The Home Depot Q4 and Full Year 2016 Results

The Home Depot continued its strong performance in Q4 2016.  The Home Depot achieved the highest sales and net earnings in company history.  Fiscal 2016 sales grew $6.1 billion to $94.6 billion, an increase of 6.9% from fiscal 2015.

Comp Store Performance

• Comp sales were up 5.8% from last year.
• 5.7% in November, 7.1% in December and 4.7% in January
• U.S. stores had positive comps of 6.3%.  6% in November, 8% in December and 5.1% in January 

HomeDepot.Com Performance

• The online business grew over 19% versus the prior year, and now represents 5.9% of total sales.
• About 45% of online U.S. orders are picked up in our stores

Merchandise departments (Q4 performance)

• Flooring and tools had double-digit comps in the quarter.
• Lumber, Outdoor Garden, Appliances, Decor, Indoor Garden, Lighting and Plumbing were above the company's average comp.
• Hardware, Millwork, Electrical, Kitchen-Bath, Building Materials and Paint were all positive, but below the company average.

Transaction Summary (Q4 Performance)

• Total comp transactions increased 2.8%
• Comp average ticket grew by 2.9%.
• Looking at big ticket sales in the fourth quarter, transactions over $900, which represent approximately 20% of U.S. sales, were up 11.6%. The drivers behind the increase in big ticket purchases were Flooring, Appliances, and several Pro categories.

2017 Forecast

• Forecast 2017 comp sales of approximately 4.6%

Carol Tome’s comments on forecast methodology:  U.S., GDP is projected to grow by 2.3% in 2017. We then add to that the benefits we believe we will get from rising home prices, housing turnover, and household formation. And we think housing will add another point-and-a-half growth to our overall growth next year.  To that, we have added a little bit of share shift in Appliances and certain building categories. And just to put that in perspective, in 2016, Appliances contributed 50 basis points of our comp growth.  And then we're adding something else this year that we haven't included in the past, and that's what we call the cumulative wealth effect of home price appreciation. If you look at home equity, since 2011, home equity is up 108%. On average, that equates to $50,000 per household. And we believe that's contributing – as people use the equity of their house to spend back into their house, we believe that's contributing to our growth, so we factor that into our guidance, and that's how we got to the 4.6%.

• While private fixed residential investment as a percentage of GDP now stands at 3.8%, it has a way to go before it reaches the historical mean of 4.5%.
• Home price appreciation, housing turnover, and household formation continue to be tailwinds for our business.

HOME DEPOT SEES BIG GAINS IN 3RD QUARTER GOING INTO HOLIDAY SALES

The Home Depot posted one of the biggest retail jumps post-Halloween among US retailers, seeing online visits increase 17.4% and daily visits to HomeDepot.com over 20 million in the first week of November. The Home Depot is also poised to increase mobile traffic to 53% over the 2015 holiday season.

Online sales increased 17% during the third quarter and US same-store comps grew 5.9%. Significantly, over 40% of online orders placed were items picked up in the store, driving their omnichannel success.

For the first 9 months of the year, sales were $72.39 billion, up 7.2% from last year. The Home Depot attributes the growth to an increase in the number of people who made purchases in its stores and the amount of spend per customer transaction. The company expects its 2016 year to end with increases of 6.3%.

One thing to watch as the holiday season continues – last year Q4 numbers were very high due to prolonged warm weather, up 8.9% over 2014, making it harder for Home Depot to beat same store sales this year.

Sources: Internet Retailer, CNBC

HOME DEPOT FOCUSES ON THE ONLINE SHOPPER…BY FOCUSING ON THEIR STORES

The Home Depot has been on the great end of the rebounding housing market with a continued 4% increase in sales in the last quarter, while homeowners work on big remodeling projects like installing decks or remodeling kitchens. Without plans to add more new stores, Home Depot focuses on how to use their existing stores in new ways.

About 42% of Home Depot online shoppers order online, but pick up in the store. To accommodate that, Home Depot is allocating capital to build out store storage to hold those products. When the customer is in the store, the retailer is trying new displays that help the customer shop easier. For example, the spray-paint section is set up like a soft drink display, so as one can is selected, the next can pops into place. In the lumber and millwork flooring area, the displays are easier for the customer to shop off of on their own, and the signage has been improved.

For the increasing online sales where customers want the items shipped to their homes, Home Depot has opened 3 new fulfillment centers that can deliver orders to 90% of their customers within 2 business days. They are also looking into leveraging their store locations to use local economical transportation for buy-online, ship-to-store orders.

