Good day, ladies and gentlemen and welcome to The Home Depot Q1 2017 Earnings Call. Today's call is being recorded. [Operator Instructions] At this time, I'd like to turn the conference over to Ms. Diane Dayhoff, Vice President, Investor Relations. Please go ahead, ma'am.

Well thank you, Catherine, and good morning to everyone. Joining us on our call today are Craig Menear, Chairman, CEO and President; Ted Decker, EVP of Merchandising; and Carol Tomé, Chief Financial Officer and Executive Vice President, Corporate Services. Following our prepared remarks, the call will be open for analyst questions. Questions will be limited to analysts and investors and as a reminder; we would appreciate it if the participants would limit themselves to one question with one follow-up please. If we are unable to get to your question during the call, please call our Investor Relations department at 770-384-2387. Now 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 presentations 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, Diane, and good morning, everyone. Sales for the first quarter were $23.9 billion, up 4.9% from last year. Comp sales were up 5.5% from last year, and our U.S. stores had a positive comp of 6%. Diluted earnings per share were $1.67 in the first quarter. We were pleased with the start of the year as we executed within a more normalized spring environment and navigated a tough weather comparison with weather driven and demand that we saw in the first quarter of last year. All three of our U.S. divisions posted positive comps led by our Southern Division. On the international front, both Canada and Mexico posted another quarter of positive comps in local currency. The power of our interconnected retail strategy continues to gain traction in our international businesses as digital sites in both countries were recently updated driving sales growth and positive response from our customers. Turning back to the U.S. we saw a broad based growth across our store as both ticket and transactions grew in the quarter and all merchandising departments posted positive comps. Our commitment to new and innovative products continues to be a contributor of our ticket growth. Our merchants collaborate with our supplier partners to bring innovative and exclusive items to market that delivered value for our customers by saving them time and money. As Ted will detail the extension of Lithium-Ion Battery technology into the outdoor power category is an excellent example of our ongoing focus on innovation and we continue to see great sales in this category. Another engine of growth for our business is the Pro customer. As Pro sales once again outpaced the DIY sales in the quarter, we recognized that Pro customers have needs that go beyond our traditional in store offerings and we believe…

Thanks, Craig and good morning everyone. We had a great first quarter driven by continued strength across the store. Our Pro business was particularly strong and outpaced the company average. We also saw excellent growth in our online business as online sales grew approximately 23%. All of our merchandising departments posted positive comps. Appliances, Lumber and Flooring had double-digit comps in the quarter. Tools, Electrical, Plumbing, Decor and Kitchen-Bath were above the Company average. Indoor Garden was inline with the company average. Building Materials, Millwork, Hardware, Lighting, Paint and Outdoor Garden were positive but below the company average. In the first quarter, total comp transactions grew by 1.5% and comp average ticket increased 3.9%. The increase in average ticket was positively impacted by a number of things including customers trading upto new, innovative products. Commodity price inflation in Lumber, Building Materials and Copper also positively impacted average ticket growth by approximately 75 basis points. Looking at big ticket sales in the first quarter, transactions over $900 which represent approximately 20% of worldwide [ph] sales were up 15.8%. Few drivers behind the increase in big ticket purchases were Appliances, Flooring, and Roofing. In the first quarter, sales with our Pro customers outpaced the company average driven by both our high spend and low spend Pros. We saw strong comps in several Lumber categories, Wire, Commercial Industrial Lighting and gypsum [ph] In addition, the core of the store performed well and we saw strength in several maintenance and repair categories across the company. Classes that outperformed the company average included several Flooring categories, Tool Storage, Power Tools and a number of Bath Categories. As Craig mentioned earlier, our customers respond to new and innovative products. A perfect example is the customers’ response when you are seeing a new lithium-ion battery technology in…

