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it's my pleasure to introduce the members of the management team for Home Depot and to moderate this fireside chat today we have with us Richard McPhail executive vice president CFO of Home Depot and we have also with us Billy bestic executive vice-president of merchandising thank you so much for being here today thank you yeah thanks problems I wondered if we could maybe start out obviously we know very well the state of the housing environment so I wondered if we could maybe talk to more of the areas of strength that you've seen in the context of a more difficult backdrop. So during the second quarter, you experienced broad-based demand in 13 of your 16 merchandising categories, posting positive comps. Can you maybe talk about what you're seeing within those categories where the strength is coming from and how you position yourself to continue to take advantage of that over the longer term if the macro backdrop stays the way it is. You know, let's turn to Billy for specifics on that, and then we'll open it up a little bit to the broader macro. Yeah, no, we were real pleased with the Q2 results, actually overperformed what we had originally forecasted. Saw a great balance across our business, 13 of 16 categories, as you mentioned, positive comps. And, you know, I'd say, you Know, more broadly, you know there was a lot less, you of our top 20 categories that made up, you the sequencing of that really only a couple of them were related to the seasonal business so really core down the middle thing plumbing electrical hardware tools um really had a great performance both both in store and online so we're really happy with the balance across the entire portfolio there's some pressure you know related to some of the categories that we didn't call out but really pleased with the performance and you know think the maintenance categories and really the core home improvement business has really held up, you know, terrifically well, not only in Q2, but in the first half overall. And, Kate, you Know, we think that we're accelerating our share gains. You know, when you look at the broader macro, it's really hard to see any points of inflection in the stats that we look at. We know the consumer has become more pressured over time over the last six quarters. if you look at consumer sentiment, consumer confidence, and other factors I'm sure you'll want to get into. Our job in this environment is to control what we can control and to continue to lean into investment because those investments are really the driving force behind the share capture we're seeing. Right. And just given the share gains that you have been so successful in gaining, I mean, again, you're seeing growth. There are others where, you know, you've seen double-digit declines in the environment. Have you seen much change in the competitive landscape with smaller players and just the overall environment in terms of what's driving that share? You know, in an environment like this where the whole sector is pressured, we think it's a great opportunity for us to use our advantages of scale to take share. You know, we are building off of a foundation that's been in place for the entire history of the Home Depot. Our real estate footprint will never be replicated. Our incredible associate base and our culture will never been replicated. But there are investments that we are making that we think differentiate us, you know, whether it's tools that we're putting in the hands of our associates to make sure that it's easier for them to spend time serving customers rather than just doing tasking, from the product authority that Billy and his team bring every single day to gains in delivery that our supply chain and our dot-com business are leaning into, and then our great pro teams and our great prosubsidiaries that are leaning in. So it's not just one thing that's leading to all these share gains. And some of these are really more sort of very recent as opposed to others. And, Billy, maybe we can talk a little bit about delivery and how much of an advantage that's given us. Yes, certainly, you know, delivery, you Know, across whether it's, you Know, FTC delivery model, we rolled out, you Know, ship from best location about 16 months ago at scale. We recently rolled out You know, more expedited delivery out of the out of the stores we're seeing you know 65% of our parcel shipments are shipped same day next day and then exciting for us is you know using our network both in stores and in our broader network through our MDOs you know 55% of our big and bulky products are delivered within two days which we think has been a great competitive advantage and a great customer experience as well so we're really pleased with the delivery aspect both in stores as we've lit our Our store is up and now with expedited delivery, you know, two hours or less, we're really pleased with the results we've seen across the board. Any engagement from customers that have used that service both in-store and online and what we see from that basket from them, you knows, more go forward. And that, you Know, that penetration of same-day, next-day delivery is increasing at, You know, an exponential rate. The thing that we love about it, though, is this reflects a strategy we set over 10 years ago. when we said, look, what are going to be the two main growth drivers of the Home Depot? It's going to being figuring out interconnected retail, which includes e-commerce, but begins in the store, and then winning with the pro, with the common denominator being exceptional delivery. And so, you know, we're now bearing the fruits of many years of investment. And, you