家得寶 (HD) 2003 Q1 法說會逐字稿

Good day, everyone.

Welcome to today's Home Depot's first quarter earnings conference call.

As a reminder, today's call is being recorded.

Beginning today's discussion is Mr. Bob Burton, Vice President of Investor Relations.

Please go ahead, sir.

Thank you, and good morning.

Welcome to The Home Depot first quarter conference call.

As we reported this morning, earnings per diluted share for the first quarter were 39 cents, up 8.3% compared with the first quarter last year and 2 cents ahead of EPS consensus.

Joining us on our call are Bob Nardelli, Chairman, President, and CEO of the Home Depot, and Carol Tome, Executive Vice President and Chief Financial Officer together with other Home Depot executives.

Carol will begin the call with the details of the financial results and then Bob will offer his comments and then we'll take your questions.

As a reminder, the question and answer is available to all interested parties although questions will be limited to analysts and investors.

We'll be available for media questions following the call.

This conference call is being broadcast realtime on the internet at www.homedepot.com with links on both our home page and under the financial information section.

We will also offer an internet replay of the call until August 19, 2003, and a 2-day telephone replay which is available at 719-457-0820 with a confirmation code of 122481.

Before I turn the call over to Carol, let me remind you that our discussion today will include forward-looking statements relating to among other things, our estimates and expectations for sales and earnings growth, comparable store sales, new store openings, gross margin expansion, our effective tax rate and capital expenditures for fiscal 2003.

These statements are subject to various risks and uncertainties that may cause actual results to differ materially from the company's historical experience and its present expectations.

These risks and uncertainties include but are not limited to fluctuations in and the overall condition of the U.S. economy, stability of costs and availability of sourcing channels, conditions effecting my store development, our ability to implement new technologies and processes, the company's ability to attract, train, and retain highly-qualified associates, unanticipated weather conditions and the impact of competition and regulatory and litigation matters.

Undo reliance should not be placed on such forward-looking statements as such statements as such statements speak only as of the date on which they are made.

Additional information regarding these and other risks is contained in the company's periodic filings with Securities and Exchange Commission.

I will now turn the call over to Carol Tome.

Thank you, Bob.

Good morning, everyone.

For 2003, our focus is simply sales, service, and execution.

Financial results for the first quarter demonstrates this focus.

Like other companies, our business was effected by macro factors such as global conflict, cold and wet weather in the north and west and a persistently stubborn economy.

We can't do much about these external factors, but where we can make a difference we did.

In the first quarter, Home Depot customers were drawn to our stores by our new advertising campaign.

They found our stores to be better in stock with new and exciting products and displays, as well as associates to help them.

While we have much work ahead of us in sustaining consistent sales momentum, capturing productivity through new technology, and building on gains and customer service, we emerged from the first quarter with renewed confidence in our annual guidance to grow our top-line or sales by 9 to 12% and our bottom-line or earnings per share by 9 to 14%.

In the first quarter, our comp sales declined by 1.6%.

While we aren't satisfied with the decline in comp sales, we do feel positive about the sequential trend in traffic and sales.

From the fourth quarter, where comps were a negative 5.9% into the first quarter with a negative 1.6%, and now into the second quarter where the comps are running ahead of the first quarter results.

Comp sales for the first quarter varied by month.

February ran negative mid-single digit comps, as a major snowstorm along the east coast shut down stores in four of Home Depot's top seven major metro markets.

Despite low consumer confidence due to worries about the war, comps for March were flat as we saw positive trends in warm weather markets.

We fought some tough weather in April, including several hundred tornadoes and wet weather on the west coast.

Comps for April were slightly negative.

As I mentioned, May comps are now running ahead of the first quarter performance.

During the quarter, we experienced falling lumber prices, which had a negative impact to comps of about 50 basis points.

We do not anticipate that this pricing environment will ease soon.

Kitchen and bath was the strongest category for the quarter and was driven by a 22% comparable sales gain in appliances.

We now have our expanded appliance set in 771 of our stores.

Lawn and garden was also a strong category for the quarter, led by outdoor power equipment.

Sales growth in our core service businesses gained 36% over the prior year.

We saw strength in areas like countertops, HVAC, and sheds, but some weakness in the soft flooring category.

For the quarter, our total sales growth was 5.8%, driven by new stores.