Thank you, Ted, and good morning, everyone. In the first quarter, sales were $23.9 billion, a 4.9% increase from last year. Our total company comps or same store sales were positive 5.5% for the quarter with positive comps of 5.8% in February, 4.3% in March and 6.2% in April. Comps for U.S. stores were positive 6% for the quarter, with positive comps up 6.3% in February, 4.6% in March and 6.8% in April. The cadence of our monthly comps was impacted a bit by weather and by the timing of Easter this year versus last year. Adjusting for Easter, on a like-for-like basis, our U.S. comps were 2.9% in March and 8% in April. Two more comments about our first quarter sales growth. First, for activity purposes, we record comp sales when tender is accepted and we report sales revenue when the transaction is completed. The difference is known as deferred sales. Compared to last year, our deferred sales grew by $116 million. As a result, our reported sales growth was less than our comp sales growth. Second, versus last year fluctuating foreign currency exchange rates negatively impacted total sales growth by approximately $71 million. Our total company gross margin was 34.1% for the quarter, a decrease of 9 basis points from last year. As expected, the modest decline in our gross margin was primarily driven by a change in the mix of products sold. For fiscal 2017, we continue to expect our gross margin to decline by approximately 15 basis points from what we reported in fiscal 2016. In the first quarter, operating expense as a percent of sales decreased by 59 basis points to 20.1%. Our expense leverage reflects the impact of positive comp sales growth along with continued expense control. In the quarter, our expenses were roughly…

Thank you. [Operator Instructions] Our first question comes from Simeon Ari Gutman with Morgan Stanley.

Thanks. Good morning. Looking at in different markets across the country, can you tell us if you’re seeing a broadening across markets, meaning, if there were some of the laggards out there. Are the speeding up? And then, are you seeing any moderation in some of the faster improving markets?

We actually look at the variability of our markets and in the quarter our variability narrowed about 40 basis points year-over-year which was pretty consistent with what we saw in Q4.

And that narrowing, I guess, can you elaborate if that’s a function of the fast going – getting slower or some of the slower improving getting faster?

It’s really – we’re not seeing a big change in the regional sales other than where we have some weather impacts.

Okay. And then my follow-up on flow-through which has been pretty strong and consistent. And it’s a function of both gross margin and the SG&A. We know the guidance for the rest of the year. Thinking really towards the end of this year into next year, anything sort of good guys or bad guys think about that impacts going forward. I mean, now this year gross margin a little weaker because of just mix headwinds, but as you look out a little bit longer term are there anything positive or negative we should think about?

Simeon, good morning. So, nothing at this point, and as you know we have an investor conference coming up in December and we’ll give you lot more color about our point of view for fiscal 2018, 2019, and 2020.

Okay. Appreciate it. Nice quarter.

Thank you.

We’ll continue on to Michael Lasser with UBS.

Good morning. Thanks for taking my questions.

Good morning.

Deferred revenue was bigger this quarter than it's been in the past recognized that next quarter. To what degree is that a leading indicator of the business given the nature of the sales that are better in that number?

Yes. There were three big drivers of the deferred revenue growth year-on-year. One you’ve heard commentary about our dot-com sales growth, up 23% year-on-year, not all those sales are completed at the time of that we take the tender. Our dot-com sales now make up 6.6% of our total sales. We also saw growth in our services business. Our services business grew faster than our company average and Ted called out flooring as an example. Those were the two biggest drivers of the deferred sales increase.

It is a leading indicator for the next few quarters given what’s going into those numbers?

We would anticipate continues strong growth in those categories.

Okay. And then my follow-up questions are on the e-comp business, obviously you’re doing really well through that channel. To what extent is it validating that consumers increasingly want to buy the home improvement product through the online channel and subsequently going to expose you to greater and greater levels of competition?

I think the interesting think for us is over 45% of our orders on homedepot.com the customer is actually choosing to pick up into our stores. So they are finding it incredibly convenient to blend the channels and utilize all the assets that we have.

Is that percentage changing at all, Craig, I think you mentioned [Indiscernible]?

It’s been growing over the past 12 months.

Okay. Thank you so much.

Yep.

Thank you. Our next question comes from Seth Sigman with Credit Suisse.

Thanks a lot, and good morning, and great quarter.

Good morning.

I had a question on big-ticket comps in the quarter. Seems to be one of the key bright spots here where it accelerated up 15.8%. I think you said, you mentioned a couple of categories. Do you think that reflects an acceleration in market share and maybe some of the benefits from company’s specific initiatives in the Pro focus or how do you balance that with also maybe an acceleration and demand trends overall?

