Dive Brief:
- The Home Depot on Tuesday reported third-quarter sales of $37.7 billion, down 3% from a year ago. Comparable sales also fell 3.1%, and net earnings declined 12% to $3.8 billion for the quarter, down from $4.3 billion a year ago.
- Billy Bastek, Home Depot’s executive vice president for merchandising, said on a call with analysts that its building materials segment posted a positive comp, and seven out of 13 merchandising departments posted comps above the company average including plumbing, appliances, hardware, outdoor garden, tools and paint.
- But with one quarter remaining in the year, “We no longer expect the endpoints of our previous guidance range as likely outcomes,” CFO Richard McPhail said on the call. In response, the company is narrowing its guidance. It now expects sales and comp sales to decline between 3% and 4% versus a year ago, compared to previous guidance of sales and comps down between 2% to 5%.
Dive Insight:
Although lumber and wire deflation and weather-related issues affected performance in the quarter, CEO Ted Decker said the company’s Q3 performance was in line with expectations. “Similar to the second quarter, we saw continued customer engagement with smaller projects and experienced pressure in certain big-ticket discretionary categories,” Decker said.
Bastek also said big-ticket transactions, which the company defines as those over $1,000, were down 5.2% versus a year ago. While Q3 saw softer engagement in discretionary big-ticket categories, like flooring, countertops and cabinets, Bastek said there was strength in pro-heavy categories like roofing, insulation and portable power.
“While a sales decline at Home Depot was always expected, the worsening extent of the drop is a cause for mild concern,” Neil Saunders, managing director of GlobalData, said in emailed comments. “This quarter, sales dipped by 3% on an overall basis and by 3.5% in terms of U.S. comparables. Although this isn’t terrible, it underlines the deceleration in both consumer and professional activity within the improvement market.”
Analyst Joe Feldman with Telsey Advisory Group said in a note that Home Depot's better-than-anticipated third quarter bodes well for rival Lowe's, which is scheduled to report Q3 earnings on Nov. 21. “Overall, Home Depot executed well amidst broad-based pressure from the tougher home improvement spending environment and soft housing market trends,” Feldman said.
Decker said Home Depot continues to strengthen its focus on pro customers. As part of that initiative, the company recently appointed several executives to new roles, including Ann-Marie Campbell, who is now senior executive vice president and responsible for outside pro sales and the company’s installation services business.
Campbell said capturing a share of the pro’s wallet is one of the company’s largest growth opportunities. “It represents roughly $475 billion in addressable market, and today we have relatively little share,” Campbell said.
For all customers, “we must focus on removing friction within all operations,” Campbell continued, “so our customers have a great experience every single time no matter how they choose to shop with us. Whether in the aisles of our stores, picking up products at the store, receiving products at their job site, with a sales associate, or digitally.”