And just a comment about cannibalization.

It's part of our operating model and today, we cannibalize about 20% of our store.

During the first quarter, we added 36 new Home Depot stores, including three stores in Mexico, and five Home Depot landscape supply stores, bringing our total store count to 1,568.

Of the stores open during the quarter, we opened 13 in February, nine in March, and 14 in April.

We now plan to open 200 stores in fiscal 2003.

A 13% increase over the end of fiscal 2002.

In the second quarter of 2003, we plan to open 39 new stores, including one Home Depot landscape supply store.

As a reminder, our store openings for 2003 are back-end weighed with about 63% of stores to open in the second half.

Now turning to store productivity metrics.

Selling square footage increased 11.9% from last year to 169 million square feet.

The average square footage per store of about 108,000 square foot, declined slightly from last year reflecting a changing mix in our store format as we sized stores to meet the needs of the markets.

Customer transactions grew to 296 million for the quarter, up 4.2%.

In the first quarter, our average customer ticket increased 1.8% to $51.29.

This is the highest average ticket in our history.

Our average ticket increased in 9 of our 11 selling departments.

We are pleased with this performance as it reflects improving customer service.

The biggest drivers were in our kitchen and bath categories where the ticket increased at 9%.

And in our garden and seasonal categories, which increased 4%.

Our weighed average weekly store sales for the quarter were $753,000 compared to $808,000 last year.

Sales per square foot for the quarter were $362.75 versus $384.46 last year, a decrease of 5.6%.

While down from last year first quarter, new store sales productivity improved sequentially from the third and fourth quarter 2002 performance.

Gross margin for the first quarter was 31.97%, 144 basis points ahead of the prior year.

This margin performance reflects the following: Continuing benefits from the merchandising programs we launched last year as we rationalized vendors and improved assortments.

We had improved performance and shrink and we had an increase in our direct import penetration from 6% for the first quarter last year to 8% this year.

Now, as we commented at our January analyst meeting, our expectation for fiscal 2003 calls for only modest gross margin expansion on the year as we anniversary last year's strong gains, particularly in the second half of 2003.

We continue to invest in our stores and customer service.

As a result, we did not leverage total expenses for the quarter.

Selling and store operating expenses increased 127 basis points as a percent of sales to 20.49% from 19.22% last year.

We view payroll, both in terms of selling associates and store leadership positions as an investment.

In the first quarter, we added labor hours back into the store, and our average wage rate increased, for the first time since 2001.

Second, we invested in our customer shopping experience as we executed our plan to reset, repair, and remodel our stores.

While we are committed to these repair and remodel programs, certain costs ran ahead of our expectation.

We expect these costs will move back in line as the year progresses.

Third, we invested in advertising and our new branding campaign.

Pre-opening expenses were $15 million for the first quarter compared with $25 million for the same period last year, reflecting 17 fewer new stores in the first quarter this year than year.

As well, pre-opening costs per store remained below last year's level.

General and administrative expenses for the first quarter rose 19 basis points as a percent of sales to 1.79% from 1.60% reflecting the current sales environment and investments in technology and growth initiatives.

Net interest expense was $6 million, reflecting a lower average cash balance during the quarter, lower short-term interest rate, and lower capitalized interest due to the timing of store openings and site development.

The effective income tax rate for the quarter was 37.1%, compared to 37.6% for the first quarter last year, reflecting higher tax credit and a lower effective date income tax rate.

We expect the effective tax rate to remain at 37.1% for the remainder of the year.

First quarter 2003 consolidated net earnings totaled $907 million, up 6% from $856 million in the first quarter of fiscal 2002.

Earnings per share increased 8.3%.

The diluted weighed average shares for the first quarter were 2.297 billion shares compared to 2.365 billion in the first quarter last year.

This reduction is due primarily to the effect of last year's share repurchase program.

Now, on the balance sheet, cash and short-term investments totaled $4.3 billion compared to $2.3 billion at the close of last year.

Even as we invested in inventory, technology and stores, through active working capital management, we also generated cash.

Since the beginning of the year, our cash balance has grown by $2 billion.

In the first quarter of last year, inventories on a per-store basis declined by 13% to $5.4 million.

Last year, we were too light on inventory.