I’ll start and let Ted comment on this. I do think it's an acceleration of the customer's willingness to spend in big-ticket projects. We’ve seen strong remodel business with our Pro, but then it's also categories that we've invest in as well.

Yes. I’d add to that. It’s a really all the above that the customers responding to the product and the innovation, certainly there’s some very big-ticket items like appliances where we had double-digit comps again. But across the portfolio as I’d mentioned before we track the purchase patterns from OPP up the line structure and we continue to see willingness and response from the consumer when we’re showing great value on innovative products at higher price points. And then services is going quite well, those obviously are bigger ticket items. In our Pro customer, which here, get a much larger items per basket where you’re driving a project and that's been very healthy as well.

Okay. That's helpful. And then to follow-up on gross margin, mix has been the primary driver of the slight decline. Can you maybe speak to some of the other underlying drivers that you talked about in the past whether it's the productivity and supply chain work and then the partial offset from investments in price, are you seeing a change in the pace for either of those items?

Well, let’s talk about supply chain first. Supply chain did contribute one basis point with gross margin expansion in the first quarter. That’s after three basis points of pressure coming from higher fuel costs. Again, like the demand that we had in the first quarter we were very pleased with our supply chain performance. In the first quarter in fact expenses were out plan, so that a good story. And some of the other drivers, its all part of the portfolio that Ted and the Merchants run and is working just the way we want it.

Okay. Thank you.

Thank you. Our next question comes from Keith Hughes with SunTrust.

Thank you. Question on some of the categories, the double-digit categories specifically flooring, could you just highlight what appears to be well above the industry? Could you talk about what's working there? What’s allowing you to gain share?

We have a nice mix there. The hard surface flooring had been much stronger over the past couple of years, and we’ve done a lot of work in our showrooms with hard surface flooring particularly with tile and laminate. But recently vinyl plank has been taking off, so luxury vinyl plank manufacturers are now putting a solid core in the products, so you can get much greater use cases about final product. And its -- the efficacy of it and the look is getting better and better and that selling very well. And then soft flooring, soft flooring is not dead, and we simplify and go to market.

Long, long process.

And we’re seeing terrific strength with our soft flooring categories.

And you’re referring to the whole house installation price, is that what you’re referring to in soft flooring?

Yes.

Okay. Second question, regarding big-ticket in general, as referred to, very good in the quarter, how much did the lumber inflation play into the big number you reported there?

Lumber was a little more than half of that 75 basis points.

Yes. Little more than half. Okay. That 75 basis points, does that on the whole year comp or just down the growth of the – I guess, it would be the same actually on the full year comp or the growth of big ticket?

That was only on the average ticket growth for that company. In terms of performance of big ticket categories that is more driven by appliances and flooring.

Okay.

It’s not so much [Indiscernible].

Okay. Thank you very much.

Our next question comes from Brian Nagel with Oppenheimer.

Hi. Good morning.

Good morning.

Nice quarter. Congrats.

Thank you.

So, couple of questions here. First off, do not to be nitpicky here, but if you – just a question on the cadence of comps in the quarters. So, Carol when you called out in the U.S. business, I guess, adjusted for Easter. March was 2.9% and then April was 8%. So as we think about that I assume that eight reflects, picking up some of the business that maybe even loss or didn't happen in March because of weather? And how should we about then maybe a run rate – more normalized run rate there?

Right. So, Brian, it was a little choppy in terms of the cadence, and we do think that was weather. If you look at our transactions in March were actually under 1% growth year-on-year and that was all weather-related. And when the weather improved in April the sales came back. So, we always talk to you about bathtub of that first half, but we had a bathtub effect in the first quarter, we did. And so we think now about the first half we would think that the first quarter will be slightly stronger than that second quarter, and the comps for the first half will be about the same as the comps for the back half.

Got it. It’s helpful. Then the second question I had is probably a follow-up to your prior question. With regard to online sales, we have seen a nice tick up here. Craig, you call that, you said 45% the online sales our Buy Online, Pick Up In Store.

Right.

The other point, just remaining 55%, is there any color you can give on what people are actually buying online, has it surprise you in any way and maybe then there’s a common on the profitability of those sales versus in-store sales?