Source: Wall St. Journal, IHRC

LOWE’S GOES FUTURISTIC WITH VIRTUAL REALITY HOME IMPROVEMENT FOR CUSTOMERS

Lowe’s has successfully tested the Microsoft HoloLens in its stores in Raleigh and Seattle – so successfully that it plans to expand the technology to three more yet-to-be-disclosed locations.

The HoloLens brings high definition hologram images overlaid to real world surroundings. A customer can use the technology to visualize their home improvements. For example, a customer can go into a Lowe’s store and design their kitchen while sorting through Lowe’s assortment of appliances and material samples. To take it even further, a customer can select an item they saw and liked on Pinterest, and a similar item sold by Lowe’s will appear.

Kyle Nel, executive director of Lowe's Innovation Lab, told USA TODAY in a briefing: "Mixed reality takes some getting used to, because we're all used to pinching to zoom to get closer to things instead of just walking forward. The idea of using small samples and swatches to try and imagine what a room looks like seems very antiquated now."

To try out the HoloLens in the store requires an appointment, especially on the weekends. Lowe’s Innovation Lab is looking for ways to stay ahead of technology, and stay ahead of rival Home Depot.

Source: Investopedia

HOME DEPOT TURNS STORES INTO MINI DISTRIBUTION CENTERS

The Home Depot announced a 6.6% increase in revenue and a 9.3% increase in net profit to $2.4 billion.

The retailer stated that customers are taking advantage of their new options for retrieving their ecommerce orders. In the second quarter, about 42% of Home Depot’s online orders and almost 90% of its online returns were handled by its stores.

Ecommerce sales were just 5.6% of Home Depot’s sales in the second quarter, but were up 19% from a year ago, showing significantly higher growth in sales than in-store. Home Depot is choosing now to invest in infrastructure and order management software to address ecommerce fulfillment from their stores. Online purchases can now be delivered from over 700 stores, faster and with shorter scheduled-delivery windows than possible before.

Source: Wall St. Journal

IT’s DAYS OF SUPPLY INSTEAD OF WEEKS OF SUPPLY FOR DIY RETAILERS LIKE HOME DEPOT

While the DIY retail segment is currently booming – Home Depot is targeting a 15% sales growth by 2018 – their strategies for inventory in their stores is changing. “Get comfortable with days of inventory, not weeks,” Tom Shortt, Home Depot’s senior vice president of supply chain, says is the message going out to stores. 

Rather than filling its warehouse stores with inventory, Home Depot wants fewer items on its shelves and wants those items within customers’ reach. Online shopping is making retailers think of better ways to profitably serve online shoppers and have inventory in stores, as well. They need to decide if they will ship to consumers from a distribution center or store.

WalMart and Target have also made changes to in-store inventory levels. WalMart’s inventory levels rose slower than sales, helping to improve their gross profit margins in the first quarter.  Boosting sales and stocking less items increase the percentage of cash they get back from the amount they invest in inventory. The strategy is to put less inventory in the stores and replenish more frequently based on demand instead of a forecast.

Home Depot’s strategy is called “Project Sync” which includes such changes as seeing suppliers send 2 trucks five days a week, versus 5 trucks 2 times per week.

Monitoring the return on invested inventory capital and tracking consumer demand closely in order to manage inventory and replenish based on demand can only be accomplished with frequent analysis of POS data in stores, looking at SKU-Store sales and on hands, trending days of supply and sales to stock ratios.

Source: Wall St. Journal

HOME DEPOT AND LOWE’S ATTENTION TO PROS SHOW DOUBLE DIGIT SALES INCREASES

Both Home Depot and Lowe’s report that they have increased sales to professional customers by double digits. They have taken several steps to seek out professional and MRO buyers, including adding products to their pro business lines as well as offering new services, making it easier for pro customers to order and receive supplies. “We continue to strengthen our pro business, driving comps well above the company average, by further advancing our products and services offering to better serve the pro customer,” said Lowe's COO Ricky Damron during the company's Q1 earnings conference call.

Lowe’s has developed an omni-channel approach to pro business, using Account Executive Pro Services with more than 180 representatives in the field. They also have a targeted marketing strategy aimed at the professional customer and buying events in store to generate new business.

Home Depot offers pros private label cards with extended terms and special return policies. They are also expanding a flexible delivery program seven days a week and next-day delivery, as well as in-store pick-up in 2 hours. Home Depot says it currently has a small percentage of sales in building and maintenance and Menear said “we think there’s lots of opportunity to grow.”

