Jeff Kinnaird: Brian, it’s Jeff. As we talked about price sensitivity earlier, we are seeing some additional sensitivity or saw some additional sensitivity in Q4 versus Q3. But let me give you a real-time example of how we’re looking at the business and I’ll go to the cleaning business as an example. As I spoke about in my prepared remarks, we launched in this quarter Ecolab, which is a premium cleaning brand in the market, which we’re seeing exceptional performance. It is a trade-up category for many consumers, many pros and we’re just really, really excited about the partnership and the long-term opportunity in that category. At the same time, we’re expanding our HDX cleaning lineup and that’s just a great everyday value brand for our customers and we’re seeing a great pickup in that brand as well.
So our merchants take the time by category to engineer what results they want to see and cleaning is a great example there. At the same time, we’re watching categories very closely like appliances, like patio furniture, like grill that we spoke about in Q3 and earlier today to ensure that we are positioned right for the current environment.
Brian Nagel: Got it. I appreciate the time. Thank you.
Operator: Our next question comes from the line of Christopher Horvers with JPMorgan. Please proceed with your question.
Christopher Horvers: Thanks. Good morning, everybody. Can you talk about what you saw from a rate of change in DIY versus Pro in 4Q relative to 3Q? Are you seeing one side change faster than the other? And how does that inform how you’re thinking about the business in 2023?
Ted Decker: I don’t know if we saw a rate of change Chris. The highlight remains the high spend Pro. I mean, that’s still the strongest piece of the business. But I wouldn’t say there was a rate of change much beyond that.
Christopher Horvers: Got it. And then I guess can you share your — the puts and takes on the cadence of 2023 from a top line perspective? You have DIY versus Pro. You’ve got tough lumber laps in the near term, but you also have the easier spring lap. And so how are you thinking about the cadence of the year? If you sort of had a did a zero in 4Q and you ran seasonal, you can get to a lot of different outcomes. So how are you thinking about the cadence? And just to clarify, is the 100 basis points of lumber headwind in the top line guide?
Richard McPhail: Right. So Chris, our guidance assumes that we’ll comp slightly lower in the first half than the second half. The lumber pressure we called out is sort of outside of guidance. There’s so much volatility in that that we would not want to put that in guidance. There is 100 basis points of pressure to the year. If the number remains at current prices that pressure exists predominantly in the first half.
Jeff Kinnaird: And Chris, as Richard mentioned, it’s been a very turbulent couple of years in the lumber market. To give you an example of what we faced in the fourth quarter on the framing side, lumber was $420 per thousand on average compared to $886 on average in 2021. To put that in retail dollar sense for everyone, a 2×4 study which is one of our top unit movers in the business, retail on average were $3.40 in the fourth quarter of this year. Last year, it was over $5. Now we did make some ground back on units. So you could say that when you see a lumber market depressed or normalized, you see good unit productivity and you see good overall project business. As you look forward into the front half that same 2×4 stud is over $10. It’s now $3.50. So we’ll see good unit productivity and certainly an opportunity to drive more project-related business.
Richard McPhail: And Chris, another reason we leave that sort of lumber hypothetical case outside of guidance, if that pressure does exist and come through we would not see any material impact to earnings.
Chris Horvers: Right. So you’re not €“ there could be a price headwind but there could be some offsetting positive elasticity on that side. And so net-net that plus the fact that doesn’t hit bottom line it’s outside the guide.
Richard McPhail: That’s correct. You got it.
Chris Horvers: Thanks so much. Have a great spring.
Operator: Our next question comes from the line of Steven Forbes with Guggenheim. Please proceed with your question.
Steven Forbes: Good morning. I wanted to start really trying to expand on the $1 billion investment that was announced. So curious Ted or Richard or the team can you comment on how the investment impacts planned compensation mix for the frontline associate in 2023 on average inclusive of how we should think about the resetting of the success sharing program?
Ted Decker: Sure. Yes, Steven and Ann will take you through some of the detail on the rates. But just to talk about this investment, we feel just great about doing this for our associates. Customer service at The Home Depot starts with our associates and we believe this investment is consistent with our values and is going to position us favorably in the market. We’ve been operating successfully in a pressured labor market. We all know labor has been tighter and rates have been higher. But just last year we were able to hire 200,000 associates. But we believe this move is going to protect our customer experience for the near medium and long-term. We’ll be able to track the most qualified candidates and retain the exceptional associate base that we already have.