Let me address the last part and then Kevin Hofmann is here who runs our online business. So let him comment on the sales patterns. When it comes to the profitability it's actually this whole customer engagement is becoming a blended element between online and in-store, and the customer is choosing in some cases, they start the shopping experience online, they finish in-store or they might vice-versa, start the store and actually finish online. And so with 45% of the orders has been picked up, it is truly a blended effort and we look at that way, our merchants manage it as a total portfolio. So they see an entire blended mix of sales for the business. And that’s actually how we run the business. So we don’t focus on it individually by itself.

And then, Brian, just the sales perspective certainly we see strength across the store. Our bath business has been doing very well. Our flooring business has been doing very well. Plumbing, power tools all doing very well and not to ignore the core building materials products, we see great visit traction Pro’s shopping online, looking for inventory levels, looking at pricing, and that’s been working very, very well for us as well.

Got it. Thank you.

And Chris Horvers with JPMorgan. Please go ahead.

Thanks. Good morning. Following up on just how you think about guidance. So, there was a swoon in the late summer last year, I was curious if you had any retrospect on what drove that and as you just think about modeling the business, is the growth in the market, the growth rate and sort of compares don't necessarily matter? Or do you think maybe as we lap through that that pause like it seemed to happen in late summer where you would expect to pick up some extra this year as we approach there?

I think with all kind of talked this out a lot, and we think Pros went on vacation. And good for them, they were busy, they’ve got more work and then they know what to do it and they took some times off and then they back hard at work. And to your point should we ignore there? I don’t think you should ever ignore a compare. But clearly there is demand that’s being created by this housing market that is very strong. Home prices are up year-over-year over 5%, housing turnover over 4% and aging and housing stock, household formation. We see growth in private fixed residential investment every quarter. It still a long way to go back to reach back to the mean or 4% -- 4.5% of GDP, so lot of good momentum in our business.

So, I guess at that point [Indiscernible] I mean, the compares do ease. We talked about a pretty normal spring, it doesn't sound like there’s any pull forward into 1Q out of 2Q on the spring business. So why isn’t this a 5% to 6% growth business through the balance of the year?

So, a few things. First as I mentioned, we’ve go some currency pressure coming our way. We estimate that currently pressure to be $250 million. Second, it is the middle of May and it’s a little early to start thinking about looking for the full year, but as I said, sales as far in May has been very good.

I think one of the comment would be, Chris that, while we had a great indoor garden business with power equipment, the outdoor garden business in the first quarter really had come alive, then you saw that in the flatness of our ticket $50 and under. There were parts of the country where it was pretty wet for people to be out, preparing their landscape for planting. So I think that was a factor as well.

And then my follow-up is there is anything to as you think about different cycles that you've all seen in this business, seen the traffic number for this quarter, ticket continues to lead which is very encouraging, but at the same time traffic matters. How are you thinking about that in the context of the cycle? Thank you.

Ted got some really great data on traffic. You might want to share that.

Yes. So we’d look at the contributors to our transactions by obviously all the different price breaks. And it is as Craig just said; it is an outdoor garden story on the transaction, so that’s why we’d be a little conservative. You obviously have to get some good weather into Q2 to drive that outdoor business. Q1 wasn’t practically good or bad. It was a more normal spring. We were not concerned that there was much of anything pulled forward. So we are expecting that business to come in outdoor garden. And when you talk about the bigger trends, we’ve often mentioned the 40 classes that we track from the prior peak in 2006 and we still have 12 of those 40 top classes of good that have not recovered to the peak. So those tend to be the much bigger product or projects rather involving lot of millwork and building materials. So while we’re seeing a lot of strength in that business and very robust, I called out roofing as a double-digit driver, but that whole portfolio you generally looking at adding square footage to get the big project, driven projects and we’re looking forward to that comment.

That sales opportunity by the way is $1.3 billion.

Understood. Thanks very much guys.

Thank you. We’ll continue on to Matt Fassler with Goldman Sachs.

Thanks so much and Good morning everyone. So your online business seemed to reaccelerate from the trend that you saw all of last year. I'm interested in what you think drove that business whether is it tilt towards big ticket or changes that you made? And also for the past couple of years online growth has been strongest in the first quarter. It seems almost like the seasonality is changing. And if you could talk about if there's any rhyme or reason to that would be helpful to understand that?

