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Home Depot (HD 0.64%)
Q3 2017 Earnings Conference Call
Nov. 14, 2017 9:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good day, ladies and gentlemen, and welcome to The Home Depot Q3 2017 Earnings Conference Call. Today's conference is being recorded. If you'd like to ask a question during today's call please press the * key followed by the digit 1 on your telephone keypad. At this time, I'd like to turn the conference over to Ms. Diane Dayhoff, Vice President, Investor Relations. Please go ahead, ma'am.
Diane Dayhoff -- Vice President, Investor Relations
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.
[Operator Instructions] 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.
Craig Menear -- Chief Executive Officer, President and Chairman
Thank you, Diane, and good morning, everyone. Sales for the third quarter were $25 billion, up 8.1% from last year. Comp sales were 7.9% last year and our U.S. stores had a positive comp of 7.7%.
Diluted earnings per share were $1.84 in the third quarter, up 15% versus last year. I'm incredibly proud of our performance given that this quarter was one marked by an unprecedented number of national disasters. From hurricanes and flooding to earthquakes and wildfires, our thoughts and prayers continue to be with all of our associates and communities who are directly impacted. As they always do, our associates and suppliers did an incredible job supporting those in the path of these natural disasters.
They worked tirelessly and under difficult circumstances to get product where it needed to be, often as they too face disruption in their own lives. Though our store teams worked tirelessly to reopen stores as quick as possible in the wake of these events, several of our stores, particularly in the areas like Puerto Rico, St. Thomas and St. Croix, were forced to remain closed for an extended period of time.
Our solid performance in the quarter was driven by outstanding execution across the entire organization, though our results were not solely due to storm-related activities. We saw broad-based growth across our geographies. Every region posted positive comps in the quarter, but the storms did impact the variability of performance across the regions. Internationally, both Mexico and Canada posted another quarter of positive comps in local currency.
As Ted will detail, both tickets and transactions grew in the quarter as we saw growth, not only in storm-related product categories but in core categories as well. We saw healthy balance of growth from both our Pro and DIY categories with Pro sales once again outpacing DIY sales in the quarter. We believe that the work we're doing to enhance the service capabilities for the unique needs of the Pro customer continues to resonate. Our interconnected strategy continues to drive sales both in stores and online as online sales grew approximately 19% in the quarter, now representing approximately 6.2% of our total sales with approximately 45% of our online U.S.
orders being picked up in our stores. And should a customer need to return an item purchased online for another item, our conveniently located stores are there for them with 85% of our online order returns being completed in store. For fulfillment options beyond the store, we continue to see great results with our store delivery, which grows every week. We are also currently piloting other delivery options, which we'll talk to you about in more detail at our investor conference in December.
The flexibility of our supply chain is a competitive advantage for our business, a fact that was particularly evident given the unpredictability of demand associated with this quarter's national disasters. And while our supply chain did a fantastic job keeping impacted stores in stock, they did so while continuing to support the business and nondisaster impacted areas as well. So while this was a unique quarter for us, I am encouraged by the underlying health of the core business. From a macro perspective, we continue to see positive signs in the housing data, which we believe serves as a tailwind for our business.
As Carol will detail, because of our outperformance in the third quarter and the expectation of additional sales from the rebuilding efforts associated with the storms, we are increasing our sales and earnings per share guidance for the year. I want to close by thanking all of our associates, especially our store associates, for their hard work and continued dedication to our customers and communities. Helping in a time of need is a core part of The Home Depot culture, and that is exactly what our associates did this quarter. We are very proud of their efforts.
And with that, let me turn the call over to Ted.
Ted Decker -- Executive Vice President, Merchandising
Thanks, Craig, and good morning, everyone. We'd had a great third quarter given by strength in our core business. We also saw incremental demand stemming from the national disasters during the quarter. I'd like to thank our cross-functional teams and supplier partners for their efforts in mobilizing our response.
These efforts allowed us to get product to our communities in their time of need. We have 5 departments for core double digits comps in the quarter. This included lumbar, appliances, electrical, indoor garden and tools. Building materials and flooring were also above the company's average comp.
Decor, hardware, paint, millwork, plumbing, kitchen, bath and outdoor garden were positive, but below the company average, driven by price deflation lighting to slightly negative. In the third quarter, we saw growth in both ticket and transactions. Comp average ticket increased 5.1% and comp transactions increased 2.7%. Commodity price inflation in lumber, building materials and copper positively impacted average ticket growth by approximately 105 basis points.
Foreign exchange rates also positively impact average ticket growth by approximately 41 basis points. Big-ticket sales in the third quarter were transactions over $900, which represent approximately 22% of our U.S. sales, were up 12.1%. The increase in big-ticket sales was driven in part by strength in appliances, vinyl plank floorings, special carpet and several pro heavy categories.
Transactions for tickets under $50, which make up approximately 16% of our U.S. sales, grew by 1.8% in the quarter. In the third quarter, we saw strong sales with both our do-it-yourself and professional customers. Sales to our professional customers were double digits in the quarter with similar growth rates in both our high spend and low spend Pros.