Source: Inddist.com

HOUSING GAINS AND MILD WEATHER KEEP HOME DEPOT GOING STRONG

The Home Depot’s stock opened at a record-high level today, after announcing they topped first quarter expectations. Mild weather and a strong housing rebound are attributed to their successful first quarter. Revenue increased to $22.76 billion from $20.89 billion. Same store year over year sales rose 6.5% overall,up 7.4% in US stores.

Chairman and CEO Craig Menear said the company saw “week to week demand spikes caused by weather variability”. Home Depot originally forecasted 2016 earnings of $6.12 to $6.18 per share, with revenue predicted to increase 5.1-6% and same store sales to rise 3.7-4.5%. With its positive first quarter, Home Depot now predicts 2016 earnings of $6.27, sales to rise 6.3% and same store sales to rise 4.9%.

Having cited a strong housing rebound as another reason for a strong first quarter, steady growth for the housing market looks like it will continue. The National Association of Home Builders reported continued strong sentiment in May. Low mortgage rates are fueling demand that have boosted expectations for home sales in the next six months to the highest level of the year. More housing data is due out later this week, including housing starts and existing home sales.

Source: US News & World Report, Wall S. Journal

APRIL RETAIL SALES REBOUND. WILL RETAILER STOCKS RECOVER?

Wall Street analysts are calling last week “Retail Wreck” due to numerous retailers’ news of poor sales, profits and future outlook on consumer spending. April retail sales came in higher than expected with a positive 1.3% gain, the highest gain in a year. Will strong sales in the first month of the second quarter help with a stock rebound for retailers?

Last week’s poor results were reported by many retailers, including Macy’s, Kohl’s and Nordstrom’s. Department stores are also responding to the strong online sales versus in-store that was reported, with online sales soaring 10.2% over last year. They are struggling with putting inventory in the right place to meet their increasingly complicated inventory and distribution demands.

Investors are waiting for home-improvement results this week from Home Depot, Lowe’s, Target and Wal-Mart to try to determine if the profit misses in the retail space is a problem just for department stores and apparel makers, or if it is a broader problem ahead for the consumer-driven US economy.

See the Accelerated Analytics’ blog from last week, reporting on the stock decreases across several retailers and apparel manufacturers: http://www.acceleratedanalytics.com/blog/2016/5/12/retail-stock-market-was-a-bear-yesterday-dropping-to-worst-l.html and continue to monitor our blog http://www.acceleratedanalytics.com/blog/ page this week as additional retailers report on Q1 results.

Sources: The Wall Street Journal, USA Today

JC PENNEY’S BRINGS DIY COMPETITION TO HOME DEPOT, LOWE’S, BEST BUY AND SEARS

JC Penny’s announced Monday that they will be doing a major expansion into home appliances. Starting in July, JC Penney’s will add an appliance showroom to almost 500 of its stores. The showrooms will feature kitchen and laundry appliances from Samsung, LG, GE Appliances, and Hotpoint, with over 100 appliances on display.

“Since launching major appliances in 22 stores last February, the response has been outstanding,” said Marvin R. Ellison, CEO, JC Penney’s. “The pilot confirmed that we should not limit our business to apparel and soft home in order to achieve significant revenue growth.”

The retailer also plans to allocate additional 25% of floor space to window coverings in about 500 stores, and pilot a new furniture line, Signature Design by Ashley, from Ashley Furniture, in 25 stores.

JC Penney’s is also testing an in-store flooring concept with Empire Today in stores in Tampa, Florida, and Washington, D.C., beginning this summer. "The current housing market presents a lucrative opportunity to diversify our Home assortment and strategically align with consumer spending patterns,” Ellison said.  “By combining our soft home and window coverings merchandise with the industry`s leading brands for appliances, furniture and flooring, JCPenney will become a destination for home design and redecorating, allowing us to weather-proof our business during seasonal periods of the year."

Source: Chain Store Age

BUILDING SUPPLIERS SEE BEST QUARTER IN ALMOST A DECADE

Amid reports from the Commerce Department that housing starts in March were up 14.2% from last year, paint, drywall and other building suppliers are seeing an uptick in sales. Sherwin Williams reported on their investor call forecast-beating first quarter profits. They reported an 11% increase in sales revenue from its stores and a 44% improvement in profit.

USG Corp., manufacturers of drywall and ceiling tiles, reported the “best quarter we’ve had in almost a decade”. Sales increased 7% to $970 million.

Great weather is attributed to work on homes starting earlier in the year than usual. Illinois Tool Works Inc., supplier of screws, fasteners, nail guns and other items improved its operating margin to 21% from 17% last year. Says CEO Scott Santi, “We certainly exited the quarter in pretty good shape. We’re not seeing anything slow down.”

