HD and LOW, a tale of the Q1 tape

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HD and LOW, a tale of the Q1 tape

By Ken Clark - 05/25/2020
Home Depot fired the first shot in the latest head-to-head home improvement quarterly earnings duel. On Tuesday, the Atlanta-based giant posted U.S. comps of 7.5%, even as the company limited foot traffic in the midst of the pandemic. Lowe's answered on Wednesday, with a 12.3% gain -- the largest comp figure since HBSDealer has been keeping track.

Here's the tale of the tape on key metrics.

U.S. comp-store sales
HD: 7.5%
LOW: 12.3%

Sales growth
HD: up 7.2%
LOW: up 11.3%

Total sales
HD: $28.3 billion
LOW:$19.7 billion

Net income growth
HD: down 10.6%
LOW: Up 27.8%

Net income
HD: $2.245 billion
LOW: $1.337 billion

Store count
HD: 2,293, up 2 from the previous quarter with one opening in Mexico, and one in Puerto Rico.
LOW: 1,970, down 7 from the previous quarter.

As always, there’s more to the story than a handful of metrics. During earnings calls last week with investors, both companies reported that their first quarters placed highest priorities on maintaining employee and customer safety, and supporting their communities.

Along those lines, both home improvement giants began reducing hours in early to mid March. Among other actions, Home Depot canceled its Annual Spring Black Friday event, while Lowe’s shut down entirely on Easter Sunday (giving employees a “much deserved day off,” said Lowe’s CEO Marvin Ellison.)

Here’s how both companies described other mutual points of emphasis.

Enhanced benefits:

At Home Depot, the company pointed to $850 million in expenses that went mostly toward paid time off for hourly employees, and also for bonuses and increased hourly pay during the pandemic.

At Lowe’s, the company said it invested $340 million to support employees, healthcare workers, first responders, and communities. Plus, the retailer made a $50 million charitable contribution “for our communities to do our part in this time of need,” Ellison said.

Social-distancing guides inside a Lowe's store.

Online sales:

Home Depot sales leveraging the retailer’s digital platforms increased 79% in the quarter. More than 60% of the time, the customers chose to pick up their orders at a store. According to Executive VP of Merchandising Ted Decker, Home Depot’s digital business accelerated from about 30% growth in early March to “triple-digit growth” by the end of April. Just under 15% of Home Depot’s sales were online sales.

At Lowe’s, lowes.com sales were up 80% overall with even stronger growth rates for the company’s pro customers. Online penetration increased to 8% of total sales.

Pro sales:

Both Home Depot and Lowe’s reported that DIY sales grew faster than pro sales in the first quarter.

Home Depot described a continued "high level engagement with the pro." In states and municipalities that restricted in-home activity, however, there were declines in activity.

Lowe’s posted double-digit comps in lumber, which benefited from strong unit demand from both the pro and DIY customers.

Future guidance:

Both Home Depot and Lowe’s suspended their fiscal guidance.

In March, a sign (since removed) announced shopper limits.

Here’s how Home Depot’s CFO Richard McPhail described it. “Our performance to-date has surpassed our initial expectations and it is also disconnected from traditional metrics like GDP, which we have historically used as a foundational element of our sales guidance. As a result of this and the level of uncertainty that exists with respect to the impact of Covid-19 on future economic activity and customer demand, we are suspending our fiscal 2020 guidance until further notice.

And here’s how Marvin Ellison put it: “Despite our solid performance this quarter and strong sales momentum continuing into May, we are withdrawing our prior guidance for the full year 2020 sales, operating income, and earnings per share. In this unprecedented operating environment, we like other companies have limited visibility into future business trends, which result in an unusually wide range of potential outcomes for our 2020 financial performance.”

Rural vs. urban stores:

During the peak sheltering period of late March through mid April, The Home Depot’s moves to restrict traffic had a negative impact on sales. During this time, the company’s higher-volume stores in densely populated urban areas were affected most.

At Lowes, the company’s rural stores outperformed the company comp in the first quater by more 250 basis points, as urban stores experienced more demand disruption from the pandemic.

Special thanks to ...

At Lowe’s, Executive VP of Merchandising Bill Boltz offered a “big thank you” to Zep Cleaning Products, Safety Zone, and Medline for providing hand sanitizer and gloves for frontline employees.

At Home Depot, Ted Decker thanked PPG for providing hand sanitizer for store employees.