By Neil Saunders
Although growth numbers have softened, Home Depot has started its new fiscal year on a high note with a respectable rise in net and comparable sales. Both numbers were dragged down by a relatively wet start to the year, which reduced demand for some outdoor-related projects. On the bottom line, Home Depot posted a 4.5% increase in net earnings—a significantly reduced pace of expansion from the 30%-plus notched up over the past three quarters.
The consumer economy was less favorable than last year, when tax cuts, good tax refunds, and generally high confidence were boosting spend. While shoppers are far from being in the doldrums, the prevailing attitude now is cautious and careful. This is reflected in some aspects of spending on household products, but home improvement seems to have held up better. Much of this is due to the continued willingness of people to invest in their homes and the relative robustness of the housing market, where activity levels remain good.
While the economy generally played ball, the weather did not and a wet start to the year across many parts of the country meant that spending on items for outdoor projects was down considerably. However, as we have seen before, much of this spend is merely delayed and tends to get pushed into other periods. In any case, Home Depot managed to navigate this slip in demand far better than rivals, including Lowe’s.
Home Depot is still growing its share of both DIY and professional customers, and this is a key driving force behind its consistently good performance. We remain particularly impressed with the constant incremental improvements to the professional offering, with the trial of new ordering and account management tools now helping pro customers streamline their interactions with Home Depot. This constant focus is necessary to maintain an edge over rivals, which are also courting the professional segment.
The investment in making the shopping experience easier hasn’t stopped with pro customers; the website and multichannel proposition also have been improved. Searching on apps and online is now easier than ever with enhancements to product information and content. The result is higher customer traffic and conversion rates, producing a significant boost to online sales. Product pickup has been made easier by the continued rollout of lockers to stores. These have proved particularly popular with busy DIYers who need to get in and out of shops quickly. Speed is often of the essence for home improvement orders; many parts or tools are needed urgently, often same day. So future investments into making delivery to home or worksites faster will also prove valuable.
Looking ahead, Home Depot is coming up against tough prior-year comparatives, especially in the next quarter. But we believe the company has enough firepower to deliver a positive result, even if it is, like this quarter, a little more subdued. The sales delayed as a result of the wet weather this quarter, the still relatively good housing market, and the initiatives Home Depot has put into play will all deliver for the company.
We maintain our positive view on the future outlook.
Neil Saunders is managing director of research firm GlobalData Retail.