Building materials, garden equipment and supply dealers show estimated sales increases of 11.9% over Q1 2015. Analysts are predicting that Home Depot and Lowe’s may post stronger than expected sales for their quarters ending April 2016.

Source: Wall St Journal, Seeking Alpha

WARM WEATHER HELPS HOME DEPOT SALES RISE ALMOST 10% IN 4TH QUARTER, AS HOME PRICES INCREASE AND DEMAND FOR NEW HOME CONSTRUCTION STARTS 2016 WITH SLOW GROWTH

The Home Depot’s fourth-quarter sales included an 8.9% sales increase in US stores that have been open for at least one year. This is despite the challenges facing the rest of the retail industry. Sales were strong the entire quarter, but warm weather in December brought in a sales spike – Home Depot attributes $100 million in sales growth to the milder weather. High sales were seen for power washers and pressure-treated lumber by homeowners building decks.

Home prices also rose in December, showing the strongest gains since July 2014. The Home Price Index showed a rise of 5.2% in the 12 months ending in December, versus a 5.2% in November. The national median sale price for a home in December was $213,800, 8.2% from the previous year. There is a limited inventory of homes for sale, and demand for new homes is likely to drive more new construction and help keep a ceiling on the rising home prices, although January 2016 was a slow start for new home construction for the year.

Accelerated Analytics helps Home Depot vendors, such as WM Barr, Hillman Group, Alexandria Molding, and CPG Building Products to manage their sales and inventory data to drive results. Our vendors use our analytical measures, such as sell through, inventory shortages, out of stocks, weeks of supply and consumer purchasing trends, to take quick actions to ensure they are optimizing inventory and growing sales.

Source: Wall St. Journal

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NEW HOME CONSTRUCTION DROPS AGAIN WITH SLOW START IN 2016 – WILL HOME DEPOT EARNINGS BE AFFECTED?

Showing the lowest rate since October, new housing starts fell 3.8% in January from a month earlier. U.S. home builders are reporting a positive outlook as spring approaches, citing solid fundamentals for housing demand, such as job gains and low mortgage rates. Demand for housing has been strong over the past year but growth has been slow, with housing starts just 1.8% higher than January 2015.

Home builders are reporting shortages of land and labor, leading to project delays and higher construction prices, which lowers demand for new homes. However, new home sales in December were up 9.9% from a year earlier. “The weak showing in construction activity is broadly consistent with the recent souring in home builders’ sentiment, and when combined with the downdrift in permit approvals it suggests some slowdown in the months ahead,” said Millan Mulraine, economist at TD Securities USA, in a note to clients.

The Home Depot performed very well in 2015, giving investors better returns than competitor Lowe’s. The Home Depot opened 2016 with a large pullback due to fears about the general economy and the housing market in particular. An anticipated rise in mortgage rates has not happened and Home Depot is gearing up for spring, its busiest period of the year. The company will hire more than 80,000 workers for its 2,000 stores and 75 distribution facilities. The Home Depot’s domestic business has kept it in the lead, but with Lowe’s announcement of its acquisition of Canadian home-improvement chain Rona, international expansion could be important to future growth.

Source: WSJ

Game Changer for the Home Improvement Market?

by Chad Symens

Lowe’s acquisition of Rona could be game changer for the home improvement market. Home Depot has 2,273 stores with 182 located in Canada. Before the Rona acquisition, Lowes had 1,840 stores including Orchard Supply stores. The Rona acquisition will add 496 stores to Lowe’s portfolio which means that once it's finalized, Lowe’s will have 2,336 stores compared to Home Depot’s 2,273.

Nearly half (238) of the Rona stores are in Quebec which represents nearly 25% of the entire Canadian home improvement market; a market where Lowe’s does not currently operate any stores. The Canadian home improvement market is estimated at over C$45 billion and is forecasted to grow at a CAGR of 3.9% from 2014 to 2018.  Lowe’s will be very well positioned to capture an oversized share of the growth compared to Home Depot with their 182 Canadian stores. In 2015, Home Depot acquired Interline Brands as a strategy to expand the pro division sales.  It will be interesting to see which strategy – investing in the pro business versus acquiring more physical store space - will turn out to be the better strategy.

The Home Depot Builds Third Facility of 1.6 Million Sq Ft to Support Omni-channel Operations; Will Open a New Technology Center in Marietta, GA in October

The Home Depot is officially opening a third facility to support its online business. The new 1.6 million facility in Ohio will employ 500 employees and will support its online operations that currently account for 5% of its business and continues to grow.

