Good day ladies and gentlemen, thank you for standing by. Welcome to the Home Depot Second Quarter 2018 Earnings conference call. Today’s call is being recorded. If you would like to ask a question during today’s conference, please press star, one on your touchtone telephone. At this time, I’d like to turn the conference over to Isabel Janci. Please go ahead.

Thank you and good morning everyone. Joining us on our call today are Craig Menear, Chairman, CEO and President; Ted Decker, Executive Vice President of Merchandising, and Carol Tomé, Chief Financial Officer and Executive Vice President, Corporate Services. Following our prepared remarks, the call will be open for questions. Questions will be limited to analysts and investors, and as a reminder, we would appreciate it if participants would limit themselves to one question with one follow-up. If we are unable to get to your question during the call, please call our Investor Relations department at 770-384-2387. Before I turn the call over to Craig, 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 filings with the Securities and Exchange Commission. Today’s presentation will also include certain non-GAAP measures. Reconciliation of these measures is provided on our website. Now let me turn the call over to Craig.

Thank you, Isabel, and good morning everyone. We’re very pleased with our performance in the second quarter, achieving a milestone of the highest quarterly sales and net earnings results in our company history. Sales for the second quarter were up $30.5 billion, up 8.4% from last year. Comp sales were up 8% from last year with U.S. comps of positive 8.1%. Diluted earnings per share were $3.05 in the second quarter. Our results in the second quarter reflected what we call the bathtub effect. As expected, the majority of seasonal sales we missed in the first quarter were recovered in the second quarter. We also continued to see broad-based strength across the store and all geographies. In the U.S., all three of our divisions posted positive comps in the second quarter, as did our 19 regions and top 40 markets. Internationally, Canada and Mexico posted mid to high single digit positive comps in local currency during the quarter. Our solid performance was driven by the outstanding execution of our store associates, merchants, suppliers and supply chain teams. Navigating a sudden spike in demand like the one we witnessed in May isn’t easy. For example, in the northern division the variability in sales over a two-week period of time was as high as 2,770 basis points as the weather turned more favorable. As Ted will detail, both ticket and transactions grew in the quarter. We saw a healthy balance of growth from both our pro and DIY categories, with pro sales once again outpacing DIY sales in the quarter. The alignment of our Interline and legacy outside sales forces around four targeted end markets continues to gain traction. These sales professionals are experts in their respective fields, providing valuable insight and partnership to the pro customers that they serve. This in…

Thank you, Craig, and good morning everyone. We had a strong quarter with results that exceeded our expectations. The team did a great job of maintaining excellent service levels while preserving high in-stocks over a period of elevated demand. Our core business continues to perform well and as expected we saw record sales in our garden business as spring broke across the country. Looking at our departments, lumber, indoor garden, outdoor garden, and electrical had double-digit comps in the quarter. Tools and appliances were above the company average. All other departments but lighting posted to mid-to-high single digit comps. Lighting had a low–single-digit negative comp driven primarily by LED price deflation. In the second quarter, comp average ticket increased 4.9% and comp transactions increased 2.9%. Commodity price inflation in lumber, building materials and copper positively impacted average ticket growth by approximately 119 basis points. In addition to core commodity inflation, we are now experiencing inflation in other areas. These inflationary pressures come in many forms, including rising raw material costs and transportation costs along with recently enacted tariffs; however, as the customer’s advocate for value, it is our job to work with our partners throughout the value chain to manage these pressures. Turning to big ticket sales in the second quarter, we’ve previously defined big ticket sales as transactions over $900. Today, we are redefining big ticket sales as transactions over $1,000 as they now represent approximately 20% of U.S. sales. In the second quarter, transactions over $1,000 were up 10.6% compared to the second quarter of fiscal 2017. A few drivers behind the increase in big ticket purchases were vinyl plank flooring, appliances, and strength with our pro customers. In the second quarter, sales to our pro customers grew double digits Pro heavy categories like lumber, in-stock kitchens, power…

[Operator instructions] Our first question will come from Simeon Gutman with Morgan Stanley.

Thanks, good morning everyone. Nice quarter. I wanted to first ask about the macro - probably will be a busy topic on it this morning. Look - there’s a lot of noise out there, there’s a lot of healthy metrics but there’s also some cautionary ones. Curious, I guess the big one is home improvement demand and how it sort of disaggregates from declining existing home sales. Your guidance clearly doesn’t imply that there’s any reason to be worried, but curious how you look at the world now.