Know, it's exciting to finally be able to call out more directly and more bluntly if you've looked at our marketing campaigns if you just watch over the last 12 months you can see you know we now have achieved the levels of confidence in our delivery capabilities where we're calling out bluntly you know our goal here is uh delivery in two hours or less for a majority of the assortment in our stores and we're working to shrink that delivery window every day and yeah it was pretty prophetic i mean i do remember that analyst day from almost 10 years ago where you've declared that you're going to be investing so much in the stores and the supply chain all in the name of speed. And here we are. And that's exactly what the customer wants. I feel that's the core tenant of all of retail now is how fast you can get and how convenient you can be to the customer. So in that regard, I think value is the other important tenant for the consumer. And I feel like the pricing environment has just been so volatile, you know, and that's stating the obvious where you've had this multi-year inflationary backdrop accentuated by tariffs last year and then you've started to see this tariff refunds come in in the second quarter and we've heard a lot about promotions and price investment and and things to that nature so could we maybe take a step back and walk through how you've approached the pricing environment how you continue to convey value and how do you think about the next you know six months to a year in terms of that value proposition for the consumer Well let me just give some just financial guidelines and then let Billy talk about the strategy. On our second quarter call we disclosed that we had received significant tariff refunds. We also clarified that those refunds were utilized to maintain value for the customer and Billy will talk about that in a second. As you know we maintained our guidance for the year That includes maintaining our gross margin guidance for the year. And so you really sort of start from that footing. And, Billy, maybe talk about what our stance has been. Yeah, I mean, you know, we came into the year with a lot of known things, but obviously since we started the year, some significant input costs, you know, incremental into the P&L that we did not, you now, have in our base case. So, you known, a lot what we did with the tariff refunds was, you We're committed to EDLP and creating value for our customers every single day. And so we used a lot of that, as I said, to offset some of the impacts. In terms of the promotional activity, we've been less promotional. I mean, our focus is we've got a lot OF levers that we can use, and our focus in merchandising has been to keep that value every single day. We've been left promotional. We've used some of the historical promotional activity to continue to make sure that every day we can keep our prices where they are today, even with the significant impacts of what we've seen incrementally in the first half. We'll do that into the back half of the year. So we've worked closely with our supplier partners. The teams have done a great job. The merchandise team has done an incredible job. When you think about planning out promotional cadence and activity, you're doing that way in advance of what we saw into Q2. So we were very rational in how we approached it with the entire mindset of keeping value for our customers and everyday low pricing day in and day out. And we'll continue to do that through the back half of the year, regardless of any impacts that we might see in the P&L. I'm really pleased with the team. We've been less promotional. We've used that to fund, you know, keeping those prices, you know, where they are every day. Maybe if we can move into the Complex Pro. That's another moment in time that I vividly remember where you've made the declaration of the opportunity of expanding the TAM and going after the Complex Pro at another analyst day. And so now it's been a few years since you introduced your strategy. You've made several acquisitions. Maybe you could just take a step back and talk to us about the strategy, how you think it's going, and what you think are the biggest drivers going forward? So we compete in a $1.2 trillion addressable market. Of that, about $700 billion represents the pro market. And we have for a long time believed and heard from our customers that we have a greater right to win in that $700 billion market than anyone else participating in the market. We've had the right to when we haven't necessarily had the ability to win. And so our stores have been a powerhouse for the pro since we opened our doors. You know, there there is no more convenient partner that carries the product authority for the Pro than the Home Depot. And And so we're already building off of an incredible advantage, you know, real estate positioning, brand advantage, and convenience, not to mention the service model in our stores with our associates. What we knew way back 10 years ago was we're getting a demand signal at our pro desk that is asking for delivered sales. and so the beginning of all this actually started where we said we we are now reaching a problem where if we say yes to more delivered sales out of the stores we are going to become a staging warehouse and there were stores that were penetrated you know highly penetrated by the pro where you literally could not shop the uh the lumber and building materials house because there were deliveries being staged and we had such limited delivery windows the first stage was build out the flatbed distribution network so that we can send these high-cost deliveries out to a more efficient delivery model. Once we did