Home Depot also announced plans in October to open its Marietta Technology Center, a 200,000 square foot office complex that will employ 1,000 IT jobs. The Home Depot has enhanced its IT capabilities in conjunction with its supply chain and merchandising operations.

"These investments are advancing our interconnected retail strategy, which allows our customers to engage with Home Depot however they choose," said Craig Menear, chairman, CEO and president of The Home Depot. "We're also pleased to contribute to the economic growth of these communities."

The Home Depot is not the only major retailer ramping up fulfillment support for omnichannel retail. WalMart is spending $200 million to build a new distribution center in Polk County, Florida dedicated to fulfilling e-commerce orders.

Source: Retailing Today

HOME DEPOT IT INVESTMENTS IN OMNI CHANNEL FOCUSES ON CUSTOMER EXPERIENCE

The Home Depot discussed this week its IT investment and strategy that focuses on the customer buying experience. The company’s Common Order Management system, or COM, is the largest IT project in the history of The Home Depot.

COM is an inventory visibility platform that looks at millions of deliveries through small and large delivery trucks, direct fulfillment to DCs and in-store pick up transactions. COM will help identify the best fulfillment option for a customer, while allowing Home Depot to leverage its omni-channel options.

The focus on this area is based on the fact that 1) the retailer’s fastest growing ecommerce channel is buy-online, pick up in sore, 2) the average ticket for ecommerce transactions are considerably higher than physical in store transactions and 3) ecommerce chat and email are growing  in product information exchange.

“The IT investments we are making are really to optimize the whole supply chain offering,” said Home Depot Senior VP and President-online, Kevin Hofmann.

Source: Chain Store Age

Retailers Home Depot, Sears, Kohl's and JCPenney Among Winners of EPA Star Partner Awards

The US Environmental Protection Agency and Department of Energy will be hosting its annual Energy Star Partner of the Year awards in Washington, DC, on April 20. Of the approximately 16,000 companies who partner with the EPA on their broad-based energy efficiency program, 128 companies are being recognized as Energy Star Partners of the Year.

Retailers among the 128 winners include Home Depot, Sears, Best Buy, Kroger, Kohl’s, Food Lion, Staples and JC Penney. “Energy Star Partner of the Year Award winners are delivering advanced energy efficiency solutions that help American families and businesses save money by saving energy. Their efforts play an important role in protecting the environment by reducing greenhouse gas emissions, while also moving our nation closer to a clean energy future.” said Department of Energy Secretary Ernest Moniz. Adds EPA Administrator and event key note speaker Gina McCarthy, “Our Energy Star Partner of the Year award winners demonstrate that energy efficiency is a smart business decision that supports their bottom line, and helps their customers save money and energy.”

Source: Retailing Today

HOME DEPOT APPOINTS ITS FIRST CHIEF INFORMATION SECURITY OFFICER

Home Depot Inc. has hired Jamil Farshchi as its first CISO. He will manage information security, data protection and vulnerability management, and will report to CIO, Matt Carey.

Mr. Farshchi was CISO at Time Warner Inc., where he created a federated, risk-based security program. Prior to that, he was vice president for global information security at Visa Inc.

This announcement comes months after the home improvement retailer confirmed its payment systems were breached, resulting in stolen email and credit card information at 2,200 US and Canadian stores.

 Source: The Wall Street Journal

Home Depot and Macy's Inventories Hit Hard by West Coast Port Gridlock

Home Depot and Macy’s both posted solid earnings for the fourth quarter 2014. However, both retailers report that the situation with the West Coast ports will begin to really affect them now. This is after a report that a tentative deal was reached in the dispute that has affected retailers, manufacturers, farmers and merchants.

“The West Coast situation has been tough, with 12- to 16-day delays in getting our imports in,” Mark Holifield, Home Depot’s executive vice president for supply chain and product development, said on a call with analysts. “There’s still a fair amount of uncertainty what the new normal will be, once the ports get back to normal.”

Karen M. Hoguet, Macy’s chief financial officer, said that shipment delays were only just starting to hit inventory levels, and that its apparel and accessories departments were the most affected. About 12 percent of the department store chain’s first-quarter merchandise was delayed, Ms. Hoguet said, which may affect sales, gross margins and expenses in the first few months of the year.

Department stores, like Macy’s, were somewhat protected by allowances that enabled them to return some late products to their vendors. Discount retailers could benefit from getting merchandise the traditional retailers cancelled due to late delivery.

Source: The New York Times