Simeon, we feel very positive about the strength of the home improvement sector and the customer’s willingness to spend. I’ll let Carol walk you through some of the details of how we actually think about it. Carol Tomé: We’ve expanded our thinking in this regard. We look at all housing metrics - housing turnover, home price appreciation, new household formation, the age of the housing stock, and of course housing starts, although that isn’t as directly impacted to our business as the others. What we’ve learned is that you can’t look at any housing or home improvement driver in isolation because they all play off each other. Let’s take housing turnover as an example. Housing turnover now stands at about 4% of units, and that is in part because we have a housing shortage in our country. We only have 4.1 months of supply against a normal month of supply more like six months of supply. With a housing shortage, home prices have appreciated. With home price appreciation, homeowners have more equity in their homes; in fact, home equity values have increased over 120% since 2011, about $73,000 per homeowner in terms of equity, so as homeowners view their home as an investment and not an expense, they spend more. If we look at correlating our comp sales against housing turnover going back to that number, to your point, we’ve disconnected, and we think that really has to do with this housing shortage. In a normal housing environment where there’s adequate supply, you see a pretty tight correlation between our comp sales and housing turnover, but now because we’ve got this housing shortage, it’s disconnected. I could go on and on about the macro because I know there are a number of other things we could talk about. Craig, I don’t know if you want me to continue on, or pause?

I think probably the biggest question that we get is around affordability as it relates to the housing environment, and with the increase in interest rates, when do we get worried about affordability. Again, Carol can walk through how we think about affordability, but the affordability factor with interest rates doesn’t impact the majority of folks. Carol Tomé: Yes, I think it’s so very important when you think about the affordability index, and we’ve talked to you about this in the past, right now the affordability index for the country is 144, and if you look at the historical average, it’s 127, so in the past we’ve said, well, if it gets to 127, that could be a watch-out for us. But as we’ve thought about it, we thought really you need to think about it on the margin, because if only 4% of housing units are turning in a year, that means 96% of homeowners are staying in their home and they don’t care about rising interest rates, and in fact they love rising home prices because their equity is worth more. So really, when you think about affordability, it’s the 96% of the housing units that are in place that are driving the home improvement spend and not so much the marginal turnover that the media tends to pay attention to.

Thanks for all that. I guess just following up on affordability, you have this visibility, we don’t. There are some markets in which the affordability index has dropped a little more severe than the average. I know this quarter was really about seasonal and bathtub effect, but can you disaggregate those markets in which the affordability has deteriorated the most, and then what the top line trend, anything in those markets of note? Carol Tomé: Yes, so let’s just take Seattle. Seattle, the home prices have been on fire, and on fire for a while. Our comp in the Seattle market in the second quarter was 7.7%.

Great, got it. Okay. Thank you. Carol Tomé: Thank you.

Our next question comes from Chuck Grom with Gordon Haskett.

Hi, thanks. Just on the expense front, Carol, your growth factor saw a little bit of a stepdown here versus the pace in the first quarter, despite the better comps. Just wondering if you could frame out some of the components for us - the BAU, and then also looking ahead into the third and fourth quarter, how you see it framing out. Carol Tomé: Sure. In the second quarter, as we talked about in our prepared remarks, we had 90 basis points of expense leverage in BAU. If you look at the drivers of those 90 basis points, roughly 50 of the basis points came from payroll and payroll related items. You’ve heard Ann-Marie Campbell talk about a new labor model that she’s introduced into the stores. We’re driving productivity in our stores while at the same time increasing our customer reports - our customers are very happy with the service that they’re getting in our stores. The rest of the leverage came from leveraging fixed costs as well as everything else. Productivity is a virtuous cycle here at the Home Depot, and when you put up a comp of 8% you expect to get pretty good expense leverage, and indeed we did. As we think about the balance of the year, our expense growth factor in the first half of the year was 139%. We would expect it to be around 135% for the back half of the year, giving us the guidance that we gave you of 137%. Just to comment on the quarters, we would think the expense growth factor would be slightly higher in the third quarter than the fourth quarter, because remember the fourth quarter has that extra week.