Matt, as you know. As you know, this is an area that we’ve been investing in. And so I think the investments that we’re making is improving the customer experience. And I’ll let Kevin talk about this specific.

Yes. We’ve been refocused on improving the experience across the whole shopping funnel and we’ve made really large savvy design, last fall we upgraded our mobile app substantially. And those have paid nice dividends for us. From a seasonality perspective I just think you’re seeing core categories that we tend to be strong in online, penetrate well in the first quarter and that what’s drving the growth.

Matt, if I could add a couple of numbers. The visits were up 15% year-on-year. Our conversion rate increased 30 basis points year-on-year, so if you’re visits are up and you’re conversion is up, your sales are going to grow. And a lot of that is because of the site experience improvements that Kevin and team has made.

That’s terrific. If we think about that, I’m sure you have data on customer age and you could probably tells from kind of products that you’re purchasing and the kind of products they’re engaging in. If you can give out online transaction, is there sign that the millennial customers disproportionately patronizing enterprise online or is it more evenly distributed across age groups?

We actually see it more evenly distributed.

Got it. Thank you so much. And then one piece of cleanup if I could, you gave the comp growth for the biggest ticket basket. Can you give us the comp growth for the small ticket basket [Indiscernible] please?

It was flat.

Thank you so much guys.

Thank you. We’ll hear from Kate McShane with Citi Research.

Thank you. Good morning. My question is centered around any potential bankruptcies in the place and if in the space, excuse me. And if bankruptcy were to happen, how does it play up to your business and how would it change what you’re already experiencing in appliances, if anything?

We clearly have invested to disproportionately take share in categories that we overlap with key competitors who have been -- having their challenges. And we’re going to continue to focus on trying to capture as much business as we can. It’s in categories like appliances, tools, hand tool, storage. There's multiple categories that we overlap in businesses where we think we can continue to grow share.

There’s an appliance retailer that recently announced store closing basically going out of business and we’re seeing sales coming our way and in an environment where they’re liquidating the stores. It’s very…

That’s really interesting actually.

Yes, very interesting.

Thank you. And then if I could just follow-up on a bit granular, but I know you’ve highlighted that millwork is an opportunity, but it still trending below the company comp average. What is holding that category back? And do you have any expectations on when that comp could accelerate and what could drive it?

As I mentioned, these are much larger projects, you can replace on exterior door to refresh your look or wear and tear, but if you’re going to be getting into a number of interior doors, add windows et cetera to your house, you’re generally doing much larger remodel and one that would likely add square footage to the house. And we’re confident, while that business hasn’t come roaring back just yet. It's healthy. But price appreciation Carol mentioned in housing, this is were people can be much more confident to invest in their home with the confidence that that investment will be rewarded with a higher home value. So they’re very bullish on the state of housing and the likelihood of these much larger projects getting underway.

This is really nothing statistic to me. There are 76 million owned households in the United States and of those there are only 3.2 million that having negative equity in their home. And you go back to 2011, 11 million of those household had negative equity in their home. So the amount shows that since 2011 homeowners have enjoyed 130% increase in wealth, if you will, coming from home price depreciation. So on average $50,000 per household. So, you can imagine at some point, to Ted’s point, they’ll take that down out and do a bigger millwork or total remodel job.

And I think the other part is where there’s 3.8 months of supply of inventory and housing on the market compared to historical norm of six. Like that actually leans into people thinking about remodel versus move as well.

Thank you.

We’ll now hear from Seth Basham with Wedbush Securities.

Thanks a lot and good morning.

Good morning.

My question is around the Pro business. Maybe you could provide some color on the degree of outperformance relative to DIY this quarter relative to recent quarters. That would be helpful?

Should I jump in? I’ll be happy to jump in. So our Pro business grew twice as fast as our DIY customer in the first quarter.

It was pretty balance between our big-ticket Pro and our small spend Pro as well.

That’s helpful. And as it relates to Interline specifically, you talked about some improvements with the use cases and those starting to roll up and get some traction. As you anticipate the balance of the year from those use cases and others you’re working on, would you expect a further acceleration in Interline growth?