So we not only increased our starting wages again, Ann will go into some detail but we increased wages for every single frontline associate. And there’s a term in retail you get compression when you raise the starting rates with tenured associates. We addressed compression in a meaningful way in this $1 billion investment. So our tenured associates saw real wage increases with this move. And we hope to improve retention through this. That’s why we call it an investment, and it’s going to improve the customer experience through a more effective associate who’s just in the building longer, understands our procedures and is much more effective engaging with the customer and selling. And we harken back to our values wheel of investing in our associates and what our founders said that, if we take care of our associates, they take care of the customer and everything takes care of itself.
And that’s what this investment is all about. But Ann, you can give some more detail, please.
Ann-Marie Campbell: Yes. Thank you, Ted. First of all the investment is incremental. So you asked about success sharing and that is still a part of our total compensation package. One of the things I spoke about around how we think about investing in our associates. Wage is one component of it. We think about it not only with wage but benefits but also the environment we create to promote or associate them within. And I think the piece that I will say, we’ve spoken about this before that close to 90% of our leaders started on the floor of the store. And why is that important? This $1 billion investment puts us favorably in the marketplace so we can recruit, retain and attract the best leaders, because they are the future leaders for the company.
So, this is an incremental investment. Every single hourly associate will receive an increase. And to Ted’s point, our more tenured associates, who are even key when we think about going into the spring season, also got an incremental investment, a pep in their step to continue to take market share in 2023.
Ted Decker: And Steven, while we don’t disclose average wages and we’ve always and will continue to be competitive on a market-by-market level, and we’ve been competitive, it’s why we’re able to hire the 200,000 people last year, but after this change our starting rate in any one market, there’ll be no market under $15 for a starting rate. And starting rates go much higher than that depending on the market. And then the average wage, again, particularly with the investment in every associate, including tenured with addressing compression, we have an average wage that is well, well above the $15.
Steven Forbes: I appreciate the color. And then maybe just a quick follow-up for Richard. I think we’re sort of targeting recapturing a 60% accounts payable to inventory ratio. But maybe just clarify if that’s still the goal and when we should expect to achieve that this year?
Richard McPhail: Well, we’re still — while we know that global supply chains are improving, at least relative to where we were last year at this time. We’re still pulling forward inventory. We still see extended lead times. And we think that 2023 is going to be a year of continued improvement in supply chains. So, we are encouraged by the inventory movements in our business. The year-over-year inventory increase was the smallest quarterly increase of the entire year. And so we feel good about our inventory productivity. And again, we’ve been managing in kind of exceptional circumstances. But yes, I think over the long run, you will see us heading back to convention with respect to working capital.
Steven Forbes: Thank you.
Richard McPhail: You’re welcome.
Operator: Our next question comes from the line of Karen Short with Credit Suisse. Please proceed with your question.
Karen Short: Hi. Thanks very much. Good to talk to you. The first question I just want to ask is, looking at the relationship on sales growth versus EBIT growth, and I’m actually talking about this excluding the $1 billion investment, obviously EBIT growth on a one-year basis is decently below sales growth. So, wondering just how to think about that relationship, including or excluding but going forward. And then, wondering if you could just talk a little bit about what you’re seeing on 1Q to-date in terms of comp performance?
Richard McPhail: Sure. So it may be more helpful to talk about the construction of operating margin year-to-year, just to kind of tick that out. That gives you a better sense. So, in a flat comp environment, we would expect to see deleverage on a fixed cost base and obviously in an inflationary environment as exists today. That deleverage is somewhere between 30 to 40 basis points. In addition, our wage investment represents about 60 basis points of movement in year-to-year wage. And then offsetting that are productivity initiatives that we expect will generate between 10 and 20 basis points of recapture of margin. And so that’s how we walk from the 15.3 to the 14.5. Over the long run, we always expect to grow operating income faster than sales. We’ve been managing in a unique environment and certainly our guidance implies the wage investment that we’ve made today. And the second part of your question I’m sorry I forgot.
Karen Short: It was just — could you — any color you could provide on 1Q performance in terms of comps?