Okay, great. That’s very helpful. Then Craig, on the MDOs, you said you opened up one so far. Any learnings, any early learnings so far? Can you quantify how many you think you’re going to do in the back half of the year, and bigger picture, how do you frame out the opportunity across the board?

First of all, it’s very, very early to gather any learnings - we just got the facility open, but we’re up and running and obviously learning as we go. We actually won’t disclose how many we’ll open in the back half, but if you think about the approach to this, and I’ll let Marc jump in here, it is using the advantage that we’ve built in our upstream network to actually feed the downstream opportunity that we have to continue to drive the way the customer wants to engage with us. Marc, I don’t know if you have any additional comments?

Right, the market delivery operations that we built in is just part of our overall plan to drive the fastest, most efficient delivery in home improvement. It’s just getting started there so it’s very early days in terms of that, but this is one of those stockless locations that’s a delivery hub in a local area and we deliver primarily appliances out of there at this point, but we’ll be adding more products to that as we go. Expect more and we’ll keep you posted as we go in the second half and beyond.

Thank you. We’ll continue on to Michael Lasser with UBS.

Good morning. Thanks a lot for taking my question. If we average out your comp transactions between the first and the second quarter, if you account for the seasonality and the seasonal shift between those two periods, it looks like it was up around 0.7%. That represents the slowest traffic growth in the last few years. Do you think that’s a sign that maybe the cycle is entering the later stages, and what would cause that to reaccelerate this year? Carol Tomé: We’d probably need to look at your math, but when we look at our transactions for the second quarter and back out garden or our seasonal business, our comp transaction was up 1.6%.

Okay, that’s helpful. Given all the discussion about tariffs and inflation, maybe you can tell us about your performance in the appliance category, particularly washing machines because that has been an area where there has been some significant pricing pass-through. Based on that experience, how do you see the next few quarters unfolding in terms of elasticity of demand as you try and navigate through what’s probably going to be a hotter inflationary environment?

Michael, I would say at this point that the tariff environment is manageable, and given our sales and our size and scale, it’s even that much more manageable. Overall on the lumber tariffs with Canada and the laundry tariffs on washing machines, as you mentioned, and the Section 301s that have come through, this is all low single digit percent of our COGS and 25-odd basis points of cost pressure. I mean, we are seeing increased cost requests from suppliers, particularly the ones that have been impacted by the tariffs, but as you can see, the overall size is very manageable at this point. Now, there are some categories, and laundry being the most specific where you had up to 25 and 50% tariff if get over certain volumes of imports, for sure that elasticity showed up. You had mid-teen increase in the industry with laundry prices, and you did see some unit falloff there; but as the Korean manufacturers get their facilities up and running in Tennessee and South Carolina respectively, that tariff pressure will mitigate because they will be producing all their machines here domestically.

Ted, just to follow up on that, is there anything that you can learn from the experience with washing machines that you might be able to apply to other categories, especially those ones that will be affected by the next round of tariffs?

Sure. I think we take a portfolio approach to this, and we do not--you know, these tariffs are very specific. They’re calling out products with specific dimensions, so it’s not always even a category of goods, it’s a specific unit or number of units within a category of goods. Yes, we apply learnings on elasticity and we’re not necessarily taking a one-for-one retail with a cost increase. We manage at the portfolio level, and as I said, with this gross less than, you know, low single digit percent of COGS, it’s well within our scope to manage this at the portfolio level.

Thank you so much, and good luck.

Our next question comes from Kate McShane with Citi.

Hello, this is Geoff Small on for Kate McShane. Thank you for taking our questions. We wanted to first dig into the second quarter sales result. You mentioned that the majority of lost sales from the first quarter were recovered in the second quarter. We were just wondering if you can quantify that amount and provide color if there will be any ongoing benefit in the third quarter, and just curious if you saw any ongoing benefit from the hurricane recovery in your second quarter results as well. Carol Tomé: Yes, we can unpack that 8% comp for you this way, and I’m going to round to make it easy. About two points of growth came from our seasonal business, about one point of growth came from the index-based commodity categories that Ted called out on his call, another 1% came from hurricane-related sales, and then the remaining four came from everything else.

Understood, that’s helpful. Just also wanted to dig into the comp performance of your newly remodeled and refreshed stores. I think 250 were completed in the first quarter and you’re now through 500 of those stores. Can you provide any detail on the comp performance of those refreshed stores, and we’re just also curious how many refreshes or remodels you expect to complete over the course of this year.