At the end of the first quarter this year, average inventory per store increased by 10% to $5.9 million, producing better in-stock position and improved assortments.

As we have focused on improving our in-stock position, year-over-year our total inventory has increased by 25% ahead of sales and inventory turnover for the quarter was 4.7 times.

Now we expect to swell through this inventory in the ordinary core while continuing our focus on maintaining high in-stock positions.

Our days payable outstanding at the end of the first quarter were 57 compared to 46 days at the end of the fourth quarter.

This was a key driver of our cash flow generation.

Now we believe we have realized the majority of the benefit from our renegotiated payment terms.

Long-term debt at the end of the first quarter was $1.32 billion unchanged from year end.

Our debt-to-equity ratio was 6.4%.

Computed on beginning debt and equity for the trailing four quarters, return on invested capital was 18.2%.

The good news about having cash is that we have financial flexibility.

The bad news is that it did dilute return on invested capital, which was down a point from first quarter 2002, and 60 basis points from year end.

Capital expenditures were $756 million as compared to $639 million last year.

Our overall capital spending forecast remains at $4 billion for fiscal 2003.

Capital expenditures in 2003 reflect investments in our stores and store remodeling, technology and other initiatives.

We now own 1,293 of our stores or 82%.

Our unencumbered real estate position supports our long-term strategy of market dominance and financial flexibility.

Before I leave, I would like to mention EITS-0216, or the accounting change which is effecting some retailers today and will effect Home Depot and our accounting for advertising co-op rebate once we adopt it.

We're assessing the effects of this accounting change and will provide further information as we finalize our analysis.

Thanks for listening and I'll now turn the call over to Bob Nardelli for his remarks.

Thank you, Carol.

And I would like to add a few comments to Carol's highlights.

First, sharing some thoughts and comments on our first quarter, we knew this was going to be a very important quarter to us, and we knew we were at a very critical point in our business transformation.

And we accomplished a lot in this quarter, but I would be very quick to say there is still much to look forward to this year.

As we stayed laser focused on sales and service and execution.

We made this point quite clearly as we took the opportunity to meet with every store manager in this company during the one-week period in the first quarter.

We believe that our sales and earnings performance is evidence of this in a pretty tough retailing environment.

I certainly want to take the opportunity to thank all of our loyal customers and all of our associates.

Let me touch on a few factors supporting our performance in this quarter.

First, let me talk a little bit about marketing and advertising.

We launched a totally new campaign in a record period.

Our new, more-than-a store, you can do it, we can help, is based on extensive customer research that highlights the unique competitive advantage that we have at the Home Depot.

The campaign really emphasizes and reinforces customers' perspective of our competitive strength both as a business and leverages those through our significantly increased national advertising drive time radio and print.

The critical values of great products and assortments and everyday low prices that are guaranteed, not a promise, and associate know how, are front-and-center in this campaign.

We have established a learning relationship with our customers.

I think a perfect example of this is on May 14th, we held our first-ever national do-it-herself night across the country with training seminars on brick pavers, power equipment, outdoor, low-voltage lighting, and this event attracted over 40,000 women.

90% of the attendees subscribe for future data and future clinics.

I think this is proof positive that the female is certainly no stranger at the Home Depot.

We're working very hard over the past couple of years to enhance our process, realign our organization, and we're seeing some very favorable results.

We're seeing 98% in-stock rates ahead of a year ago.

We made this commitment to our customers to be in stock for this spring and we are.

And we are by a lot.

Now let me give you a few examples of what our new centralized merchandising team has accomplished in close harmony with store operations and a new and renewed marketing and advertising campaign.

First, the exclusive arrangement we have with John Deere tractors are posting double-digit unit gains against last year's tractor sales.

They have an average ticket of over $2,000 and the sell-through is consistent with our expectations.

Yellow, green, and orange is certainly blending to have tremendous success in the marketplace today.

In an independent consumer report ranked the John Deere L-100 series best in class.

And our customers are reinforcing that every day.

We're responding to customer preference and taste levels from a market standpoint.

Really quite attuned to changing trends and preferences.

For example, our new Antigua model ceiling fan with an average price of $200 well above our historical average is the fastest-selling line of our Hampton Bay brand fans, which of course makes it fastest-selling fan in the world.

We re-established ourselves as the destination store for live goods by increasing our apron merchandising.

