The Home Depot 2013 Year in Review and 2014 Guidance

Home Depot hosted a 2013 investor conference call which had a wealth of information about managements review of the year and forecasting for 2014.  Here some highlights for The Home Depot’s 2014 forecast:

• Sales growth of approximately 5%
• 8 new stores most of which will be in Mexico.
• Operating margin expansion of approximately 70 basis points
• Share repurchases of approximately $5.0 billion
• Diluted EPS growth after share repurchases of approximately 17%
• Capital spending of approximately $1.5 billion.

The numbers above and managements discussion of the numbers and the business strategy make clear they feel their opportunity is in maximizing sales and productivity of their existing footprint and not in expanding the footprint.   Frank Blake commented “New store growth no longer plays a dominant or even significant role in sales growth or capital allocation.  U.S. and Canadian markets are effectively saturated.”  I wonder how the folks over at Lowe’s feel about that observation since their footprint is significantly smaller than The Home Depot.  Mr. Blake continued, “Since our June 2012 conference we exited our big box stores in China and we have no intent to build stores in other areas of the world and here is the main reason why.  In the second quarter of 2013 the three-months of May, June and July we grew comps in our U.S. business by $2 billion in three months.  A wildly successful venture into a foreign county might yield $2 billion in sales after a decade of effort.  So opportunity and capital efficient strongly argue for intense focus here.”

Other interesting stats from the conference call:

• 15 million visits per week to homedepot.com
• Marvin Ellison commented stores stock about 35,000 SKU’s.
• Pro is 3% of THD customers, but 35% of sales.
• The program launched for small engine repair in about 1000 stores has repaired over 600,000 units YTD 2013. 
• THD historically ran 40% of store labor on customer service and 60% operational activities.  The have successfully flipped this after a multi-year
• Craig Menear commented the aging boomer pollution are electing more ‘do it for me’ as they retire which represents an opportunity for the THD service business and growth of their pro channel.  About 10,000 boomers retire each day.   Emerging Gen Y group is at the early stages of DIY and THD must instill confidence and in product and projects.
• The bifurcation of income in the U.S. creates opportunities for cost conscious consumers and luxury consumers. 
• TTI (an Accelerated Analytics customer) was discussed as an example of a strategic supply partnership that is creating additional value. 
• Mr. Menear comments that “We are a branded house and we intend to remain a branded house to satisfy our customers preferences” when discussing the THD private label portfolio.
• MET is approximately 20,000 associates.
• Localization of assortments has been proven to help sales and will accelerate in 2014.   Mr. Menear “So we’ve recently begun to use our more sophisticated assortment in clustering tools and there is a lot of runway ahead of us as we integrate this into our core merchandising activities”. 
• One-third of online orders are getting picked up or fulfilled out of a physical store. 
• Mark Holifield gave three key goals of the supply chain:
  • Must be in stock [see Accelerated Analytics exceptions reports]
  • Must optimize inventory productivity to drive the best use of working capital [see Accelerated Analytics SKU assortment reports, SKU sales summaries with GMROI]
  • Must be the leader at having the right product at the right place at the right time as the lowest cost in the industry.  [See Accelerated Analytics SKU assortment analysis by market & store]
  • Management expects fiscal 2013 sales to increase by approximately 5.6%, with comp sales growth on a 52 week like-for-like basis of approximately 7%.
  • Management believes the health of the home improvement market rest on two drivers; GDP growth and housing.  U.S. GDP is forecasted to grow about 3% over the next several years based on the Federal Open Market Committee.  Housing turnover is expected to moderate towards the historical average of about 4.6% of units.  Housing prices are up about 11% this year but they are still 23% off their peak back in 2006.  Once homeowners view their homes as an investment, and not an expense management believes they will spend more money on their homes. 
  • In the third quarter of 2013 we saw a double-digit growth in premium price point product. 
  • Approximately 63% of all homes in the U.S. are more than 27 years old.  As homes ages they need repair, which speaks to continued growth in maintenance and repair categories.
  • Management believes we’ve moved past the workout stage of the housing recovery that we shared with you back in June 2012 and we are not in phase II of the recovery.  In stage II of the recovery, we expect ourselves to grow at a rate of GDP plus 2%.  

JDA and RedPrairie to merge

RedPrairie and JDA Software announced a definitive merger agreement today.  Many of our vendors use JDA plan o gram software for managing their store modulars so this is an interesting development.  The "merger" sounds more like a RedPrairie acquisition of JDA based on the language in the PR.  Home Depot in particular, but other large retailers as well, have essentially told vendors they must use JDA software for POG management so it will be interesting to see if that changes now.   What does this mean for all the money vendors have put into complying with retailers POG requirements?