Obviously for competitive reasons, we’re not going to call out performance of those stores, but we’re continuing to roll that through the back half of the year. Carol Tomé: Yes, we’re really excited about the execution of this initiative. In fact, if you look at the capital that we spent for the first six months of the year, 50% of that went into the stores. Our team’s just doing a great job of putting in everything we said we were going to do.

Yes, we’re super excited, so the greatest penetration of stores will get our new way-finding and sign package, which really brightens up the store and makes navigation of the store much easier. We also do, call it a general environmental clean-up of the stores, spiff the floors, add lighting, paint, remodel restrooms, breakrooms for the associates, etc., so very pleased with the look and feel, and our customer sat scores are trending up as we roll that out. As Craig mentioned, we’re doing lockers, we’re rolling lockers out, revamping some front ends of the store, putting Buy Online Pickup In Store storage lockers into the stores, and also very excited to be rolling out electronic shelf labels. We’ve not done this in the past and we’re starting with our appliance department, and we’ll do over half the stores this year with sort of iPad-sized electronic price signs and information on the appliance in our appliance departments. Carol Tomé: So this is not for the faint of heart, right? There’s a lot going on inside the stores, but we’ve piloted this for over a year before we even started to roll. Perhaps that’s one reason why we’re rolling faster than we thought we might.

Right.

That’s very helpful. Thank you very much, and best of luck in the third quarter.

Thank you.

We’ll now hear from Steve Forbes with Guggenheim Securities.

Good morning. Regarding gross margin, were there any surprises this quarter? You called out transportation headwinds, 16 basis points, which I think is up about 8 basis points sequentially, but shrink wasn’t called out, so is shrink improving, and how do you expect that transportation headwind to trend as we move into the back half of the year? Carol Tomé: We, like the rest of the nation, are facing higher transportation and fuel costs, and we reflected that in the guidance that we gave for our gross margin for the year. Now, we expect an expansion of 41 basis points for the year; last quarter, we expected 44 basis points, so we have factored that. We’re doing our best to manage through it, but there is a real issue in the transportation markets in our country. On the shrink side, shrink was one of those other factors when I called out the drivers of gross margin performance, the change in accounting, transportation and then all other. Shrink was in that all other bucket of 6 basis points of expansion. It was actually a hurt in the quarter, but we were able to offset with actually the benefits coming off of the newly acquired companies. We’ve got a cross-functional team that’s working on shrink, and just yesterday we had a really great report out. We’ve hired a new loss prevention officer into our company and we’re excited about that.

Then just a quick follow-up, right, because you called out that 100% of the stores quality for profit sharing this quarter. How did that compare to last year as we conceptualize the year-over-year impact from the stronger performance of the business broadly, and how do we think about that impact for the full year?

It was for the first half, and if I recall correctly, I think for the first half last year, we were 100% for our stores as well. Carol Tomé: Yes, we might have--

Yes, it might have been two stores that missed last year.

Thank you.

Our next question comes from Seth Sigman from Credit Suisse.

Thanks for taking the question. Nice quarter, guys. A couple follow-up questions here. First, just in terms of the inflation impact on comps that you talked about, just to clarify, it sounds like the bulk of the impact is really just on commodity items at this point. I wasn’t sure, are you expecting to see more increases in some of the non-commodity items as you move through the year, and then I’m also just wondering from a competitive perspective, are you seeing any of your competitors handle the inflation differently, meaning maybe not pass as much through, get more aggressive, etc.? Thanks.

So yes, at this point by far the largest impact is the 119 basis points that we called out from core commodities. There are puts and takes in that, but for the most part, Seth, lumber for example is priced weekly, and you might have some differential on a SKU or market here or there, but those tend to be priced competitively by everyone across the marketplace. We don’t see large impacts in the second half from the non-commodity, and in fact commodity has come down meaningfully, lumber and copper each which are behind the 119 basis points, have moved down over the last eight weeks. So if you look at lumber prices, we are now on framing only 4% ahead of last year, and the peak there was about 40%, so we’re not going to see the same lumber inflation in the back half. Panel prices again were 35 or 40% above LY, and that’s now at about 1% over last year. The good news is, we spoke about it elasticity earlier - I mean, a 40% increase, and we saw such a sharp and quick run-up in lumber prices, we were starting to see an impact in units, but over the last six, seven, eight weeks as these prices have come down, units have responded nicely, so we’ll take the volume any day over price in commodities.