Expanding our assortments and categories like perennials and working with the best local growers to tailor new product offerings.

And I'm sure if you have had the opportunity to drive by one of our stores, you will see what our customers are telling us in very favorable feedback about assortment, about species and certainly the strength and dominance of this category.

We have added new product lines like our Husky pressure washer that are posting double-digit sales.

This 1650 PSI Model is now the second best-seller in the industry with just over one year of market introduction.

Finally, our new line of patio furniture is the best we have ever carried.

With an average ticket of over $400 and our comps showing 154% for the quarter.

Our customer data and focus groups have significantly influenced the design and the selection of this product.

The intimacy through solid market research, customer data, and a certainly enthused and reinvigorated merchandising organization is having tremendous success in the marketplace.

Let's talk about customer service.

If you look at our average ticket, as Carol said the highest in company history, we're making progress as nine of 11 selling departments were positive in the quarter.

Our customer feedback is improving in terms of briefs, store shopability, and associate know-how.

All of the goals and objectives that were set as part of SPI, our service, performance improvement initiative, and working in tremendous harmony with our associates, who are continuing to have the opportunity for increased learning, distant learning and really working closely with our human resource team.

Our customers have told us that they want to check out more quickly.

Technology is the answer.

Self-check out is one way that we're addressing this opportunity.

We have self-checkouts in 392 stores at the end of the quarter, and we're seeing tremendous customer acceptance who take control of the checkout process.

They're using this equipment, more than a quarter of the stores transactions to date.

We're very encouraged with the technology, we're excited about it, and we're continuing to move forward as we'll have over 800 stores with self-checkout by the end of the year.

And equally important, as we committed to you prior calls, the hours that we're generating are being reapplied back to the selling floor to enhance the customer experience and to provide significant improvement in transactions.

Let's talk a little bit about the renovated stores.

We are reinvesting in our stores, and we continue our recess and appliance.

Decor, millwork and other key categories.

We're beginning to see favorable results.

In the aggregate, 15, 15 of 22 product lines that are undergoing resets outperform the total store.

Let me give you some specifics, examples of how these resets are taking place.

In the first quarter, cleaning supplies were up 22%.

Our new rug reset certainly fashion forward, much easier in selection, and category assortment up 15% and, of course, our own Traffic Master Flooring comps were up over 8%.

We're learning and improving our process as we go.

We recognize that we had underinvested in the past and are committed to correcting that situation to date.

Let me talk about kitchen resets, for example.

They used to take 12 to 16 weeks to complete, but through the development of an innovative modular process, which we have applied for patents, will replace the stick building sets and the time of the resets has been shortened by two to three weeks.

Again, technology and innovation to the solution.

Our design-place program was in 921 stores at the end of the quarter.

Our expanded appliance set was in 771 stores at the end of the quarter, and we'll put this in 800 additional stores by the end of this year.

I think Carol shared with you the performance in comps as they continued to run strong double-digits, even as we begin to anniversary the first rollout of these new sets.

In the first quarter, we substantially completed six type-A remodels, of which four reflect the new prototype and the ones we'll be using going forward.

We continue to learn from this process as we launch, learn, and remodel, targeting 22 stores for the balance of the year, of the type-A reset.

While we gained traction in the quarter, I'm not minimizing the challenges that we have.

Certainly the economy promises to be difficult, and we have a growing number of remodels and resets, but they're critical to our transformation, and it's this competitive environment that we cannot lose.

We have to continue to stay focused on execution and make sure that we have associates on the floor every day.

We also have several things working in our favor.

Home improvement continues to benefit from a solid housing market and low interest rates.

It does represent the biggest single capital investment for the individual, and our data and research shows that reinvestment and remodeling providing a significant return to the home owner.

We're answering our largest volume quarter with fresh, new merchandise in our stores.

As Carol mentioned, we continue to have a great financial strength in our cash, in our balance sheet, and real estate assets.

We have a tremendous amount of pride, and, again, I want to acknowledge is the 315,000 associates who care for one another, care for the customers, and really care about our shareholders and care about the communities in which we live and work.

And I want to thank them for recognizing the 1800 associates that have been called to active duty to provide homeland protection and remind all of that you as we launched Project Home Front, while these 1800 men and women, along with thousands of others are protecting our homeland, we want to protect their homefront.