Letter to JDA customers

Lowe's Stumbles In Second Quarter

Lowe's posted declines in net sales, comp-store sales and earnings in the second quarter ended August 3. 

"Our results fell short of our overall expectations," said Robert Niblock, Lowe's chairman, president and CEO.  "However, I have confidence in our strategy and in our employees, and while we recognize the significant magnitude of change that we've asked the organization to absorb as we transform our business, we fully understand that we must improve our level of execution." 

The world's second largest home improvement retailer posted sales of $14.2 billion in the quarter, down 2.0% from $14.5 billion in the same quarter last year.  Comp-store sales in the quarter were negative 0.4%.  Earnings of $747 million were down 10.0% from the same quarter a year ago.

The quarterly comparisons in 2012, which is a 52 week year, are impacted by a shift in comparable weeks.  For the six month period, comparable store sales increased 1.0%.

Currently, Lowe's operates 1,748 stores in the United States, Canada and Mexico, with 196.8 million square feet of retail selling space.  That compares with rival Home Depot's store count of 2,255 stores.  Last week, Home Depot reported gains in comps and sales and a double digit percentage gain in net earnings.  

See related article: http://www.acceleratedanalytics.com/blog/2012/8/15/earnings-jump-124-at-home-depot.html 

Source:  retailingtoday.com

Earnings Jump 12.4% At Home Depot

Home Depot reported sales of $20.6 billion for the second quarter of 2012, a 1.7% increase from the second quarter of fiscal 2011.  Comparable sales for U.S. stores were positive 2.6%, and overall same-store sales for the second quarter were positive 2.1%.

Net earnings for the world's largest home improvement retailer were $1.53 billion for the second quarter, which ended July 29.  This compares with net earnings of $1.36 billion in the same period a year ago, reflecting a 12.4% increase.

"As expected, second quarter sales reflected the pull forward of seasonal activity into the first quarter," said Frank Blake, chairman and CEO.  "But we saw continued demand for core products and delivered second quarter earnings above our expectations."

The Atlanta retailer expects fiscal 2012 sales will increase approximately 4.6% from the prior year on a 53 week basis.

At the end of the second quarter, Home Depot operated a total of 2,255 retail stores in all 50 states, the District of Columbia, Puerto Rico, U.S. Virgin Islands, Guam, 10 Canadian provinces, Mexico and Canada.

Source:  retailingtoday.com

Home Depot looks to build customer relationships, shareholder value

Ahead of its investor and analyst conference, Home Depot has provided an update on its strategic priorities and long-term financial targets.

Home Depot's strategic goals include creating a stronger connection with customers and simplifying its business, improving merchandise assortment and value, improving shareholder value,and developing a competitive platform across all commerce channels.

"The Home Depot has a strong foundation of customer service, product authority and value creation. We will continue to build on our strategic priorities as we look to 2015 and beyond," said Frank Blake, chairman and CEO.

Home Depot said it still expects sales to be up approximately 4.6% for the year and diluted earnings per share to be up approximately 17% to $2.90 for the year. In addition, the company updated its fiscal year 2012 share repurchase guidance and now expects share repurchases of approximately $4 billion. This is an increase of $500 million from the guidance provided in May 2012, but given the timing of the share repurchases, the increase will not have a material impact to diluted earnings per share for fiscal 2012. 

In June of 2009, the company announced a long term operating target of a 10% operating profit and 15% return on invested capital. The company anticipates achieving this target by fiscal year end and has now set out a new long term, fiscal 2015, operating target of a 12% operting margin and 24% return on invested capital.

Source: retailingtoday.com

Home Depot will defend its lead in power tools

Speaking at The Home Depot’s 2012 Investor and Analyst Conference in Atlanta, Home Depot EVP Merchandising Craig Menear revved up the power tool rhetoric.  Menear said the company intends to defend its position as power tool market share leader.  He described power tools as a category with a relatively high vulnerability to online competitors. One of the best defenses is a large fleet.

“Our 2,200 stores are convenient for our pro customers when they have a tool go down on the job,” Menear said. “We are now executing a strategy to compete across all channels of the business.”

The company is also playing offense in the category, developing and maintaining strategic relationships with suppliers that bring new products to Home Depot as exclusives, and building its capabilities in the area of product repair.

Online, Home Depot is fighting fire with fire. “Rapid expansion of online assortments and brands has produced excellent results in this channel as well.  We have grown market share the last two quarters faster than the online market leader.”

The online-market share leader would be Amazon, which many believe is benefiting from smartphone-fueled consumer behavior that lets shoppers browse in a store, search online for cheaper prices and buy somewhere else.