Pro heavy category such as lumber, wire, insulation, gypsum and handtools all had double-digit growth during the quarter. Storm-related categories also saw significant growth with double-digit comps generators, wet dry bags, tarps and ladders. In response to the storms, our merchandising execution, build merchandising, supply chain teams worked together to make real-time decisions to adjust our product assortment in inventory levels. This allowed us to better stage product and optimize our store footprint.
Looking beyond of the storm-related demand, we continue to see momentum in our core business. Costs in nonimpacted markets remained strong with healthy growth in both ticket and transactions. During the quarter, we hosted several events that helped drive traffic and create excitement in our stores. We were pleased with our annual [Inaudible] harvest and Labor Day events, which recorded strong growth year-over-year.
Now let me turn our attention to the fourth quarter. In our constant pursuit of being the product authority in home improvement, we continue to focus on bringing new and innovative products to market that save our customers both time and money. One area where we continue to demonstrate this product authority is with lithium-ion cordless power tools. And now we're on the forefront of bringing this technology to adjacent categories.
In the fourth quarter, we're excited to introduce the most powerful cordless compressor in the marketplace, the DEWALT FLEXVOLT cordless air compressor offers all the convenience and portability of cordless and allows our customers to continue using the dramatic tools they already own. Each battery charge provides our customers the power and runtime they need to complete a variety of projects. This new DeWalt FLEXVOLT cordless air compressor is the big-box exclusive to The Home Depot. Adding to an incredible lineup of professional grade power tools, we are excited to introduce a new product line up from Akita that offers an even more powerful cordless solution for multitude of tools.
The new Akita LXT product line offers 36-volt power with fresh line of adhesive, circular and minor saws as well as grinders. With these tools, our pros will be able to tackle any job faster and with up to 50% more runtime. This new and advanced line of power tools is also a big-box exclusive to The Home Depot. With fall coming to an end and the winter season rapidly approaching, our associates are preparing for another series of exciting events.
In the fourth quarter, we will host our Black Friday and holiday events along with our best gift center ever. Our Gift Center will consist of incredible values and products and the best brands such as Milwaukee, DEWALT, RYOBI, Akita, Diablo and Husky, just to name a few. With that, I'd like to turn the call over to Carol.
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
Comps for U.S. stores were positive 7.7% for the quarter with positive comps of 7.3% in August, 8.8% in September and 7% in October. In the third quarter, our gross margin was 34.6%, a decline of 17 basis points from last year. While there were many factors that drove our gross margin performance in the quarter, we can isolate the year-over-year change to the impact of the hurricane-related sales.
In the third quarter, operating expense, as a percent of sales, decreased by 54 basis points to 19.9%. As I previously mentioned, during the quarter, we had approximately $104 million of hurricane-related expenses. Backing out the sales and expenses associated with the hurricane, our operating expense, as a percent of sales, was better than our plan. Our operating margin for the third quarter was 14.7%, an increase of 36 basis points from last year.
Interest and other expense for the third quarter grew by $11 million to $247 million, reflecting a higher long-term debt balance versus last year offset somewhat by higher interest income. In the third quarter, our effective tax rate was 36.9% compared to 36.2% in the third quarter of fiscal 2016. Our diluted earnings per share for the third quarter were $1.84, an increase of 15% from last year. Now moving on to some additional highlights.
During the quarter, we opened one new store in Mexico for an ending store count of 2,283. Total sales per square foot for the third quarter were $412, up 7.9% from last year. Turning to the balance sheet. At the end of the quarter, merchandise inventories were $13.4 billion, up $178 million from last year, and inventory turns were 5.2x, up 2/10 from last year.
In the third quarter, we repurchased approximately $2.1 billion or 12.3 million shares of our outstanding stock. This included 5.6 million shares on the open market and 6.7 million shares repurchased through an accelerated share repurchase or ASR program. For the shares we purchased under the ASR program, this is an initial calculation. The final number of shares we purchased will be determined upon completion of the ASR in the fourth quarter.
For fiscal 2017, we're now targeting share repurchases of $8 billion, of which $2.1 billion will occur in the fourth quarter. During the quarter, we took advantage of an attractive interest rate environment and raised $1 billion of long-term debt, of which $500 billion was used to repay debt that came due in September. Computed on the average of beginning and ending long-term debt and equity for the trailing 12 months, return on invested capital was approximately 32.5%, 340 basis points higher than the third quarter of fiscal 2016. Turning to our outlook for the remainder of the year, we continue to see underlining strength and momentum in our core business.
The macro environment remains supportive, and we believe housing is a tailwind for our business. In addition, we expect the hurricane recovery efforts to continue across a number of our markets. As a result, today, we are lifting our fiscal 2017 sales and earnings-per-share growth guidance. We now expect fiscal 2017 sales to increase by approximately 6.3% with positive comps of 6.5%.
We now expect our fiscal 2017 gross margin to decline by approximately 12 basis points. For the year, and reflecting the expense impact of the hurricanes, we now expect our expenses to grow at approximately 55% of our sales growth rates. And finally, for the year, we expect our effective tax rate to be approximately 36.3%. For earnings per share, remember that we guide off of GAAP.
For fiscal 2017, we now expect diluted earnings per share to increase by approximately 14% to $7.36. We look forward to talking with you at our investor conference on December 6 in Boston, where we will give you an update on our key strategic initiatives and our long-term financial target. We thank you for your participation in today's call. And Katharine, we are now ready for questions.