that, we realized that there was much more demand out there than we anticipated. We could carry a broader product set, and we could carry almost infinite depth in these flatbed Distribution Centers. But we also realized that we had to shift our orientation from a product cash and carry orientation to a service model orientation, that's what it was going to take to more deeply penetrate the pro wallet. So we built out the FDC network. We have been consistently building out an outside sales force, building out an order management capability, offering trade credit to our pro customers. And then I would also say enhancing AI enablement for those pros. I'll come back to that in a second, but I think it's important for all of our investors to understand this all begins in our stores. By far, the majority of the sales volume that we generate with a pro customer is in the store every day. And so it starts with investments we've made at our pro desk that allow our pro desk associates to understand who the pro is, to understand what they might not be buying from us, and to be able to market on the spot and also to be able to execute orders more easily in the store at the pro desk. Then we extend that to that complex sale, which, you know, you could think of that almost as the delivered sale that requires a little bit of more assisted selling. Now, we've been building those capabilities really through time, probably in earnest since 2019, 2020. What we were a little bit worried about was if we light up delivered sales, that's going to cannibalize our stores. What we found is the more points of engagement we drive with our pro, the more they spend in our stores, the more we deliver to a pro, the more we spend in a pro. The more they spent in our stores. In 2023, 2003, we began talking to SRS because what we knew was while we're building all these capabilities, SRS was the most well-managed wholesale distribution company we had ever met, and we've met most of them. It gave us the opportunity to connect a best-in-class specialty trade distributor to us, not only to continue their growth in their own right, but also to give us an example of what great looks like from a delivery execution, really from a service model perspective. And so now we have a best-in-class distribution service model attached to the giant of home improvement, and we see gains from that every day. And so we know our pros tell us that we continue to have the right to win. We have posted eight quarters in a row of positive comp sales with the pro. And we know that's not by accident. It's as a result of all the investments we've been making. Great. I think, you know, for the longer term algorithm, obviously, the complex pro gives you the bigger TAM. It gives you more growth opportunity. But I do think the flow through is maybe a little bit less, just given the nature of the business. So how should we think about maybe the longer term algorithm when considering the growth of the complex pro within the Home Depot enterprise? So I'm glad you asked that because I do think that there's a misunderstanding on pro margin. So if you think about some of the acquisitions we've made, SRS, GMS, they happen to be in categories that reflect margins that are lower than the company average for Home Depot, but that are very similar to our margins in the same categories we sell at Home Depot. But if you look at our pro customer that represents more than half of our sales, their margin profile is the same as the margin profile of the consumer. The vision here is to sell across the entire project, which means that we should be able to earn margin that reflects the entire product, which would be more similar to today's margins. acquisitions you know tend to have mixed shifts but again we we are every day working on that vision to be able to say yes to any product sale within the project and also kate go back to that service model orientation if we create the superior value proposition in the market we should be able to earn margin from that value prop in the market and so we don't think that over the long term it should necessarily be dilutive although you might see some product mix impacts from time to time okay and i know there's a significant cross-selling opportunity here too you disclosed that 90 of home depot stores have facilitated or closed a sale through srs over the last 12 months i think you have a goal out there to do 400 million in cross synergies this year. So could you maybe talk about that opportunity and where you see that going longer term? Sure. Well, I think you start just at where SRS has begun to build cross-selling in its own right, where they've added GMS and then an HVAC platform. When you combine those with the power of the Home Depot, we're now able to approach customers like home builders, small, medium, even large, with the ability for them to consolidate their supplier base. And that cross-selling is the majority of the $400 million that we think we will generate this year in cross-selling is that combined sales effort of the SRS platform and the Home Depot selling into the builder and very large remodeler channel. But I'm going to come back to the point that it all starts in the store. You mentioned QuoteCenter. Quote Center is our internal platform we've used for many years to farm out orders that the Home Depot could not fulfill. By adding SRS and GMS into the enterprise, we now shift all roofing orders that we can't fulfill from Home Depot to SRS, wallboard, ceiling tile, steel stud to GMS. And that is growing. The use of that, as you said, 90% of our stores have had SRS fulfill an order for them over the last year. And the growth in nominal dollars is quite