Okay, thanks for that color. Then my follow-up is on the digital business, up 26% - a nice acceleration. I think it contributed 170 basis points to the comps, which is really one of the strongest we’ve seen, so my question is, is this driven by the seasonal shift, was there a benefit from that or something else that maybe you can point to that you think is driving that strength? I think a lot of it is still coming from the store or picked up in the store. I’m just curious what are you seeing that’s helping drive that acceleration. Thanks.

Yes, I’ll make a comment and I’ll turn it over to Kevin. Overall strength in our online business but certainly supported as well with the seasonal categories, so it’s interesting but seasonal businesses pick up in the online space just like they do in the physical space.

Yes, and certainly we saw balanced growth with both traffic and conversion as we continue to just manage the shift to mobile as well. We had really solid progress with our mobile properties, and we had strength across the store, as Craig mentioned. Real strength in the seasonal businesses really helped. Carol Tomé: And 47% of our online orders are picked up inside of the store, so we’re really driving this interconnected experience.

Great, thank you.

Thank you. Our next question comes from Matt McClintock with Barclays.

Hi, good morning everyone. Craig, you talked about rolling out small parcel across all major markets now. I was just wondering if you could maybe talk a little bit about the experience of what you’re seeing in the business in those markets when that capability is rolled out. Thanks.

Sure, I’ll make a comment and I’ll turn it over to Marc. We’re actually very pleased with what we’re seeing here, and it gives us the capability to offer different value propositions to our customers, so a customer who needs a smaller delivery, we can do that much more effectively and much faster for them, and then it’s providing leverage into our overall delivery capability, right Marc?

That’s right. I mean, again on the theme of the fastest, most efficient delivery in home improvement, certainly we’re fast when we have car and van same-day delivery available from our stores in all of our major markets. We’re almost there with all of our major markets. What we’d say about that is it’s great because that’s incredibly fast, but it also has great coverage. We’d match of our coverage of same-day delivery up against anyone in the marketplace, and we would say that our home improvement capability is unmatched in the marketplace.Kevin mentioned the drivers of digital growth. One of those is increased conversion due to faster delivery.

Thanks for that. Then Carol, if I could ask a follow-up just on the macro, I understand that you’ve got to look at everything holistically, but is there any independent impact on certain product categories with housing turnover being as low as it is? I’m just trying to parse through with the 96% of people that are staying in their house, 4% that are moving, does that actually have an outsized impact on specific product categories, or not? Thanks. Carol Tomé: Let’s just look at the math of housing turnover. With 4% of units turning, that’s about 5 million households turning, and I’m looking at occupied households today - that’s 5 million units turning. The average spend is $3,500 a unit, so that means the market opportunity for housing turnover is $17.5 billion. If you use our NAICS market share of 28%, that gets you $5 billion-ish of sales, so $5 billion-ish of sales on our base of $100 billion suggests that turnover just isn’t that important. Just for fun, I modeled what could happen using that simple math if turnover were to decline 15%. No one is projecting that, but modeled it just for fun, and the impact on comps, because again it’s not very big, was less than 1%. So to your specific question about category-specific, we have no insight there, but I’d bring it up to 40,000 feet and say it’s just not that important.

I guess the only comment I’d make on categories, if you think about the number one project would be painting, and you would think that if there was going to be an impact, it would be there, we just had our best paint quarter in five years. Carol Tomé: Right, exactly. Good point.

Fair enough. Thanks for the color.

Our next question comes from Jonathan Matuszewski with Jefferies.

Hey guys, thanks for taking my question. Could you talk a little bit to the traction you’re having in home furnishings? It’s a category I believe you’re leaning into more with SKU count additions, so any color there would be helpful.

Sure. Very early days. As you say, we’re adding a number of SKUs in things like tabletop, in décor, in rugs, etc. Very early days, but pleased with our traction. Significant growth, but on a low base. We’ve completed the integration of the company store, and one of our first integration moves was to list a lot of their better sellers on the Home Depot website, so that just went live some weeks ago and starting to see an uptick there. This is all a journey for our customers to find this product on our website and engage with the Home Depot in these adjacent, but we think very relevant categories.