Questions and Answers
Operator
Thank you. And as a reminder, ladies and gentlemen, as reminder that's * 1 for questions. We'll first go to Michael Lasser with UBS.
Michael Lasser -- UBS -- Analyst
Good morning. Thanks a lot for taking my question. So how long do you expect the hurricane-related spending to impact your sales results and how's the trajectory going to look? Is it initially the greatest right around the event and then it tails off over time? Or it will be pretty consistent over the course of the period that you expect to have an impact?
Craig Menear -- Chief Executive Officer, President and Chairman
Michael, we certainly expect, as Carol called out, to see continued sales increase from the hurricane as we move into 2018. It'll be pretty much in the first half, I think.
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
Yes, so we have a lot of experience with hurricane. And we see that Hurricane Harvey was much like the Baton Rouge flooding last year. Hurricane Irma is much like Super Storm Sandy, although on a smaller scale. And Hurricane Maria, well, it's much like Katrina, although on a smaller scale.
And what our past experience tells us is that the hurricane-related sales tend to be the highest in the quarter immediately following the quarter in which the hurricanes occurred and then the tail off over time. And as Craig said, we would expect that -- them to tail off throughout 2018. For the purposes of building our forecast and guidance today, we have hedged back some of the anticipated hurricane-related sales in the fourth quarter because it's the fourth quarter. And anything can happen with weather.
I will tell you, based on the first two weeks of our sales in November, our forecast would appear to be conservative, but it's a good thing to put together a conservative forecast. When we look at the year-on-year impact, we would expect, as Craig mentioned, that there would be no comp divide next year as a result of the hurricane. We would have the same amount of hurricane sales in 2018 as we had in 2017.
MIchael Lasser -- UBS -- Analyst
Carol, do you want to explicitly tell us why the amount of hurricane-related spending that you expected in the fourth quarter?
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
I would not like to specifically tell you that.
Michael Lasser -- UBS -- Analyst
Okay, I thought I'd try. And then I forgot if it was Craig or Ted, why don't you give us a little keys about the analyst meeting and talking about new delivery options that you're piloting. If you were to go free shipping on some dollar threshold across all of your online SKUs, how margin dilutive would that your overall P&L? It looks like you got your top 150,000 items. Right now, you got about 6,800 that would qualify for free shipping.
So what if you went kind of across the board how margin dilutive would that be?
Craig Menear -- Chief Executive Officer, President and Chairman
So Michael, today, we offer free shipping in any order over $45. So the majority of everything we ship today is... falls in the free shipping.
Michael Lasser -- UBS -- Analyst
Okay. Great. Thank you so much.
Craig Menear -- Chief Executive Officer, President and Chairman
Sure.
Operator
Thank you. Our next question comes from Charles Grom with Gordon Haskett.
Charles Grom -- Gordon Haskett -- Analyst
Thanks. Good morning. I'm just wondering if you guys could speak to the quarterly progression of sales excluding the hurricane impact throughout the, not only in the U.S. but worldwide.
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
Well, we didn't go back and we calculate in the comp. But just let me tell you the impact of the hurricane-related sales and then you can do the math. We anticipate -- we project, not project, but we have seen that the hurricane-related sales in August were about $10 million. The hurricane-related sales in September were about $150 million and the hurricane-related sales in October were about $120 million.
Charles Grom -- Gordon Haskett -- Analyst
Okay. Yes, we can do the math there. Great. Then when you look ahead and try to quantify the impact of the top line.
Just wondering it when you think about the gross margin profile of these sales going forward, how do you -- how historically has it played out? Obviously, here in the third quarter, they were significantly lower than you would typically see. But how do they progress going forward?
Craig Menear -- Chief Executive Officer, President and Chairman
Yes, when you think about the kind of prop sales, if you will, that largely happens as you move into a storm, you're selling things like plywood and generators, which are very low margin rate goods. As you move passive that and get into cleanup and recovery, you then begin to see more normalized mix of sales across the business. And it depends again on the type of storm that it is. And that has tended to be more normalized margin in the business.
Charles Grom -- Gordon Haskett -- Analyst
Okay. Thanks very much and good luck.
Craig Menear -- Chief Executive Officer, President and Chairman
Sure. Thanks.
Operator
Thank you, we'll now hear from Dan Binder with Jefferies.
Dan Binder -- Jefferies -- Analyst
Thanks. Good morning. Talk a little bit about product innovation, specifically the battery technology. Connected home has also been an emerging category.
It seems like a natural fit for a few different retailers out there, one has been particularly aggressive. I'm just curious if you could give us some thoughts on where Home Depot is -- how Home Depot is positioned to benefit from that.
Ted Decker -- Executive Vice President, Merchandising
Yes, Dan, it's Ted. I think we're very well positioned. We have quite a bit of product that's selling very nicely with strong growth year-over-year. Most excited right now about some of the new thermostat product coming out from Nest.
We have great innovation coming from Ring and partnering with Ring for some time, they've given us a number of launch exclusives as well as nuance product exclusives, I think that best speaks to their confidence and Home Depot's ability to bring that type of product to market to sell it. But we're experimenting with how we display the product until now we're working warehouse. So how did that that product are good at it in a series of base with different merchandising approaches is something we're working on and happy with a number of different formats we're utilizing right now.