exceptional. And so while we think it's $400 million in cross-sell in 2026. We're looking forward to an even larger number in 2027. You know, and this also includes, we don't talk a lot about HD supply, but HD supply has that sales channel into multifamily opportunities. HD supply can now introduce SRS when they see a roofing opportunity at a multifamily complex. And so we're really building an ecosystem of businesses that can cross-sell effectively, and we're in the very first innings of being able to actually create a streamlined process to do that cross-selling, and we're still gaining ground. And just from a strategic standpoint, do you think you're at a place now where the business has kind of been built out to what you envision it to look like, or do you thing you'll have to make other acquisitions along the way? well we have established a base in SRS that allows us to experiment with organic expansion and other categories we have given them access to uh to facilities and Billy's team works hand in hand with SRS to allow them accessto our expanded catalog and so I think we're we're always going to push organically. What else can we put in the hands of our salespeople to sell more? Acquisitions will always likely be a part of the SRS growth algorithm. They're exceptional at what they do, and so we'll allow them to continue. We have a very high bar for acquisitions at the Home Depot. Acquisition needs to be a perfect strategic fit, so it has to accelerate our strategy, has to be a perfect cultural fit, and they have to be exceptional performers. So that really kind of cuts out, you know, quite a few folks just with that screen. And then we also want to make sure that we have the capacity to integrate successfully. And, you Know, we have a great track record of integration, of integrating acquisitions successfully. We intend to keep that reputation. And so capacity to integrate is always on our minds. But we think that a balance of organic and inorganic growth, as long as it meets our criteria, is healthy. At the same time, we've added a lot to SRS in the last 12 months, and we're busy making sure that we optimize value creation there. Great. And I just wanted to make sure we touched upon it a little bit when we were talking about the pricing discussion. But just when we think about some of the good guys and bad guys with regards to margins into the back half of the year, I think shrink has been in the good guy category. And I wondered if you could maybe talk a littlebit about how that's been an unexpected benefit to your margin story. Well, it's certainly been a benefit over the last several quarters, as we've called out. But I don't know how much additional benefit we'd see from that. We've had a number of different initiatives, including our frontline associates in technology we've enabled them with. But I wouldn't say that's a real tailwind as we go forward. But we're thrilled with the work that our cross-functional teams have done to mitigate that and actually have that as a tailwind over the last several quarters. and then just from the capital allocation strategy again the share repurchase program's been paused as you kind of get back to your leverage ratio but how should we expect to see or we should we except to see share purchases re-engage in the next year so right now we're on a trajectory that would take us back to a two times debt to EBITDA ratio by I call it the middle of fiscal 2027. Our capital allocation approach has not changed. It's been consistent over many years. We're going to reinvest in the business first and pay our dividends and then return excess capital to shareholders through share repurchases. You know, obviously, our cash flow generation power affords us the ability to be flexible within that, but we fully anticipate we'll return to repurchases by the end of Q2 2027. Great. I wanted to make sure we asked a question about AI. You've recently rolled out innovative tools like your material list builder and AI blueprint takeoffs, which can generate a material list for your customers. Can you give us an update on pro-adoption rates for some of these AI-driven features? Well, I'll answer the question, but I think there's a more important answer that I'll shift to Billy. I think one of the advantages that we are leaning into heavily is we are, I think, maybe the only scale player who can lean into AI as heavily as we can to change the way that our pro interacts with their supplier base. And so we have a number of developments in the works to really supercharge our the digital platform that we offer to our pros that digital experience and so we've seen great adoption among our pros and material list builders and project planners but you know we we get press for some of the more customer facing AI applications like magic apron when I And I think, you know, we will be the leader in AI enablement in our space. And maybe, Bill, we talk a little bit about how we'll see that. Certainly the customer-facing pieces, Kate, that you mentioned, do get a lot of praise. But we're super excited about some of the work that we're doing internally. You think around just in merchandising, you think around assortment optimization and how to, you now, go a lot faster with utilization. out. You think about pricing models that you're able to get into the market. Historically, pricing tests, and we have hundreds of them going on at all times, those have to be taken into market. There's a period of time where those have to be executed in stores so you can take those results. And some of the early learnings we've gotten from some of the pricing models we've stood up, just an enablement there to be able to really go much