We are very pleased with the growth that we’re seeing in Interline. And in use case one, for example I mentioned that we’re at 1500 plus U.S. stores now, and actually seems sales ahead of what we anticipated with that. So, yes, we’re excited about the opportunity with Interline as we go forward.

Yes, the sales growth rate was higher than the company average in the first quarter. It’s less than 2% of our sales that we can’t see that in the top line yet, but we will see it as these use cases gain traction.

Thank you very much.

We’ll now hear from Matt McClintock with Barclays.

Hi. Yes. Good morning. I was wondering if we could talk about the power of innovation driving both ticket and total sales. What product categories would you say over index on innovation or what you would call the benefit of innovation to those product categories?

Well, there’s actually a ton. I’ll call out the – maybe some most exciting and technologically savvy. But when you look across the entire store, we get a distributable monthly report of all the great new innovative products. And it's fascinating to go through it. This is a 200, 300 page report of product every month. It's calling out, it could be lightweight drywall, it could be something as simple as cutting plywood into 4x4 panels to have that pre-cut item for a project, but certainly on the more tacky innovative side the lithium-ion battery technology has to be one of the largest – we have a full riding tractor, RYOBI tractor available for sale that I've ridden it. You can cut your lawn on battery powered tractor. Craig mentioned the outdoor power. We have the power that the run time of gas on blowers and trimmers and hedge trimmers. We’ve seen it in portable power for many years now and it's now accelerating an outdoor power. And then the second one is LED lighting technology in not just individual A-line bulbs, but you’re now seeing integrated LED in your ceiling fans, in your light fixtures and that’s really what’s driving our commercial and industrial lighting that I called out as having such strong comps. Is how you’re getting that integrated fixture, getting all sorts of little bit attractive design elements powered by that incredibly thin lighting form factor. But it goes on. Our LifeProof carpet and our PetProof carpet were technology enables us to offer lifetime stain guarantees on the product. So, really across the whole storage its super exciting, great innovated product that customers are responding to.

Thanks for that. And Carol if I could ask one follow-up, just inventory turns for the quarter were flattish year-over-year. How should we think about inventory as we progress through the remainder of the year? Thanks.

Yes. Well, on an unrounded basis inventory turn were slightly better than last year. And for the full year we’re expecting inventory turns to be up year-on-year, a few ten.

Perfect. Thank you very much.

Thank you. We’ll now hear from Mike Baker with Deutsche Bank.

Hi. Thanks guys. Just one more e-commerce question, have you guys – I’m sure you have – it’s probably been asked. Just to go over again. What percent, what categories in your storage do you think lend themselves best to online? And in particular I'm curious about how the appliance business does online, is that something that you think can work through that channel? Thanks.

Yes. I think we shared number years back that we looked at all of our categories and had segments of the business that we felt would lean more towards the digital world. Those things would be products that were smaller cube, more dense, higher value would lend themselves to that type of business. And so, things like faucets and power tools for example. What's interesting is that we've been in a position to be able to not only grow that business online, but we’ve also been able to grow those categories in store at the same time, and so, that something that we see as a real advantage in our business. And then other categories that maybe the customer actually starts online, but they may finish in the physical world would be things like Floorings and Kitchens and so the research has done there but many times the customer still wants to come in and talk to one of our associates and maybe go through some product and questions that they may have about the process. So it’s really something that we have been watching carefully, but we’ve been incredibly fortunate that we’ve been able to grow both channels really across categories that we think lend themselves to the online business. So – as customers look a lot on line before they actually come into the store and shop.

So just a follow up there, are you seeing the people actually transact for appliances online and then the second follow up is have you ever quantified like you know x percent of your products are in that first bucket of lend themselves well to online?

No, I mean customers do go online and some customers buy online. Just like some customers buy Patio online. They are comfortable doing that without sitting in it. But again, the majority of our business in those kind of categories are in store and we haven’t spent a lot of time trying to quantify.

Okay. Thank you. Very helpful.

You bet.

Thank you. We’ll go to Alan Rifkin with BTIG.

Thank you very much. You said that your average ticket growth of 3.9% was boosted in part by new product introduction. Curious like for a given product what is the duration of like the -- that can help contribute to average ticket and what does the pipeline look like for new products in the future? And I do have a follow up.