Dan Binder -- Jefferies -- Analyst
Great. Then for my follow-up question. A separate topic on credit, I know you don't own your credit portfolio, but just wondering if you can provide us with some color on how that portfolio is doing if there's an increase in lending or willingness to lend delinquencies, write-offs, things of that nature?
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
Yes, thanks very much. So right, we don't own our credit portfolio, but we do have visibility into the portfolio. It's a very healthy portfolio with an average net receivable of $12.6 billion. As we look inside the portfolio, we see that it's performing nicely.
Our loss rates are up slightly year-on-year, but they're considerably under the historical average. And historical average, just to put it in perspective, is 4.3%. In terms of approvals for customers applying for our private-label credit card, we see on the consumer said that 73% of all applications are being approved with the cycle of around 7 50. So we write a pretty high-quality year.
On the Pro side, 72% of all applications are being approved. And for the Pro, that line is around $6,700. So hopefully, that's helpful.
Dan Binder -- Jefferies -- Analyst
Yes. Thank you very much
Operator
And we'll continue on to Simeon Gutman with Morgan Stanley.
Simeon Gutman -- Morgan Stanley -- Analyst
Good morning. Nice quarter. Can I ask if -- can you diagnose of the health of the do-it-yourself versus the do-it-for-me customers if you seeing any changes in frequency or ticket and I ask because of there's a lot of focus on the ticket the traffic breakdown us if there's something to be gleaned about this cycle-based how the customer segments are behaving.
Craig Menear -- Chief Executive Officer, President and Chairman
Yes, we actually see growth across both the Pro customers, the do it for me categories and the DIY categories. And we've seen a sequential improvement in the small ticket quarter-over-quarter. Tickets below $50, which have a tendency to lean more toward the DIY as well. And the large ticket growth continues as a result of strong Pro-business and categories like appliances and roofing and flooring.
So not really seeing anything that has us concerned at all about the DIY business.
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
Or do it for me business.
Simeon Gutman -- Morgan Stanley -- Analyst
Okay. And my follow-up. Just two parts. For if we get a cold winter this year, does that represent a tough comparison in a way since we've had a couple of warm winters? And does that change in the complexion of margin for the next couple of quarters? And then the follow-up or the second part was just can you comment on the online sales? It looks like the trajectory slowed, I'm curious why.
Craig Menear -- Chief Executive Officer, President and Chairman
So in terms of the weather, if you will, what happens is some categories will do better in cold weather, other categories will not. So we have the benefit of project business through warm winters, but then that actually put pressure on your categories in the cold weather type things, like heaters and so on. So it's really a balancing act if one offsets the other.
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
And that's why we tend to look at our business on the half and not the quarters because there always whether you're year-on-year compares from the other stock that affect that we talked to about in the first half that always occurs. On the margins, the margins is based on why the sales are, but no real pressure [Inaudible].
Craig Menear -- Chief Executive Officer, President and Chairman
Right. We're actually pleased with our growth online. Kevin is here. I'll let him comment.
Kevin Hofmann -- Chief Marketing Officer and President, Online
Yes, we saw real strengthen our flooring business, our blinds and window coverings business, our bath the business. And as Carol mentioned, we have a number of stores that basically were closed due to the hurricane impacts. And that actually affected some of our online penetration in those stores. But that was really the only thing that caused a blip in the quarter for us.
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
And the sales growth was $243 million year-on-year. So we were pleased with that. And just to put the store closing into perspective, they were closed accumulative 809 days, which is the same as having 2.2 stores closed for entire year.
Simeon Gutman -- Morgan Stanley -- Analyst
Right. Well, thank you.
Operator
Christopher Horvers with JPMorgan has our next question.
Christopher Horvers -- JPMorgan Chase -- Analyst
Thanks. Good morning. I wanted to follow up on the expenses. So it looks like ask in the hurricane top line and bottom-line SG&A impact, you grew SG&A to sales at about a 39% growth rate.
Is that -- how do you think about that ratio as you look forward in the business? I know you typically sort of guide to 50 and there's always a kind of productivity opportunity at The Home Depot. Do you think that, that 50 is still the right number is 40 the right number? Do you see any upward pressure on your sort of marginal flow-through around SG&A versus sales?
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
Well, let's just look at the fourth quarter. and as you know, we don't guide at the fourth quarter, but I'll give you some color in the fourth quarter. Expense growth factor, well, in the fourth quarter, will be similar to what we've guided for the entire year. And as you know, we've now lifted our guidance such that the expense growth factor should be 55% for the entire year.
and you may say, why is that? Well, a few reasons. One, we will have some ongoing hurricane-related expense, not to the extent that we expense in the third quarter, but there is some natural disaster expense that going to happen in the fourth quarter. Two, we are significantly outperforming our plan, which is a good new story, and that means we're going to be paying more bonuses. So we'll have more success sharing for our hourly associates, and we're delighted to do that.
But that will put some pressure on the expense growth factor in the fourth quarter. And then just a little bit of currency new ones in all of this because when you have a weaker U.S. dollar, your expenses outside the United States, when you translate them back, actual bit higher than they would have been last year. So hopefully, that helps guide with the fourth quarter would look like.
And then, as you know, we thought our Investor Day coming up on December 6. And we're going to give new financial targets for 2020. So we'll guide you through everything on December.