We did this by committing to a million hours of volunteerism and a million dollars of financial support.

And I am pleased to share with you that to date we have had requests for over 900 homes to come underneath our protection and care in response to these 1800 associates who have been called to active duty.

I'd now like to close and return to Bob Burton for questions.

I think we're ready for questions.

Thank you, sir.

The question and answer session will be conducted electronically today.

If you'd like to ask a question, please signal us by pressing star 1 on your telephone keypad.

Again, please press star 1 if you do have a question.

We'll go first to Danielle Fox with J.P.

Morgan

Thanks, good morning.

I'm wondering in what categories did you invest most aggressively in inventory and given the up-front investment in inventory to improve in-stock levels and assortments, is it reasonable to expect that turns could be up by year end?

Well, Danielle, let me comment, in general.

You recall a year ago at this quarter there were some concerns about inventory levels, and we committed back then to surgically put in another $500 million, and we have continued with that commitment.

We have particularly beefed up our inventory in those seasonal areas given this year's the biggest quarter of the year.

We are very excited, for example, on our new patio line.

We're very excited about our exclusive arrangement in the success to date with John Deere.

Our merchants have done a fantastic job both in lumber and building material.

I think if you look at the resets and the success we're having in rugs.

Looking at the new faucet resets, some of the hardware,

I think if you look pretty much across the board, Danielle, you will see our commitment to serve the customer not only with fresh merchandise, ample merchandise, but increased associate service.

If I could just add as Bob pointed out, it's across the entire store, Danielle, particularly in job lot order quantities for our pro customers, and as we think about inventory turns, yes, we believe that inventory turn will improve.

The thing about retail is that you have to have inventory to sell it, so we have been investing in the inventory.

Now we've got it and now we can sell it and improve the velocity.

One quick follow-up.

It looked like the import penetration rate actually went from 9% in the fourth quarter to 8% in the first quarter.

I'm wondering is that seasonal or is that strategic?

It's really a seasonal issue because we sell so many gift items that are manufactured offshore in the fourth quarter.

Danielle, that was Jerry Edwards.

Sorry.

Thank you.

Ready for another question?

Thank you, sir, we'll take our next question from Midwest Research's Eric Brosshard.

Eric Brosshard, CFA: Good morning, I wonder if you could help us with the derogation of comps and the improvement relative to the fourth quarter.

Specifically I'm interested if you're able to quantify the benefit of the payback you're getting from resets relative to the delusion you're seeing from resets and remodels.

Sure, Eric.

As we talked about last year, our reset process while necessary, was disruptive to our overall comp performance, and we believe that the impact to comps was in the 1 to 2% range.

As we look at the performance of the categories that have been reset, I will tell you in total they are positive comping in the first quarter.

Eric Brosshard, CFA: Great, and then a second question in terms of advertising spending where you're clearly having an effective investment this year, can you talk about the incremental investment plan for 2003 as well as any investments you would expect to make on a year-over-year basis and promotions and how you expect that environment to be for 2003 relative to 2002?

Eric, I think, first of all, let me say we're very excited about the response we're getting from this new campaign that John Costello and his team have put in place, and I would share with you that we're right on plan relative to our expenditure.

Eric Brosshard, CFA: And that number is up versus a years ago?

Have you quantified that amount at all?

It is up, but we have not quantified that externally.

Eric Brosshard, CFA: Okay.

Very good.

Thank you.

Yes, Eric.

We'll move now to David Schick with Legg Mason.

David Schick, CFA: Good morning.

Hi, good morning.

David Schick, CFA: If you could talk -- you mentioned that more hours were added, if you could talk about percentage on an average store basis if that's possible.

Well, David, as we look a payroll, it's both in terms of labor hours as well as wage rate, of course.

As we mentioned on the call, our wage rate was up for the first time since 2001, and we're making sure that our associates in our stores are paid fairly for the markets and the great work that they do for us.

In terms of labor hours, we haven't disclosed that, but I will tell you we reinvested in our seasonal categories as you would expect, particularly in our John Deere area, but labor hours back toward the store, and as you think about self-checkouts as we put self-checkout into our stores, that's gone in the hours from self-checkout have gone onto the selling floor of our stores.

David Schick, CFA: Thank you.