I mean it really varies by category on what the cycle is in terms of product innovation. Historically you could think about a product in a 36 month kind of timeframe. Today those categories or that cycle are ways shorter than that. So it varies quite a bit.

Okay, thank you. And then certainly you got very solid expense growth in the first quarter which led you to take a full year ratio from 49% down to 43% after getting 39% expense growth in Q1 which is your one of your lower revenue quarters. If you take that together with the fact that comps ease going forward, it would appear that the expense leverage in the following three quarters could even be better than what we saw in Q1, which would maybe lead to a number that’s even below 43%. Is that a correct line of thinking on my part? Carol Tomé: Alan, as you know we put out guidance based on our point of view on the business and we always try to do better. If I’ll look at the next three quarters I would say the expense growth factor will be slightly higher in the second quarter and then lower in the third and fourth quarter principally because of year-over-year comparison. But we do like to put out numbers that we can beat.

Okay, thank you very much Carol.

We’ll go to Greg Melich with Evercore ISI.

Okay, thanks. Had a couple of questions, kind of follow ups. Carol you mentioned that May was very very good, right. Carol Tomé: Yes.

And I know last May there were some -- there were some, I guess, Memorial Day shift that maturity on sort of a 3 or 4 depend on how you look at it. When you say very good, is that a two year or three year stack, how should we think about that in terms of very good and exit rate? Carol Tomé: I just look at our – versus our plan.

Always versus the plan. Carol Tomé: Always versus the plan

Correct.

And then the second question and maybe sort of a follow up broader speaking. There is a lot going on in the industry, a lot of change and Craig I think you answered being positioned to help the customer and take that share. Could you talk a little bit maybe about the position in terms of how you work with vendors? It seems like you are getting a lot of innovation in products, maybe from some of those vendors that might be thinking differently about their other ways of getting product to market, could you help us understand that side of the equation, and maybe Ted us well especially given online growth etcetera as to how the vendors are working with you.

I mean, I’ll start with a comment and turn it over to Ted. I mean this is an area that we have focused hard on for the past eight to nine years. During the downturn, one of the things that we clearly saw was that if the customer was going to spend money in 2008, 2009, 2010 it was going to be largely around new and innovative products and if that product can help them save time or money they would definitely step in even in those tough economic times. So this has been a focus that Ted and the merchants have had in a big way. And we have a huge focus on collaboration with our supplier partners and we appreciate that we have to win together and two things we always want our partners to know is that when they are looking for volume, there is no better place than the Home Depot that no one is going to drive their volume and their productivity at their production facilities like the Home Depot and a second thing and you notice all the exclusive I called out on my prepared remarks no one can launch a product like the Home Depot and we want to continue working and collaborating with our partners driving their volume and introducing their innovation.

Okay. And then I have one follow up with the house-keeping what was private label credit penetration in the quarter and you’ve talked a lot about strength to consumer from housing, I’m just curious how the credit dynamics are looking to gas? Carol Tomé: Yes, we were very pleased with our performance in our private label credit card. The penetration grew year-over-year by 20 basis points now stands at 22.6% and we see that the sales on our private label card for our Pro the growth rate was faster than the company average.

Great. Thanks. Carol Tomé: Thank you.

Catherine, we have time for one more question.

Yes, Ma’am. We’ll go to John Baugh with Stifel.

Thank you. Congratulations on a nice quarter. Most of my questions are answered, but I was curious on the Southern division comment being the strongest, is that due to weather compare or demographics or both?

Well, the southern division did have the benefit of the $70 million in storm sales year-over-year in Louisiana and there is still some recovery benefit going there, so that was part of the driver for the southern division’s outperformance.

And any weather or excuse me calendar issues to be aware of Carol for the coming quarter or the year? Thank you. Carol Tomé: No. Not that I can think of the timing of the Memorial Day maybe of year-over-year we may have a [Indiscernible] volume to a different fiscal market. I can’t think it better does; we’ll clarify that at the end of the second quarter but no quarter-to-quarter differences, no.

Great. Thank you, good luck. Carol Tomé: Okay, thank you.

Well thank you every one for joining us today and we look forward to speaking with you on our second quarter earnings conference call in August.

Thank you. Ladies and gentlemen, again, that does conclude today's conference. Thank you all again for your participation.