Christopher Horvers -- JPMorgan Chase -- Analyst
I guess -- but as you think about, seems like if I look back in 2016, you grew, I think, 30% relatives to sales. So does that indicate any sort of upward pressure on incremental cost versus sales?
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
Yes, at the beginning of the year, we said 50% was a good number to use, and that included rising people costs. And we're not alone. All retailers are faced with rising people cost. And we view our people as an investment.
So we have some of that pressure. But Chris, at the end of the day, the operating margin this company wants to lift in a BAU basis. We will leverage expense in a BAU basis. If you want to use 50% as a BAU, that's a good number to use.
Christopher Horvers -- JPMorgan Chase -- Analyst
Understood. And then just curious about a crystal ball. You talked about no dividend from the hurricanes as you look to next year. There's a bigger -- it seems like there's a bigger hurricane this year versus last year.
So what gives you the confidence in saying that at this point? I guess, why not let The Street put the divide in there? What are you seeing that would motivate you to guide that way this far out?
Craig Menear -- Chief Executive Officer, President and Chairman
I mean, as we shared, each storm is different. And Harvey was very different than the other two storms. And the situation in Harvey is a much more protracted recovery because of the nature of the storm being water-based and the fact that there are a fair amount of folks that didn't have insurance because they didn't live in the 100-year flood point. Unfortunately, they were in the 500-year flood point.
And so we just think that that's recovery is going to be protracted and then a storm like that, we have to go in and basically, people are ripping everything up down to the studs and starting over. That's going to take a while to recover
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
We have -- I've got a 10-page deck that if you were, I'll show you. So if we look at Harvey and as an example, it really looks so much like the Baton Rouge flooding, but it's 3.7x bigger than the Baton Rouge. So we just modeled our experience in Baton Rouge, kind of multiplied it by 3 point times to get the effect for this year and into next. So it's actually a lot of science that went beyond this expectation.
But I appreciate the suggestion that maybe we should put a dividend, but I wouldn't make the suggestion.
Christopher Horvers -- JPMorgan Chase -- Analyst
So it's the first half versus back half '18, basically?
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
Yes, exactly.
Ted Decker -- Executive Vice President, Merchandising
Yes, we'll be good in the first half.
Christopher Horvers -- JPMorgan Chase -- Analyst
Understood. Thank you very much
Operator
Thank you. We'll continue on to Seth Sigman with Credit Suisse.
Seth Sigman -- Credit Suisse -- Analyst
Thanks. Good morning and nice quarter. I wanted follow-up on the Pro business. Nice to see that comes continue to grow in the double-digit range.
I realized it's tough to isolate by Pacific about some of the initiatives in place, whether it's credit or deliver or integrating the Interline catalog, can you maybe point to where you're seeing utilization of some of those offerings starting to increase and what you think is really driving some of that traction?
Bill Lennie -- Executive Vice President, Outside Sales and Service
This is Bill Lennie, It really, I'd say the Pro business is on a broad base of strength, whether it's a project business that continues to be strong and as well as a good balance between ticket and transaction. But we have done, made some enhancements to our Pro My View system in the store, which gives our process, our Pro, account sales associates a better view into their customers and better insights on where their reach for category expansion and how to get a better engagement with our customers. I think the acquisition of Compact Power is another area where we can increase the engagement with our Pros. And we know that the more that we get that multilevel engagement, whether it's online, whether it's delivery, whether it's any one of our other services, that we do increase the, reach end of the customer as well as we start see our growth in their share of the customers business.
Then on top of that, we're also seeing an increase in a number of Pros that are shopping our stores as well. So -- and we've got solid performance goods categories against the SEC codes and increasing Pro customer engagement.
Seth Sigman -- Credit Suisse -- Analyst
And then just as a follow-up. As you think about the housing outlook, one of the things we've observed is a pickup in home ownership among millennial consumers. If we assume that continues and it's going to become an increasingly important demographic for the business over time, can you just give us a sense of what you're seeing, if there's anything different terms of behavior for that customer group and some of the things you're doing to try to customer that customer base?
Craig Menear -- Chief Executive Officer, President and Chairman
Sure. Last year, we have not seen a ton of difference. Obviously, if you think about new home ownership, some of the things that happened early on in that is categories like paint, categories like outdoor garden, where they're beautifying their own. Those are the simpler projects that began, and that kind of takes place no matter what age group is buying the home.
But we're very pleased with the trends. This is something that we saw in our research that the millennials would, in fact, step into the home ownership. There was just a delayed cycle, and that is playing out. And we think that bodes well for the housing market going forward.
Ted Decker -- Executive Vice President, Merchandising
It also our research said that, as Craig said, the types of projects that they're going to engage in are very similar to any new home order. And in research, we see that the millennial-ish showing an interest to be DIY-ers as well. So actually, quite a keen interest to do the project themselves.
Seth Sigman -- Credit Suisse -- Analyst
Great. Thank you very much.
Operator
Thank you. Our next question will come from Brian Nagel with Oppenheimer.
Brian Nagel -- Oppenheimer -- Analyst
hi, good morning. Nice quarter. With regard to the hurricane sales, we talked a lot about, and I know this might be a little near-term focus. But is there any way to measure clearly Home Depot stepped up nicely here in its effort to help customers.