Matthew Fassler with Goldman Sachs.

Please go ahead.

Thanks a lot and good morning.

I have a few questions.

First of all, you're advertising more recently both print and broadcast has had quite a focus on the services arena.

And, I wonder, first of all, what kind of traction you're getting in that effort?

And, secondly, whether you've made changes to the infrastructure within the company to support a more aggressive effort on the at-home services business?

I think, Matt, a couple of points.

What we have, we have organizationally realigned.

We brought one of our division presidents to run at-home services who has had a tremendous track record and steeped in experience and relationship.

He's having very good impact in working with and through the stores.

We certainly have realigned our structure in the field.

We're seeing, as Carol mentioned, a tremendous success in 3 or 4 categories as we continue to qualify, certify, and put under contract installers across the country.

So I think it's both focus, I think it's improved execution from the call centers, from the products and the merchandise and, again, broadening our installation base.

Okay.

My second question relates to gross margin.

Clearly you had a easier gross margin comparison in the first quarter and certainly it looks relatively similar in the second quarter and the compares get tougher the second half of the year.

Other than tough comparisons, are there any factors that would impede you from generating the same kind of gross margin leverage or gross margin leverage greater than your annual guidance over the course of the year?

Well Matt, as we've talked about, we will anniversary the benefits that we realized last year, so the comparisons really are the key driver for this gross margin easing, if you will, for the rest of the year, so that we do not believe we will have anything other than modest gross margin expansions for the year.

Now, if you look at what happened in the first quarter, just to give you some sense of what the drivers were, 30% of the benefits came from improved performance and shrink. 70% of the benefit came from reduced cost, given our new centralized merchandising organization.

Okay, my final question, just following-up Carol, on your shrink comment, one of the intuitive questions that I always ask when I [INAUDIBLE] your self-checkout is, what does shrink look like in stores where it's implemented?

Just out of curiosity, can you give us a sense of what you're seeing there?

We haven't seen any negative impacts as a result of self-checkout.

As you may know, these self-checkout machines self-learn, which we think helps in terms of shrink management.

Got you.

Thank you so much.

Thank you.

Aram Rubinson with Banc of America Securities.

Please go ahead.

Aram Rubinson, CFA: Thanks.

One question.

I'm curious, Bob, it seems as if you're being more specific on this call than in prior calls with product issues and the comp even being at a decimal point, and I might be nit picking, but I'm curious if the information that you're working with is better in allowing for that specificity or if there's something else?

Aram, I think as we have talked over the last couple of years, this company has a tremendously proud past, and we're trying to build a bright future.

Part of that, as we indicated, was improving process.

Improving some of our systems, our data warehousing, you know, some of the areas so that we can get quicker and more accurate feedback.

Part of that is what you saw evidenced in this morning's call, and I think you will continue to see that as we go forward.

Aram Rubinson, CFA: All right, thanks.

Good luck.

Thank you.

We'll now turn to Mark Mandell with Blaylock and Partners.

Thank you.

Good morning and congratulations on a pretty good quarter.

Thank you.

My first question is, where do you stand in terms, I mean, how far are you along with all of these initiatives, staffing, inventory per store, et cetera, and relatedly, where do you now see the leverage point with respect to same-store sales and the expense ratio?

I will take a crack at the first part of that.

I think as I said in my comments we knew this was a very important quarter relative to the transformation that we're going through, but I think one of the most valuable lessons we've learned is that the transformation is never over.

That we have to continually improve upon everything we do.

That we can never let our stores find themselves in the situation over the last couple of years relative to remodel and reset.

We recognized that to be able to support our growth for the future, Bob DeRose and his team have to continue at the rate we're at or 12 times what we spent in 2000 on our IT expenditures we shared with you at the analyst call.

So we're getting data warehouse.

We're working on POS.

The thing I'm most excited about is the transformation that is taking place in our stores.

As I indicated, we had every store manager in a session during one week in the first quarter.

I am excited to tell you that the program we put in place on success sharing, which had tremendous payout last year is even increased and that's focused on sales, service, and execution through the first quarter.

We're excited about issuing stock-option grants from assistant store manager through the entire organization so that their hard work, they can share in the benefits and success of this company, even though, you know, there is an expensing associated with it, we think it's very appropriate that they have the opportunity to benefit from our success.