faster. You think about supply chain optimization and inventory and some of the work we've done there. So we're super excited. We've got Fran Bell on board who's leading that for us. There's a tremendous amount of experience. She's got a great team that she's bringing in to help us more optimize. And I'd say less optimize. It's to go faster. We need to get more stuff done quicker. And our ability to be able to take micro space as another micro macro space in our stores and be ableto do that at scale, a lot less expensive and a lot quicker, is really exciting about some of the things we're just doing around assortment and then the pricing models I talked about. So somewhat early days of what we're doing, but really pleased with the work that the team's been putting. And AI enablement in the hands of our associates in the stores, too. Just think about tasking. Yeah, you think about, you know, we've talked about taskING, and how do we get more of our, you now, orange aprons engaging with customers. And we have a taskING group, our MET group. So the enablement we've had with AI and just be able to do taskING with our taskING group, which is our MEC group, more productive, faster. and what that does is free up our Orange Apron Associates to engage with customers more. We're really thrilled with the rollout of what we've done so far. It's early days in terms of moving more tasking to those folks. We're getting great customer engagement scores as it relates to the early days of that. So we're putting more technology in those frontline associates that allows, again, more engagement with our customers. And, again taking that tasking team and the productivity we're seeing is really 3X. If you think about an associate in the store that's working in the aisle and they're helping customers, and then they're on a ladder and they get pulled down and they go in to load mulch. They're doing a lot of different things with tasking at the same time. To have a team to be able to do that tasking so, again, their time can be freed up to engage with customers has been great, and the productivity we've seen so far from some of that enablement is really terrific. It's one of our questions that we're kind of at that section of the conversation, but we have these four questions we're asking every company. I'm going to go a little out of order because we just talked about AI, But given the whole list of productivity and efficiency that you could see, do you expect a significant increase in efficiency by 2027 in, like, the next year versus what you're seeing in 26? Or is this more a multi-year opportunity? Well, I think it's probably evergreen. I do think it is multi- year. We have committed to several billion dollars of productivity in our expense base over the next few years. AI is without a doubt going to be a piece of that. We intend to see that productivity in the form of higher sales, though, right? As Billy said, AI is really about getting more things done faster, and we have a lot to get done. You know, we intend to move faster than any of our competition in the space. And so, you know, the unlock really has to be share gain compounding. That's the point of AI. It's the part of everything we're doing. What top line benefit can we drive? That's what we're looking for from AI productivity. Great. And just to kind of wrap up with the last rapid fire questions, we've talked a little bit about the, you know, housing environment, but just in terms of the overall consumer, do you have any expectations for the environment in the second half of 26 relative to your first half when it comes to the health of the consumer? We don't see anything that tells us there's an inflection. If you look at the last six quarters, consumer sentiment has actually become more pressured. Our customers tell us, on the good side, our customers have the means to spend. What they tell us is there's just so much uncertainty right now. You think inflation, interest rates, fuel prices, job concerns. They're not yet ready to unleash that power of spending into large projects, but we know that the potential is there. At the same time, we don't see, you know, anything we can point to that says there's an inflection in demand. And we talked again a little bit, we touched on all these questions, actually, but this one's on pricing. Would you expect your prices or average unit retail to be higher, lower, or the same in the second half of this year versus first half? Yeah, I'd expect it to be relatively what we've seen so far year to date. Again, we have those plans in place, you know, well in advance, and we are taking on more costs as we talked about there, but I would expect our AUR to remain, you Know, where it's been for the first half of the year. Okay. And then also margins, but this is more into 27. Would you expect to see more margin headwinds or tailwinds in 27 versus 2026? I think if you took any year in the last five years and asked to predict the cost environment, that would have been tough. And yet, you know, that's what Billy and his team do every day. Yeah. I would love to say we were in a static environment where we could predict 27 more. Thoughtfully, we're in those discussions now. I think we're, you know, we've updated our or backed up our guidance for Q2 and Q2 for the balance of the year. So we'll look at that and then see, you Know, there's a vote today, I think, on some legislation. And, you knows, those all play impacts, and we'll see on the broader tariff environment. But right now we're focused on delivering for all of you for the back half of the years. Great. Well, thanks for joining us today. I appreciate the time. Yeah, great. Thank you, Kate. Thank you.