Source: retailingtoday.com

Home Depot Lawn Products Are Golden In Q1

Home Depot saw comp-store sales increase 5.8% in the first quarter of strong sales and earnings growth.  Home Depot’s Craig Menear, EVP merchandising, shared details and data from a first quarter that saw double-digit comps in certain seasonal product categories.  A long list of products were described as double-digit comp generators, including walk-behind mowers, riding mowers, lawn accessories, soils and mulches. “Warmer than expected weather allowed customers to complete exterior projects and begin spring projects early,” he said, estimating a 300 basis point boost for U.S. comps due to the weather.  “The core of the store continues to perform,” Menear said.  Stores are also seeing recovery of the pro business, which historically account for about 30% of the company’s overall sales.

Source:  retailingtoday.com

Home Depot EDI 852

Home Depot vendors gain a critical advantage using Accelerated Analytics for point of sale data analysis. Home Depot vendors have the opportunity to use EDI 852 data to analyze their business and be very proactive in working with their merchants. A standard Home Depot EDI 852 document contains units sold, units on hand and dollars sold for each SKU and store. By storing this data each week and cross referencing the Home Depot store list, a vendor has the opportunity to understand store and SKU level selling trends and inventory consumption. The Home Depot EDI 852 data provides all the necessary ingredients to calculate key metrics like: inventory weeks of supply on hand, average rate of sale by store and SKU, and if you add your cost information you can arrive at GMROI as well. It has been our experience that Home Depot merchants expect a high degree of data analysis from their vendors, and it has also been our experience that they are very supportive of vendors who use the data to make recommendations on how to improve the business. The key to success is selecting a service provider like Accelerated Analytics that can help you store the data each week, calculate key metrics, and make the analysis and reports available to your sales teams in a timely fashion. Accelerated Analytics also provides advanced analysis like GMROI by plan-o-gram, which is critically important in working with your merchant. Armed with this data, we have seen vendors dramatically increase sales and optimize inventory levels.

Analyzing POS Sales for Home Depot Markets

Over the past month or so, we have been rolling out new sales analysis for our Home Depot vendors on market performance.  Vendors to Home Depot using EDI 852 know buyers often want to receive sales analysis at a market level.  What we often find, however, is the analysis conducted does not take into consideration the number of stores in the Home Depot market.  To conduct a proper POS analysis of Home Depot markets you really have to take into account the number of stores in market.  

For example Home Depot market 48 has 80 stores, while markets 138 and 160 have one store.  By summing the units sold from the EDI 852 to a market level and then dividing by the store count in that market, you can get an average sales per store for the market.  This metric is very useful in comparing the performance of the markets in a meaningful way. 

In addition, you can use the SKU count in your plan-o-gram to further compare the performance of the stores at a market level.  You might also consider a store level sales analysis so you can rank your stores by sales volume A to E.  This lets you not only compare the store against the average sale in the Home Depot market, but also against its sales volume peers.  POS sales analysis by Home Depot market can yield some very actionable results, give it a try.

Home Depot EDI 852 Reporting

If you are a Home Depot vendor, you are eligible to receive product sales activity and inventory data via EDI 852 from Home Depot. 

The Home Depot EDI 852 document will contain SKU/UPC level units sold, units on hand and dollars sold for every store where your products are sold.  The files are sent one time per week summarizing the prior week’s activity.

What can you do with EDI 852 from Home Depot?

• Analyze SKU/store level sales
• Analyze SKU/store level on hand
• Analyze average unit selling price by SKU/store
• Analyze plan-o-gram compliance by verifying on hand and selling at planned stores
• Identify out of stock stores, and even forecast demand based on prior sales
• Group stores into A, B, C categories based on SKU level sales volume

Home Depot merchandisers expect vendors to receive and use EDI 852 data to analyze and manage their SKU activity.  If you are not already using the data, of if you are not using as well as you could be, then you are missing sales opportunities.  Don’t wait for your merchandiser to call you and ask a question you can’t address – start working with the data today.  

Home Depot EDI 852 Reporting

If you are a Home Depot vendor, you are eligible to receive product sales activity and inventory data via EDI 852. Preparing to setup and receive the EDI 852 files can be confusing, and creating usable reports for your team can be very time consuming. Fortunately, Accelerated Analytics® provides a simple, outsourced service for all your Home Depot EDI 852 reporting needs.  Our team works with dozens of Home Depot vendors like Quickie, W.M. Barr, Techtronic Industries, Worthington Cylinders, Trex, and many more.  

Using Accelerated Analytics® makes all your reporting headaches go away. With Accelerated Analytics®, we handle all the data conversion, database hosting, and reporting. We even provide training and the end user reporting tools. 

