Ted Decker: Sure, Scot. I think, the last two years, we’ve had the same guidance that we’re having this year, and that is that, whatever inflation is represented in our average unit retail in ticket, would be offset by transactions. So we started the year thinking about a balance of ticket and transaction, and that higher ticket driven by inflation would be offset with transactions. The outperformance of the prior two years was that we didn’t see that much sensitivity. The consumer, our customer was much more resilient sort of purchase through that elasticity curve if you will. What we are seeing now is some more sensitivity and we had almost an exact one-for-one offset in Q4. That’s what we’re expecting for 2023, that there is still inflation.
I mean, we are still in an inflationary environment, as we saw from CPI and PPI results last week. Although, it is abating and its abating more I would say in our industry, our costs on the table are much lower than they had been. Our wraparounds some price moves going into 2023 will be much lower than they had been in the prior two years. And so, while we’re still expecting an offset in transactions, because the ticket won’t be as high the negative transactions won’t be as low, but still net to that flat guidance for 2023.
Scot Ciccarelli: Okay. Thank you. And then, any common denominator in terms of category or geographies where you’re seeing some of the incremental softness? Is it just big ticket, or is there…
Ted Decker: Yeah, big ticket would be the ones that I called out before, that have continued with softness. In the geographies, while we had a little more variability of our comp range. There’s no particular geography that you call out other than weather-impacted ones that would show anything off the mean for us.
Scot Ciccarelli: Got it. Thanks a lot.
Operator: Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question.
Simeon Gutman: Hi. Good morning everyone. Maybe related to the last question, we’ve had home prices, have decelerated for about six to eight months now, and we know existing home sales are in deep negative territory. If you align your business against those trends and in markets where they’re more pronounced, is there a decoupling? In other words, the business is stable despite prices have fallen and existing home sales being down 20%, 30%.
Richard McPhail: Thanks, Simeon. On home prices, we know over the long-term that our business does correlate to price appreciation. Obviously, we’ve had unprecedented growth and appreciation since 2019. Home prices peaked in June of 2022. In fact, at that point, they were 45% higher than they were at the end of 2019. They have regressed by about 3%, since that point. So we’ve seen some modest correction. But I can tell you, we have not seen an impact on a market-by-market basis, since that peak. There’s no relationship with comp sales and the home price appreciation or correction that we’ve seen. On housing turnover, there’s just that interesting dynamic of whether — what is actually happening in housing turnover. They just aren’t the willing sellers out there to the degree that they have been in past eras.
We’re in such a healthy — our customer our homeowner customers in such a healthy position that you just think about their motive for selling. As you know 90% — over 90% of US homeowners either own their homes outright or have fixed rate mortgages under 5%. And so that incentive to sell and move to a higher rate mortgage just isn’t there. And in fact, the incentive is really there to improve in place. So it’s hard to say what the housing economy — how the housing economy might impact us, but no to answer your first question to date since 2022, we haven’t seen a relationship.
Simeon Gutman: And a follow-up to a point that was made earlier that if the share of PCE reverts back to the 2019 level, do you take a view on this, or is there any confidence that it doesn’t. And it’s a view really on digestion. We’ve seen a couple of categories in real terms actually overcorrect the 2019, only two right now, but not home improvement obviously. But how confident are you that we don’t need to go back that far, or that the digestion or so is done and we can hang out at the current share that we are?
Richard McPhail: I think the only thing I look at really is the trajectory that we’ve observed. I think that’s the best information we can use. We’re not making an assumption about whether in your terms there’s full digestion or not.
Simeon Gutman: Okay. Fair enough. Thanks. Good luck.
Ted Decker: And Simeon I would say this — as we said this is a unique period and hard to gauge on the horizon. But we are just so incredibly bullish on the longer horizon for this industry. just all the dynamics that we know about starting with the fundamental shortage of housing, I mean we’re still whether it’s one million, two million, three million units short in with household formation and population growth and aging housing stock, all the things that we talk about. I mean that is all very much in place. And as the market works its way through PCE reversion or not or level of that and inflation mortgage rates that will all settle and what you’re left with is still a market that is underserved in housing units built. And over half the homes are over 40 years old.
And as Richard said, they remain in place with owning the home in low mortgage rates. People are going to want to make more significant improvements on those homes. So — remaining just couldn’t be more bullish on the longer term view of this industry.
Simeon Gutman: Thank you.
Operator: Our next question comes from the line of Brian Nagel with Oppenheimer. Please proceed with your question.
Brian Nagel: Hi, good morning. I had a couple of questions that are both maybe more philosophical question. But first off and Ted just some of the comments made here about increased price sensitivity, I think on part of your consumers and maybe that turned a little more severe than we saw in the third quarter. One of the big — I think I probably followed Home Depot for a long time one of the big understand the data
Isabel Janci: Brian, you’re breaking up. Can you repeat that?
Brian Nagel: I’m sorry. We’ll move around here. So the question I’ll make it short. The question I’m having is as you’re looking at this with the consumer behavior, we’re all seeking or searching right now for those signs of weakening consumer given a tempered backdrop. But do you believe that we’re still in the one-off or what you’re seeing is more one-off in nature, or is this really the beginning of a weaker trend coming that could persist over the next few quarters?