But how your market share track in these events versus what you would normally consider market your trends in the business.
Ted Decker -- Executive Vice President, Merchandising
Yes, we really have no place knowing that. It's just -- it's happening. It's unfolding right now. We just don't have any way of knowing that.
Brian Nagel -- Oppenheimer -- Analyst
Okay, that's fair. The second question I had with regard to online. Again, we called it out a growing but it's still a small portion of the business. As online continues to evolve, have you -- is there any surprises here with regard to -- I mean, what your customers are buying online.
And then also, how should we think about just the investment to continue to support the online leaderships.
Craig Menear -- Chief Executive Officer, President and Chairman
As it relates to any surprises on the online, I think probably, the thing I'd say there is we shared several years back our bubble chart, if you will, in terms of how we thought the online business would play out by categories. And there was a group of businesses in the lower left of that chart that we thought wouldn't have much influence. I think the thing that we now realized is the shopping experience in almost every category starts in the digital world and it truly is an interconnected experience going forward. So we're paying attention to the digital representation across all of our business and as we go forward, creating an interconnected experience to do while the One Home Depot experience for each category.
And that's probably the big, I'd say, learning from a few years back that we've had.
Ted Decker -- Executive Vice President, Merchandising
To build on that, Craig you mentioned, our bubble chart key categories and look at what are the intensity of acquiring online and then matched against the actual purchase behavior. And the purchases haven't changed that much. The large categories large last 3 years ago are large today, it's a lot of bath, a lot of biting, a lot of power tools, et cetera, those continue to be big businesses. But some of the most heavily engaged, again, as Craig's said, where we're not going to get a lot of purchasing online with Pro commodity.
We see the highest engagement online with our Pros checking inventory levels and price. So again, very interconnected shopping experience. Still, they're going to the store, but they want to make sure everything is there for the project before they go to the store.
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
So that means we have to continue to invest in the experience. And at our investor conference on December 6, we will lay out our investing plans.
Operator
Alan Rifkin with BTIG has our next question.
Alan Rifkin -- BTIG -- Analyst
Thank you very much and congratulations on a great quarter. First question for Craig. Craig, you mentioned that the flexibly of your supply chain continues to be an asset benefiting you. Can you maybe just provide a little bit more color on exactly what you are doing there in the sustainability of things?
Craig Menear -- Chief Executive Officer, President and Chairman
Sure, and I also have Mark Collins a leader to jump in. But I'd say the investments that we made in creating the core components of our supply chain, our RDC or rapid deployment network, has been a significant advantage in our ability to flow and point goods where it needs to be. And it all starts there. And Mark, I don't know if you want to add on to that, but...
Mark Holifield -- Executive Vice President, Supply Chain and Product Development
Well, our focus continues to be on creating the fastest and will simply should supply chain and home improvement. Into that, we're planning and collaborating much more with our vendors through our Sync initiative using our truckload resources much more capably, filling our trucks and building our productivity within the 4 walls of our distribution centers and really synchronizing the whole flow of the supply chain to achieve that. And with that great results and working with our suppliers to make that happen.
Craig Menear -- Chief Executive Officer, President and Chairman
I guess, what do you have on that, Alan is Ted called out our field merchandising team. They play a key role in these type of situations, where they truly become the field general on the battlefield, if you will, in a sense. It helped direct and point the supply chain and the merchant's efforts, and that's a key component of what we do as well.
Alan Rifkin -- BTIG -- Analyst
And just a follow-up, if I may, inventories at $13.4 billion, up about 1.3%, substantially lower than your revenue growth. What effect from the hurricane, if any, was there on the inventory levels? And could you maybe just provide, Carol, some commentary on if those levels are satisfactory to you right now?
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
So the impact of the hurricane on the entire supply chain was enormous, and the team did an awesome job of redirecting products to get it to our stores and customers in need. In terms of our inventory levels, our inventory turnover, we're very pleased where we are. We worked really hard to drive productivity and inventory. That starts with the products that we source, quite as oceans and the house will the supply chain.
One of the initiatives that [Inaudible] is something we call supply chain, living, which lowers the variability and improves the ability of orders. One of the outcomes was higher inventory productivity, and we're seeing that. So we're very happy, the long-winded answer is just we're very happy with our inventory level.
Alan Rifkin -- BTIG -- Analyst
Great. Thank you very much.
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
Thank you.
Operator
Thank you and Matthew McClintock with Barclays. Please go ahead.
Matthew McClintock -- Barclays -- Analyst
Yes. Good morning, everyone. Carol, you said that you will leverage expenses. In the past, you've said that there's always a natural tendency for your gross margin to want to lift, but you reinvest back in value.
And I guess, my question is how do you think about your future growth algorithm coming from further reinvestments in value versus maybe investments in the store experience or investments in deliveries? How should be kind of segment the growth going forward from those two buckets?
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
Thank you for asking the question. We're devoting a good part of our Investor Day on December 6 to talk about the future and how we parse through that. There's a BAU point of view, and then there will be in investing point of view, and we'll share with you both to give you a clearer understanding what we're going to be doing over the next several years. Sorry to kick the can down the road, but we got an investor day in a few weeks.