So we're going to stay very focused on this.

We know we got some challenging times in front of us.

We're going to continue to stay fresh and current with more frequent customer focus meetings, customer feedback and really strive to stay in tune with the changes in buying preferences.

If I could just comment on your expense question.

The guidance that we have given for the year is to grow ourselves, 9 to 12% and to grow our earnings 9 to 14%, and implicit in the top-line guidance is the comp of 0 to 3%.

It's very difficult for the Home Depot to leverage our expenses in a flat-to-negative comp environment.

But when we turn to a positive comp, we have the ability to leverage, and that's reflected in the guidance that we have given.

Okay, second question.

Can you give us some idea on how your sales performed in regions that were unaffected by the severe weather, you know, the west, the deep south, et cetera.

Sure.

Sure, I can give you a couple of markets.

If you look at our warm-weather markets, for example Tampa, we had very positive comps from the Tampa market.

Very positive comps from the Charlotte market.

Positive comps in Nashville, positive comps in Memphis and the list goes on.

But where we saw good weather, we had good performance.

Okay.

Then finally, accounts receivable up about, I guess about 30%, current liabilities up 20%.

I would assume the accounts receivable is related to the contractor business.

What sort of increase year-over-year would you be comfortable with for the full year, and what is behind the increasing current liabilities?

Sure, on the receivable side, actually, we don't underwrite risk.

The biggest part of the receivable we carry is due from credit card companies, i.e., due from Visa, Mastercard, American Express, et cetera.

So just by increasing the penetration of our credit business, we have a higher receivable balance.

But that turns very, very quickly as you know, about 6 to 7 days we have tired up in receivables.

On the current liabilities, the biggest piece of that is accounts payable, and we've already talked to you about the extension that we've had in our days payable outstanding.

Thank you very much.

Thank you.

I think we have time for one more question.

Thank you, sir.

That question will come from Dan Wewer with CIBC World Markets.

Dan Wewer, CFA: Thank you for taking my questions.

Two quick ones.

First, this is an old question.

When you look at the new store productivity, Carol, you alluded to with Phil Weak, on the other hand, you all sound very excited about the results and the remodeled stores, therefore, within the context of the $4 billion capital expenditures this year, would it not make sense to reduce the number of new store openings where the returns are mediocre and allocate more money to your models to get those older stores more competitive?

I think it's a balance, and we have shared with you previously on, certainly on our analyst session.

We tried to balance making sure that we are present where we think there is strategic location.

Frank Blake and his team, I think, have really enhanced the sophistication by which we look at markets, looking at population growth, looking at per capita, looking at competitive battle plans, and we want to make sure, because the customer data puts convenience very high relative to brand affinity and shopability.

So we're continuing to balance between geographic presence and remodeling.

As you know, we took our capital reinvestment up significantly this year, and we want to make sure that we're balancing the real estate strategy with the remodel strategy.

And we also want to make sure that we have the doability through resource redeployment to be able to handle these remodels and as efficient a manner as possible, and to be as least disruptive to customers, therefore impact sales.

But more importantly, not disrupting customer loyalty and shopability.

Dan Wewer, CFA: The other question I had related to the shrink observation and if that's responsible for the 30% of the margin improvement, which is pretty remarkable when you consider your inventory per store is actually up 10% year-over-year, creating the opportunity for more shrink not less.

Therefore, when you look at the second half of the year and when the inventory per store trends begin to normalize, would we not see actually a greater rate of improvement in shrink later this year than we are currently?

Let me take the first half of that question and I think Troy Rice and his team -- this is just proof positive of focusing on process, improving metrics and accountability.

And I think working closely with loss prevention, store management, our merchandising group, you can see the results of the old adage, you know, if you measure it, you'll manage it, and I'm very proud of what that team has accomplished in reducing the leakage from our company.

Dan Wewer, CFA: Great.

Good luck.

Thank you.

Thank you, Dan.

Okay, this is Bob Burton.

That concludes our conference today.

Thank you for listening.

Let me remind you that we will offer an internet replay of this call until August 19, 2003, and there is a two-day telephone replay which is available at 719-457-0820 with a confirmation code of 122481.

Thank you.

With that, we'll conclude today's conference.

Thank you, everyone, for your participation.