If you think about the data that shows that average number of retailers that customers shop in roughly the last four years has declined from 13 to 9, and our consumer research said that the customer trusts us to bring value and questions why we don’t help them fulfill the balance of their needs in their home, this is an opportunity for us as we go forward largely as this business continues to shift to the digital world, so you should think about this as a digital strategy.

Great, thanks so much. Just a quick follow-up, any updates on the B2B site that you’re developing for the pros? Is that currently being piloted in select markets? Any update there would be great, thanks.

Sure, I’ll let Bill address that.

When we talked about this last December, we said this was a two to three-year journey, and it will be to build out all the tools and applications that our professional business customers need. We’re still in the customer intercept interview phase and we’re in testing mode, so we’ll probably get a couple of customers over on kind of a small test as we go through Q3, but we’ll see more activity around this space in Q4. Carol Tomé: We saw a demo of it yesterday, though, and the demo looked good. We’ve got to get it now out of beta into the customer hands, but it looked pretty good.

Good progress as we lean into the initiative.

Great, thank you, guys.

We’ll now go to Matt Fassler with Goldman Sachs.

Thanks so much, and good morning everyone. My first question relates to inventory - obviously you had a very healthy quarter. The inventory was up around the pace of sales but a bit more so that in Q1, and a bit above the rate of sales growth that you seem to anticipate for the second half of the year. Any color on what drove the increase would be terrific.

Matt, the main thing there is we’re investing at an accelerated rate in merchandising resets. The inventory from a seasonal perspective is in great shape. We’re at record high levels of in-stock, which we felt was critically important to be able to capture the sales that we did in the second quarter, but the main reason for the increase is the add-on of new businesses and the investment in accelerated merchandising resets. Carol Tomé: Right, and just the capital associated with our merchandising resets alone this year is $275 million, so we’re investing into this for the long term customer experience.

Got you, and then a second question just on the sales for the second half, you don’t typically guide precisely to the quarter, so can you give us a sense of whether that second half sales guidance as you presented it today, what was implied in the business plan at the end of Q1, and then also any comments just given the storm impact on Q3 versus Q4 and the anticipated pace of business? Carol Tomé: Right, so based on the guidance that we gave today, the comps in the second half of the year would be lower than the first half of the year; but Matt, the stacks, the two-year stacks will be identical. Our two-year stack in the first half was over 12, so that gives you a sense. There’s no deceleration happening in the business. On the storm side, I called out about a point of growth from hurricane related sales in the second quarter. We recovered $500 million of the $600 million we had last year, so we think we’ll get another $100 million in Q3-ish - Q3, Q4-ish, but remember then we have to comp all the stuff, so this is a relative comparison. Does that make sense?

Got you, it does. Finally, you spoke about inflation earlier in the call. You started to see inflation last year but it’s been quite persistent, so any sense for the inflation backdrop embedded in that second half guide? Carol Tomé: There isn’t any.

Matt, we’re seeing the commodity side of the inflation mitigate. It’s really going away, so.

Okay, thank you so much, guys.

We’ll now go to Budd Bugatch with Raymond James.

Thank you very much for taking my question, and congratulations on the quarter. Most of my questions have been asked, so I’m just going to go with one small question and talk about pro penetration. You’ve had some really great growth in pro, and I think penetration last we knew was, like, 40% of sales. Has that moved off at all with the continuing outpacing of pro?

Yes, actually we are seeing movement on that as we’ve consistently had our pro business growth accelerate against our growth in DIY, so we are seeing that.

Matt, this is Bill Lennie. We would peg that growth or that pro penetration closer to 45% today. We’ve seen several years of growth where pro has outpaced consumer. Consumer strength has been there, but it’s the activity in the home investment that Carol spoke to. The pro growth has exceeded that, and we’d peg it at about 45%.

And Bill, to your particular area, the integration of the outside sales force and the inside sales force, can you give us a little bit of flavor where that is in the Interline integration today? You’ve made a lot of progress, I know, but where is that and what have you been pleased by?

Craig in his opening comments spoke about integrating our outside sales force - that’s been completed. We’re seeing great collaboration across the organizations, which is allowing us to cross-sell between Interline’s inventories and Home Depot’s inventories. Our sales professionals really provide a service beyond just product for our customers. They are experts in their field, and with that, it does drive engagement, so we’ve seen great strength both in store and outside of the store, particularly with our MRO accounts, so that integration continues to progress nicely.