Accelerated Analytics® benefits:

• Eliminate manual data entry and manipulation
• Consolidate all Home Depot store data on all your SKU's into one reporting database
• Pre-built exception reports with color coded dashboards
• No software or hardware to purchase
• Sophisticated charts and graphs

Available reports:

• Sales by BYO
• Sales by Market
• Sales Velocity by Store (A,B,C,D,E)
• This weeks sales and inventory by store and SKU
• Last weeks sales and inventory by store and SKU
• This months sales and inventory by store and SKU
• 6 week rolling sales and inventory by store and SKU
• Sell-thru
• Inventory turns
• Days supply on hand 

Accelerated Analytics® will give you the ability to anticipate changes in sales and inventory, so you can make adjustments before a costly mistake occurs. Our EDI 852 reporting is the best on the market. 

Analyzing Home Depot Market Sales

Over the past month or so, we have been rolling out new sales analysis for our Home Depot vendors on market performance.  Vendors to Home Depot using EDI 852 know buyers often want to receive sales analysis at a market level.  What we often find, however, is the analysis conducted does not take into consideration the number of stores in the Home Depot market.  To conduct a proper POS analysis of Home Depot markets, you really have to take into account the number of stores in market.  For example, Home Depot market 48 has 80 stores, while market’s 138 and 160 have one store.  By summing the units sold from the EDI 852 to a market level and then dividing by the store count in that market, you can get an average sales per store for the market.  This metric is very useful in comparing the performance of the markets in a meaningful way.  In addition, you can use the SKU count in your plan-o-gram to further compare the performance of the stores at a market level.  You might also consider a store level sales analysis, so you can rank your stores by sales volume A to E.  This lets you not only compare the store against the average sale in the Home Depot market, but also against its sales volume peers.  POS sales analysis by Home Depot market can yield some very actionable results, give it a try.

Home Depot Cuts Jobs, Focuses on Supply Chain improvements

According to an article in the WS,J Home Depot is cutting 1,000 jobs.  CEO Frank Blake was careful to note the cuts are not due to business performance or economic concerns, but rather a reorganization of the business. The article contained a couple interesting insights into Home Depot’s business: they expect to add an average of 1.5% annually to their retail square footage, or about 20 stores in 2010; and they will focus spending in 2010 on improving supply chain and existing stores. Also interesting in the article, is research from Harvard University’s Joint Center for Housing Studies suggesting remodeling activity will bottom out in Q1, 2010 and then begin to increase. If that prediction is accurate, it could be a good sign for Home Depot.

Avoiding Out of stocks

Brrr, it’s cold outside. I live in south Florida and we have been experiencing record low temps for well over ten days now. Last night it got down to 28 degrees at my house! I know-28 degrees would be a welcome heat wave for many places in the US right now, but down here this is a record cold. The cold temps have resulted in stock outs of space heaters at Home Depot stores in central Florida. "The majority, if not all, Home Depot stores in Florida are out of stock of space heaters," said Craig Fishel, a spokesman for the company. The company continues to sell them online. We blog all the time about how to use POS and EDI 852 data to avoid stock outs. It’s not very complex, simply look at the current on hand inventory and the current rate of sales, and weeks of supply can be easily calculated. This stock out was pretty easy to predict; weather forecasters have been predicting the abnormally cold temps for 10+ days. More than enough time for buyers to work with their suppliers to bring in sufficient inventory to handle the upcoming demand. I wonder how many lost dollars have resulted?

Next Article: Increasing Sales By Managing Out of Stock Inventory

Home Depot EDI 852 Reporting

If you are a Home Depot vendor, you are eligible to receive product sales activity and inventory data via EDI 852 from Home Depot.

The Home Depot EDI 852 document will contain SKU/UPC level units sold, units on hand, and dollars sold for every store where your products are sold. The files are sent one time per week, summarizing the prior week’s activity.

What can you do with EDI 852 from Home Depot?
· Analyze SKU/store level sales
· Analyze SKU/store level on hand
· Analyze average unit selling price by SKU/store
· Analyze plan-o-gram compliance by verifying on hand and selling at planned stores
· Identify out of stock stores, and even forecast demand based on prior sales
· Group stores into A, B, C categories based on SKU level sales volume.

Home Depot merchandisers expect vendors to receive and use EDI 852 data to analyze and manage their SKU activity. If you are not already using the data, of if you are not using it as well as you could be, then you are missing sales opportunities. Don’t wait for your merchandiser to call you and ask a question you can’t address – start working with the data today.

Learn more about what your organization can do with Home Depot EDI 852 click here