Matthew McClintock -- Barclays -- Analyst
Not trying to sell your tender, if a new a. But if I can ask a follow-up then. Just on Dan's question regarding connected home. On appliances specifically, how do you think about evolving the setting model of appliances as they become more connected and how to think about tying that to your broader connected home offerings?
Craig Menear -- Chief Executive Officer, President and Chairman
Well, we're very engaged that the product manufacturers are really coming up with some terrific innovation. We're working with them closely. We have a view into the pipeline of what's coming. We integrate then with other products in the store.
As we've said before, we're very much an open-source platform where any of our products can work with any other products through an agnostic hub. So yes, we think we're in a great spot, where we added a lot to our online collateral to showcase all products. But in particular, appliances, it's a category we put a lot of efforts into lots of photos and 360-degree spin, and features and measurements and how to get ready for installation, the delivery model and contacting the customer the day before then hours before the actual installation. So it's all part of our end-to-end thinking and business model development for appliances.
Matthew McClintock -- Barclays -- Analyst
Great. Thanks a lot and looking forward to seeing everyone.
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
Thank you.
Operator
We'll go to Kate McShane with Citi.
Kate McShane -- Citigroup -- Analyst
Hi, good morning. Thank you for taking my question. My question was on Interline. Now that Interline is integrated and your salespeople are able to access that inventory for The Home Depot customer, how much do you think that is contributing to comp? And how much do you think there's room to ramp that business up in a more meaningful way at the store level?
Craig Menear -- Chief Executive Officer, President and Chairman
First of all, let me start with we're very excited about the Interline business and we continue to work the integration of that business. And we're pleased overall with the direction and results we're seeing in that. And Bill, I'll let you...
Bill Lennie -- Executive Vice President, Outside Sales and Service
So Kate, we really have 2 initiatives rolled out into the stores. The first one is Pro MRO, which gives the Pro customer shopping in our stores' access to the Interline catalog, and we're seeing that engagement in those cells ramp week over week in a nice fashion right on target to where we would expect them to be. Key categories for engagement with Pros are running in plumbing, electrical, HVAC and hardware. So it's right down the center of that in the core of the business.
Then the second initiative is our Pro purchase card, which I would really describe as a Pro access card. It gives the Interline customers access to shop our stores and with the swipe card come have their purchases billed back on to their accounts. And we're seeing that the adoption rate ramp back up. We were off to a light launch for that, but it's trending nicely and we're pleased with both initiatives.
And then when we're together in December, we'll talk about some next steps and next phases.
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
It's hard, given the size of our company, it's hard to see all of the flowing through on the top line in a measurable way right now. But the trend is right. The trend is positive and the opportunity set is big. And as we've described, the addressable market in the MRO spaces, $50 billion.
And we're just scratching the surface there. So there's a lot of room to grow.
Kate McShane -- Citigroup -- Analyst
Thank you
Operator
Thank you. And we'll continue on to Dennis McGill with Zelman & Associates.
Dennis McGill -- Zelman & Associates -- Analyst
Hi, good morning and thank you. First question, I guess, Ted, on the storm recovery, what you saw in October, I guess, maybe tail end of October into November, are there categories that you could call out as disproportionate benefit from some of the repair item?
Ted Decker -- Executive Vice President, Merchandising
Well, I think if you look at the categorization of the 2 storms, as Craig said, both are very similar in the preparation you're doing, plywood to board up windows, you're getting generators and water, et cetera. And then when the storm hits, a lot of things like outdoor tools and chainsaws and [Inaudible]. After that, the flood in the more Houston market, they're your literally ripping the floor to the studs. So you have wiring and wiring devices and gypsum and mud and paint in flooring.
Quite a bit of flooring product. Also cabinet tree and appliances, et cetera. With the storm in Florida that went up the coast, that's more exterior damage, say, roofing and gutters, some windows, shutters, exterior paint, things like that. So we see the duration of the storm much more out of Houston as we get into the interior fit and finish of flooded out homes.
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
Yes. Well, we plan to comp less. There's outstanding results, and we're going to do that maybe we have a conservative forecast. So maybe a bit better.
Craig Menear -- Chief Executive Officer, President and Chairman
We're pleased with early results.
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
Sure. The first [Inaudible] have started off very strong.
Dennis McGill -- Zelman & Associates -- Analyst
All right. Thanks. Good luck.
Craig Menear -- Chief Executive Officer, President and Chairman
Thank you.
Operator
Thank you. Scott Mushkin with Wolfe Research. Please go ahead.
Scott Mushkin -- Wolfe Research -- Analyst
Hey, guys. Thanks for taking my question. So I just wanted to, I mean, after that last comment about how strong things are in November. I just want to know outside of the hurricane areas, do you guys want to give us the U.S.
comp?
Craig Menear -- Chief Executive Officer, President and Chairman
No, I don't think we can do that. But I can tell you this. Our business, if you look at the business in areas not affected by hurricanes. I mean, we're actually very pleased with the business both from a transaction standpoint to ticket growth standpoint, growth in key categories across the business.
We see strength across the storm, across geographies, as we said in our earlier comments. So we're very pleased with the trends in the business right now.
Scott Mushkin -- Wolfe Research -- Analyst
And would you be comfortable calling it sequential strength?
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
Yes, I mean... Sure.