Thank you very much. Good luck on the second half.

Thank you. Our next question comes from Zach Fadem with Wells Fargo.

Hey, good morning. With respect to your online business, would you say there are any particular categories where you tend to over-index relative to your overall mix; and conversely, what are the categories that maybe haven’t resonated with the consumers, haven’t seen that response yet? Curious if you could talk about the dynamics there.

I actually think what I’d say is we’ve seen kind of the opposite effect. I think there were categories that we anticipated the customer may not engage in the digital world, but that shopping experience actually starts in the digital world, even if it finishes in the physical world. So if you think about things like flooring or doors, which you would traditionally think of as a category that would be purchased in store, in most cases the shopping experience actually starts in the digital world. We’ve seen really nice engagement with the customer really across categories.

That’s interesting. To follow up on the pro, could you talk about any impact you’re seeing from your data initiatives, and any evidence today that you’re gaining share of the pro wallet? Then just with respect to the categories, where do you see the biggest opportunities to gain pro share? Thanks.

Just a quick comment on the pro data. We have--through my view, and our tools at the Pro Desk have been able to provide better insights for our in-store pro sales associates, and we’ve seen growth across all of our managed accounts and our portfolios. But the fastest growing segment of our pro business is the pros that are in our stores and covered by [indiscernible], so it just shows as we provide insights, we can give them some guided selling tools, they engage more with the customers, can provide better insights for us what services and what products we can provide. That just leads to engage and pro growth, so strength has really been outpaced in-store versus our outside sales, which is all about execution and in-stocks and great relationships.

Got it, thanks for the color. Appreciate the time.

Thank you. Our next question comes from Chris Horvers with JP Morgan.

Thanks, good morning. A couple of follow-up questions. I guess the first question is there’s been a lot of management changes at your largest competitor, and I know it’s early, but are you seeing any difference in terms of how they approach the market, whether from a customer service perspective yet or from a promotional perspective, or any other changes?

Chris, our job is to focus on our customer. That’s really what we’re focused on doing.

Understood. Then besides appliances, you don’t bake market share gains into your guide. Can you talk about how you assess your performance relative to the market? In 2Q overall, did you gain share, and any sense on the breakdown in share between share capture in DIY versus pro? Carol Tomé: Oh, if only we had that insight into share capture DIY versus pro. As you know, market share is a bit elusive for us. The best we can do is look at the NAICS 4441, and if we look at the NAICS 4441, it would suggest that we gained share in the second quarter.

And then the last question, as you think about your outlook for market growth in the back half of the year, has there been any changes since you put out the initial guidance in 4Q, or since the 1Q update? Carol Tomé: No, home price appreciation is doing exactly what we thought it would do. Household formation is trending the way that we thought it would. The age of the houses - well, they’re getting older. Housing turnover is the only on that slowed down a little bit, but again it’s not that important. It’s a driver of spend, not a driver of growth.

Thanks very much. Best of luck.

Kat, we have time for one more question.

Thank you. Our final question comes from Brian Nagel with Oppenheimer.

Good morning, congrats on a very nice quarter. Most of my questions have been asked answered, so I’ve just got really one quick one here. There’s been a lot of discussion about lapping the hurricanes in the second half of this year. As we look at what’s happening now in the west coast of the United States with fires out there, what type of--how does Home Depot typically react with that? Is there an initial wave of demand that comes, is there a long term demand that comes as a result of that activity? Thanks.

The first thing I’d say is, boy, our thoughts and prayers go to all the folks that are being impacted here. It’s a horrible situation for sure, and for us, the good news is that we don’t have any structures that have been impacted, but we certainly have associates and customers who have been impacted. It’s just a tough situation for sure. Fires are a tough thing, because basically fires destroy everything and essentially you’re in a new rebuild from that point forward. That’s obviously not the focus of our business, it’s not where our strength or focus is, so no. It’s a tough deal for those affected and we feel for everybody that’s going through this, and we certainly hope for the safety of all the folks battling the blazes, our first responders.

Got it. Congrats again on the quarter. Thanks.

Thank you.

Thank you for joining us today. We look forward to speaking with you on our third quarter earnings call in November.

Thank you. Ladies and gentlemen, again that does conclude today’s conference. Thank you all again for your participation. You may now disconnect.