Focus on the store
Most question-and-answer segments of earnings calls have a signature exchange that deserves to make the highlight reel on the 10 p.m. news.
From the recent Home Depot conference—the one during which the company reported upticks in sales and earnings for its third quarter—included the following:
Analyst: “Are there other types of opportunities outside of the core stores that would make sense to you?”
CEO Frank Blake: “We are focused on our core business.”
Executive VP merchandising Craig Menear: “There’s several billion dollars over the past two years that we gave up that we need to go get.”
EIGHT QUARTERS OF COMPS
Indeed, since a 2006 peak of $79 billion in annual sales, the world’s largest home improvement retailer has seen annual revenues shrink steadily. It finished with $66.2 billion last year.
Third-quarter results shows sales and earnings gains, and the company is on page to deliver about a 2.2% sales gain over last year—though the estimate was revised downward from an August forecast of 2.6%.
During the conference call, Home Depot executives were very careful to use the word “stabilizing” as opposed to “stabilized,” and, at one point, CFO Carol Tomé corrected an analyst for slipping into the past tense.
To show a stabilizing market, Blake pointed to lower standard deviation in the performance of the top 40 markets. The spread between the best and worst in 2009’s third quarter was about 35 percentage points. That’s down to about 18 percentage points in the recent quarter.
“So, from an overall perspective, we see a stabilizing business,” Blake said. “And as the business stabilizes, we continue to improve our operational performance.”
He talked about the massive supply chain transformation (see article.) But he also talked about a business strategy that fits in the palm of your hand. It’s called the F.I.R.S.T. Phone—a combination communicator, scanner and portable checkout.
The phone, named for the company’s “Customer F.I.R.S.T.” initiative, “was developed through close cooperation with our store operations and IT teams—perhaps the best collaboration we’ve ever had on a project like this,” Blake said. “And we see it as a foundational element of improving our service for our DIY and pro customers, putting knowledge and communication closer at hand to our associates on the floor of the store.”
Sales for the third quarter totaled $16.6 billion, a 1.4% increase from the third quarter of fiscal 2009. And the company’s third-quarter profits increased 21% to $834 million.
On the shelves, the departments that outperformed the company’s average comp were lumber, garden, electrical and lighting, according to Menear. Building products and millwork, however, were negative for the quarter.
Menear had high praise specifically for the company’s third-quarter “Vanity Insanity” event. The launch of LED bulbs in the EcoSmart collection—a technology deemed the eventual successor to CFL bulbs—and dual-flush projects, both Glacier Bay and HydroRight, resonated with customers seeking electric and water conservation solutions. And Martha Stewart kitchens, he said, are off to a fast start in the stores.
Getting customers to shell out for big-ticket items remains a big challenge, he said. Transactions for tickets of $900 or above—roughly 20% of the chain’s U.S. sales—were down 3.4% in the quarter, Menear said.
In the $50 and under price range—also accounting for about 20% of the U.S. sales—transactions were up 2.7%.
In a stabilizing market, it’s important to react to where customers respond favorably.
“Our strategy remains focused on driving value and innovation in our stores,” he said.
ON THE SHELVES: WHAT’S GOING TO MOVE?
During the company’s Q3 earnings call, executive VP merchandising Craig Menear pointed to several areas that are expected to generate interest and sales in Q4:
Heaters, fireplaces and snow removal equipment
An expansion of Klein tools for professional electricians
USG lightweight drywall—30% lighter than regular panels
Anew line of epoxy grout from Customer Building Products—no sealing required
Kleer Lumber gains distribution through iLevel
iLevel by Weyerhaeuser is now distributing Kleer Cellular PVC Trimboard, sheet goods and other Kleer cellular PVC building products from its Baltimore, Md., and Easton, Pa., distribution centers.
iLevel is a new partner for Kleer as the company serves the key building markets of New Jersey, metropolitan New York and other Mid-Atlantic regions including Eastern Pennsylvania, Northern Virginia, Maryland and Delaware.
“iLevel is an ideal partner for Kleer Lumber because of its strong brand name, the products it represents in the marketplace and its commitment to outstanding service,” said Walt Valentine, president of Westfield, Mass.-based Kleer Lumber. “iLevel’s renewed commitment to focus on specialty product groups aligns perfectly with the core product development strategy at Kleer Lumber.”
Construction industry loses more jobs
The construction unemployment rate rose to 18.8% in November as the sector lost another 5,000 jobs since October, according to the Associated General Contractors of America, which just released an analysis of new federal employment data. The analysis indicates that the construction sector has been the hardest hit of any industry during the economic downturn, association officials said.
The industry’s 18.8% unemployment rate, not seasonally adjusted, was the highest of any industry and roughly double the overall unemployment rate. The construction industry has lost 2.1 million jobs since employment in the sector peaked in August 2006, according to the association. Since November 2009, the industry has lost 117,000 jobs, while the private sector added 1,088,000 jobs.
“The unemployment report shows construction still has not broken free of the recession that has gripped the industry since 2006,” said Ken Simonson, the association’s chief economist. “Other than the stimulus and other temporary federal programs, it has been a pretty bleak four yours for the industry.”
The only construction segment to add jobs in the past years has been heavy and civil engineering construction, which has benefited from federal stimulus, military base realignment and Gulf Coast hurricane-prevention projects, Simonson observed. Meanwhile, residential construction has lost 79,000 jobs over the past 12 months, while nonresidential specialty trade contractors and nonresidential building — the other two segments in the nonresidential category — have lost 62,000 jobs.
Association officials cautioned that the stimulus and other temporary federal programs would begin winding down in 2011, most likely before private, state or local demand for construction picks up. They urged Congress and the Obama Administration to act on a series of long-delayed legislative bills for water, transportation and other infrastructure programs.