Dive Brief:
- Second-quarter sales at The Home Depot were $42.9 billion, down 2% from a year ago, and comparable sales also fell 2%, beating Telsey Advisory Group estimates of a 4.5% comp decline. Net earnings also fell to $4.7 billion versus $5.2 billion last year, the retailer said in a Tuesday earnings announcement.
- Although there was strength in project-related categories like building materials, hardware and plumbing, CEO Ted Decker said consumers were slower to spend on big-ticket and discretionary items and the company remains positive on the medium and long-term outlook for the home improvement sector.
- Home Depot maintained its previous full-year guidance. The retailer expects sales and comps to decline between 2% and 5% year over year, an operating margin rate between 14% and 14.3% and interest expenses of about $1.8 billion.
Dive Insight:
While there are positive indicators in the macroeconomic environment, Decker said Home Depot saw uncertainty related to personal consumption expenditures. In response, the company decided to reaffirm its previous full-year guidance, Decker said.
But as evidence of positive economic trends in the mix, six of Home Depot’s 14 merchandising departments posted positive comps in Q2, including building materials, outdoor garden hardware, plumbing, tools and millwork, according to Billy Bastek, the company’s executive vice president of merchandising.
Deflation in lumber negatively affected average ticket growth by about 160 basis points. During Q2, Bastek said lumber prices declined significantly year over year. Framing lumber, for example, was about $420 per 1,000 board feet in the quarter versus $715 last year, a more than 40% decline.
Bastek said sales leveraging digital platforms increased about 1% from a year ago. But big-ticket comparable transactions – which the company classifies as those over $1,000 – were down 5.5% year over year. But the company continues to see strength in smaller projects with positive comp performance in its live goods, hardscapes and landscape sectors. And nearly half of online orders were fulfilled in stores in Q2, Bastek said.
“We know the vast majority of our customers engage with us in an interconnected manner, whether it be through project inspiration in research, transacting, fulfillment or support, our customers blend the physical and digital worlds,” Bastek said.
Store associates are a key element of the customer experience. Anne-Marie Campbell, the company executive vice president of U.S. stores and international operations, told analysts and investors that Home Depot’s $1 billion investment in people is paying off. In Q2, the company continued “to see a meaningful improvement in our attrition rates, particularly among our most tenured associates. More consistent staffing levels are resulting in improved customer service, productivity and safety. These improvements are exactly what we set out to achieve with this wage investment,” Campbell said.
Home Depot executives on Tuesday also said the retailer is expanding its product offering.
This quarter, Bastek said Home Depot is adding Milwaukee electric hand tools to its assortment. “We’ve already seen positive results with our pro customers and feel confident that the addition of these Milwaukee tools will strengthen our position as the No. 1 destination in the electrical trade in the big-box retail channel.” Also this fall, Bastek said they plan to expand its kitchen and bath plumbing offerings under the Glacier Bay brand of faucets, sinks and vanities.
Decker also announced that Home Depot subsidiary HD Supply completed its acquisition of Redi Carpet, a Texas-based next-day flooring installer, for an undisclosed price.
“Redi Carpet complements our holistic offering as a next-day flooring provider, focused exclusively on serving the multifamily industry,” a Home Depot spokesperson said in an email to Retail Dive. “This acquisition extends HD Supply’s product offering in the multifamily customer vertical with 34 locations across the U.S. Redi Carpet spent the last four decades serving customers and has become one of the largest suppliers of flooring to the apartment industry.”
Analysts at Telsey Advisory Group, led by Joe Feldman, said in emailed comments that “overall, Home Depot executed superbly amidst broad-based pressure from the tougher consumer spending environment and soft housing market trends.”
Neil Saunders, managing director of GlobalData, echoed that sentiment. “Although this is now the second quarter of declining sales for Home Depot, there is a crumb of comfort in that revenue is down by a more modest amount than last quarter,” Saunders said in emailed comments. “This comes despite a tougher prior year comparative. The dip is also towards the top end of guidance, which suggests Home Depot is not faring quite as badly as it feared at the start of this year.”