Craig Menear -- Chief Executive Officer, President and Chairman
Yes, I mean, and if you look at it as well on a 2-year stack basis, sure.
Scott Mushkin -- Wolfe Research -- Analyst
Then the one thing that which had a lot of questions, the one thing hasn't been talked about in the get a lot of questions on is tax policy. Obviously, with the rollout of the House plan, we saw a little step back in some of the home-related hard lightning names. And I'm just wondering if you guys had at that as we go into '18 about tax policy, one of our this cycle generally, that's kind of questing we get too. And if you have any fears as we move into only to do that we could actually see slowdown in business, ex the hurricanes.
Craig Menear -- Chief Executive Officer, President and Chairman
Sure. So on a broad basis, I'd say we're very supportive of tax reform that would fuel the economy and create jobs. And so that's something that we hope we see take place here. And I think there's obviously, a lot going on between the House and the Senate, and we'll see where this all falls out.
As it relates to some of the pieces that are being discussed individually and how that impacts housing, candidly, we don't subscribe to the fact that the belief the mortgage interest deduction elimination would have much of an impact. I mean, we just don't think it has much. And in large part, because the majority of households wouldn't have an impact from what's described today. But it's pretty early to tell.
We don't know what's going to pass.
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
It's early days. Our research shows that only 22% of tax filers actually use a deduction. And then of the people who have mortgages, only 5% have mortgages in excess of $500,000. And then if we have to think about, well, what is the impact to those who actually have mortgages in excess of $500,000, we might itemize in the seductions.
It's really based on a marginal tax bracket. And the way to think about it, [Inaudible] cost of their mortgage. And with mortgage rates so low, it's not a material impact. In fact, we know that for every 25 basis points, then a mortgage rate, it's $40 a month.
So you can do the math. And you can come up with year on impact, but we just don't, as we stand here today, Dell will be a material impact. As we think about housing broadly and fears of slowdown, we don't see that for 2018, 2019 and 2020 for a number of reasons. We talked about an aging housing stock, home household formation and home price appreciation and you may say, well, home prices are really high haven't really fully recovered with the heat and the trough but just as they have but on an efficient business, there's still down double digits.
And when you think about all of the effect that it's with higher home prices, it's been about 122% increase in equity or about $64,000 per home, and that's translating to spending they'll and the focus for home price appreciation next year is very good. So we don't -- the rumors of already pending slowdown, we don't see because of the underlying data because we look on our website and we just don't see it.
Operator
Thank you. Our final question will come from Matt Fassler with Goldman Sachs.
Matthew Fassler -- Goldmam Sachs -- Analyst
Thank you so much for fitting me in. Good morning. Two kind of cleanup questions on a couple of tactical items. First of all, obviously, it's a tough quarter to discern the significance of moves and individual line items.
But if you could talk about how you think the storm impacted your traffic numbers versus your ticket numbers during the quarter.
Craig Menear -- Chief Executive Officer, President and Chairman
So again, Matt, we look at the business across regions and look at non-storm areas versus storm areas. The data around tickets and transactions is actually pretty comparable, and we didn't see a dramatic departure. Obviously, Houston, that market is up and up significantly. But when you look at regions, which are, give or take, 100 stores, we don't see a big departure in the numbers storm versus non-storm.
Matthew Fassler -- Goldmam Sachs -- Analyst
And then, secondly, we didn't talk about much about the promotional department. Obviously, the gross margin ex the impact of the storms, look very clean. Your plant of business was quite strong and it didn't seem to pay a price for that. Anything noteworthy in the market particularly relative to the first half of the year?
Ted Decker -- Executive Vice President, Merchandising
No, we see a pretty similar promotional cadence. Most people Black Friday's odds are out and it's pretty much right on last year. So maintaining the current promotional environment.
Matthew Fassler -- Goldmam Sachs -- Analyst
That's helpful. Thank you so much, guys.
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
Well, thank you all for joining us today. We look forward to meeting with you at our investor conference in Boston on December 6.
Operator
Ladies and gentlemen, once again, that does conclude today's conference. Thank you all again for your participation. You may now disconnect.
Duration: 72 minutes
Call Participants:
Diane Dayhoff -- Vice President, Investor Relations
Craig Menear -- Chief Executive Officer, President and Chairman
Ted Decker -- Executive Vice President, Merchandising
Carol Tome -- Chief Financial Officer and Executive Vice President-Corporate Services
Michael Lasser -- UBS -- Analyst
Charles Grom -- Gordon Haskett -- Analyst
Dan Binder -- Jefferies -- Analyst
Simeon Gutman -- Morgan Stanley -- Analyst
Kevin Hofmann -- Chief Marketing Officer and President, Online
Christopher Horvers -- JPMorgan Chase -- Analyst
Seth Sigman -- Credit Suisse -- Analyst
Bill Lennie -- Executive Vice President, Outside Sales and Service
Brian Nagel -- Oppenheimer -- Analyst
Alan Rifkin -- BTIG -- Analyst
Mark Holifield -- Executive Vice President, Supply Chain and Product Development
Matthew McClintock -- Barclays -- Analyst
Kate McShane -- Citigroup -- Analyst
Dennis McGill -- Zelman & Associates -- Analyst
Scott Mushkin -- Wolfe Research -- Analyst
Matthew Fassler -- Goldmam Sachs -- Analyst
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