the past two years.
To support our growth objectives, we have a straightforward approach to capital allocation that will also remain unchanged.
Investing in the business is our primary capital allocation priority, and we have learned that it is critical to invest in a more consistent and agile way.
Our investment cadence has become more real time, allowing us to pivot more quickly, giving us the ability to move faster when we see positive results.
After investing in the business, it is our intent to return excess cash to shareholders through a balanced approach of paying a healthy dividend and making share repurchases.
While there is more to do as we fine-tune new go-to-market strategies and refine our processes to better serve our customers, we believe what we are creating will extend our leadership position.
We intend to leverage our unmatched scale as we continue to optimize assets and capabilities to compete in a more disruptive way.
The macroeconomic environment is supportive, the opportunity in front of us is compelling, and our capital allocation principles will continue to create value for our stakeholders.
We have a powerful foundation and distinct competitive advantages.
First, as I mentioned earlier, our unique culture and values as well as our knowledgeable associates will remain a competitive differentiator.
Second, our stores are the hub of our business and will always be important in the future of home improvement retail.
We have a premier real estate footprint that provides convenience for the customer.
Third, we believe we have the most relevant brands and products and are continuously driving innovation in the marketplace.
Fourth, we have a best-in-class supply chain and have demonstrated our ability to operate with agility and navigate any environment.
And finally, we have consistently improved the interconnected shopping experience as our customers increasingly blend physical and digital worlds for their projects.
We continue to invest and strengthen these advantages to ensure the best experience for our customers.
While there is more work to do, we've made important strides in removing friction from the customer experience.
Let me give you real examples of how the investments we've made across the business are earning us more share of wallet with our customers.
Let's take the example of one of our Pro customers in the Dallas market.
Years ago, this large-scale repair/remodeler primarily shop with us in our stores for their unplanned immediate need purchases, largely out of convenience.
Over time, their in-store spend increased and they were signed a dedicated Pro Account Representative, or PAR, to deepen our relationship with them.
As we invested across the interconnected experience, this customer engaged with us more often and occasionally used us for job site delivery.
At this point, we saw their spend with The Home Depot grow to more than $100,000 annually but still for mostly unplanned immediate need purchases in store.
Fast forward to today, this customer now utilize the number of new and/or improved capabilities.
Last year, this customer downloaded our mobile app.
Their mobile orders increased.
They joined our Pro loyalty program and authenticated with us via our B2B website.
We began offering personalized pricing on certain products.
And they took their first deliveries from several of our new fulfillment centers, including one of our new flatbed distribution centers.
As a result, we've seen spend with this customer more than triple to over $300,000 annually.
While this is one example, we see that customers increase spend with us as they build confidence in our capabilities.
While we continue serving this customer for their unplanned immediate-need purchases, we now believe our capabilities are beginning to satisfy important planned purchase occasions.
We believe the ability to serve our Pros' planned and unplanned purchase occasions will be an important driver of growth as we work toward a $200 billion sales milestone.
And while Pro is an important driver of growth going forward, removing friction from the DIY customer is equally important.
Let's take the example of a customer we'll call Geena, a DIY customer tackling a bathroom remodel four years ago and compare that with the same shopping experience today.
Four years ago, she would have relied heavily on our stores and website for helping completing her project.
Geena's engagement on our digital applications is a little more difficult.
The mobile experience wasn't as intuitive, search results weren't as relevant, and associated recommendations were limited.
As a result, she likely made multiple trips to the store for items didn't know she needed.
And when she did go to the store, buy online pick up in store, or BOPUS, was essentially the only option outside of the traditional cash-and-carry model for collecting whatever tools and materials her project required.
Today, Geena's experience would be meaningfully different as her shopping journey is met with a lot less friction.
As Geena begins her project online, improvements in search provide her with more relevant results.
We also have a better understanding of the intent of her shopping journey and can make recommendations supporting her whole project.
And we know these product-relevant recommendations matter.
Over the last four years, we've seen a significant increase in sales driven by product recommendations.
When Geena comes to our stores, our recently updated mobile app and improved signage help her more easily navigate our aisles.
We've made investments in the front end to improve her checkout experience.
And as always, our knowledgeable associates are there to help Geena throughout her project.
If Geena chooses to place an order online for pickup in the store, she has multiple fulfillment options.
She can pick up her items at the service desk, grab those items from a locker or have them brought to her car with curbside pickup.
Geena can also receive same- or next-day delivery on thousands of items.
We have seen customers like Geena increase their spend with The Home Depot as a result of our improved in-store experience, more robust and personalized online shopping journey and greater delivery and fulfillment options.
We are also shifting our mindset to deliver a truly seamless interconnected experience.
The flywheel we are building goes beyond retail's traditional channel mindset to an ecosystem of capabilities and operational efficiencies working together to remove friction at every step of the customer shopping journey.
For example, while we believe the supply chain network we are building is transformational, it's just not about the buildings themselves.
The value lies in their connection to the overall fulfillment and store ecosystem in the improved customer experience.
The new fulfillment centers enable us to expand our assortment and inventory depth as well as offer faster and more reliable delivery options.
In addition, these new facilities removed some fulfillment pressures historically placed on stores, creating a better in-store shopping experience and freeing up associates to help drive additional sales.
Our intention is to build an unrivaled delivery network for home improvement goods.
While early days, we continue to develop our capabilities, and we are encouraged as we see a measurable lift in sales with a more interconnected shopping experience.
As we move forward toward this next phase of growth, we will remain focused on driving productivity, a long-standing hallmark of The Home Depot.
Enabled by technology, we are focused on eliminating unnecessary tasks and making our processes more efficient while also making our shopping experience the best in home improvement.
When I think about our stores, I think about the tremendous amount of productivity over the years, all of which helped us achieve over $600 in sales per retail square foot in 2021.
As we set our sights on our goal of $200 billion in sales, we have many opportunities to improve freight flow throughout the store and drive further space optimization in SKU productivity.
The productivity initiatives don't reside solely in our stores, we see many opportunities across the business.
When our founders started The Home Depot over 40 years ago, they transformed an industry.
We are continuing that legacy but doing so in an interconnected way.
We believe that the interconnected ecosystem we are building will increase our ability to capture share.
We intend to disrupt traditional business models with new go-to-market strategies.
The opportunity in front of us is exciting today as it was when we first opened our doors, and I am honored to help lead this company into the next phase of growth.

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compname announces fourth quarter and fiscal 2021 results increases quarterly dividend by 15 percent provides fiscal 2022 guidance.
compname announces fourth quarter and fiscal 2021 results; increases quarterly dividend by 15 percent; provides fiscal 2022 guidance.
q4 earnings per share $3.21.
q4 sales rose 10.7 percent to $35.7 billion.
fiscal 2022 guidance assumes run-rate of dollar demand it has observed over last two quarters continues through fiscal 2022.
sees 2022 sales growth and comparable sales growth to be slightly positive.
sees 2022 operating margin approximately flat with fiscal 2021.
qtrly comparable sales in u.s. increased 7.6 percent.
qtrly comparable sales for q4 of fiscal 2021 increased 8.1 percent.
sees 2022 diluted earnings-per-share-growth to be low single digits.
announced that its board of directors approved a 15 percent increase in its quarterly dividend to $1.90 per share.

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