Marvin Ellison’s Big Blue playbook
Highlights from the CEO’s first earnings call from Mooresville.
In his first week on the job, Lowe’s CEO Marvin Ellison unveiled a major restructuring of executive staff. And in the company’s first quarterly report under Ellison, Lowe’s unveiled a bombshell decision to close all 99 Orchard Supply Hardware stores.
So what else is new at Mooresville, N.C.-based Lowe’s? There’s a lot. The company reported second quarter revenue in excess of $20 billion – another first. Here are some of the other high lights from the company’s report.
For the pro. The company adjusted upward its estimate of the share of its total sales to pros – now roughly 30%. (Home Depot’s corresponding estimate is 45%.) “Pro is a huge opportunity for us,” said Ellison. The company say continued strength in lumber and building materials in the second quarter, and it hopes to build on that with new introductions for the pro. Among them: Lowe’s announced an introduction of Mapei to all stores, described as the leader in tile setting materials. Also added Zoeller, described as the leading brand in pumps, and a retail exclusive for Lowe’s.
Growth metrics. The company’s U.S. comps in the second quarter were positive 5.3%. That’s the highest in more than two years. Also, average ticket increased 4.5%, while transactions grew 0.6%.
Category winners. As the late spring pushed sales into the second quarter, Lowe’s lawn and garden category saw double-digit comps. Seasonal and outdoor living produced comps in the high-single digits. Cooling products and outdoor power equipment – especially OPE powered by a new generation of batteries – also generated double digit comps.
Room for improvement. Ellison was direct in his assessment of where Lowe’s can improve. “Specifically, we are significantly behind in our supply chain strategy, our in-store technology is dated, overall execution is impaired by complexity, we have a large number of out-of-stocks in our stores that must be addressed, and we need to increase the rigor with which we evaluate capital investments.”
Orange vs. Blue. Comparable store sales at Lowe’s continue to trail its rival Home Depot. As the chart below illustrates.
Lowe’s concedes Home Depot’s real estate advantage in metro areas, particular in the Northeast and West Coast, but with improved balance in serving DIY and pro customers, Lowe’s can begin to even the score.
Ellison looked back at the time he was a executive with Home Depot competing against Lowe’s. “I can remember back in early 2000 where it felt like every quarter, we were getting beat pretty significantly by Lowe’s with those same structural disadvantages that we currently have, so I think for us, it’s less about looking at the competition and it’s more about looking within and asking the question, where can we be better?”
Share repurchase. Instead of spending half a billion on planned capital projects for 2018, the company will buy back shares. Ellison explained that the spending wasn’t focused on the core business, and did not deliver productivity for associates. Not coincidentally, the company’s stock jumped more than 5% in trading following the earnings call.
Craftsman momentum. Lowe’s has a home center exclusive on Craftsman products, meaning you can’t get it Home Depot or Menards. (Other channels, including Ace in the convenience hardware channel, carry the product.) “We drove market share gains across all major categories where we introduced Craftsman to our lineup.,” said Mike McDermott, executive VP of merchandising, who is leaving the company. “We’re excited about our continued rollout of Craftsman in the second half, including individual mechanics and hand tools, power tools, and fall outdoor power equipment.
Omni-channel vision. Said Ellison: “While we have the foundational elements of an omni channel network, we need to better connect and align our systems and processes to create a truly integrated ecosystem. Fortunately, I’ve been down this road before and I have a clear understanding of the steps and processes required to build a world-class omni channel environment.”
Versatex expands PVC trimboard lineup
New woodgrain finishes added to Canvas T&G series.
Versatex has expanded its offering of hardwood-toned PVC trimboard with two profiles in matching, colorfast woodgrain finishes in the Canvas Series T&G line.
“We added the new Canvas Series profiles — a ½ x 6 tongue-and-groove beadboard and a bed mould — to the Canvas Series in response to overwhelming requests from contractors and builders who desire a different look, compared to the WP4 we currently offer,” says Versatex spokesman Rick Kapres.
Available in textures and colors that replicate the beauty of black cherry, walnut or tropical macore — as well as a sunny amber tone — all Canvas Series components feature the easy workability, stability and weather-resistance of Versatex premium PVC exterior trim.
Versatex supplies the Canvas Series T&G stealth beadboard in 18-foot lengths, and the bed mould in 16-foot lengths. Both are sold through Versatex distribution and dealer partners.
The new profiles were conceived in response to a flood of requests for a more traditional, beaded profile and a smaller finish moulding for covering joints between ceiling boards and walls. “This is only the beginning,” Kapres says. “Our conversations with contractors, designers, architects and distributors constantly spark ideas for new profiles and colors.
“More and more homeowners are looking for that extra coziness and personality that the look of hardwood can provide. Now there’s a permanent, durable answer for situations where severe conditions like coastal humidity and salt spray take their toll on natural wood.”
Versatex trim materials and systems are manufactured by Versatex Building Products, LLC, of Pittsburgh, Pa.
Confidence drives Building Supply Index
Prudent dealers should be ready for delinquencies on the rise.
BlueTarp Financial – the management company for B2B suppliers – released its second quarter 2018 Building Supply Index.
The second quarter 2018 12-month trailing average, which accounts for seasonality, hit an all-time high at 132.48, up from 130.92 in the first quarter of 2018. The unadjusted view also remained high at 139.16.
To interpret the index, values below 100 reflect recessionary or recovering performance. Values above 100 reflect healthy economic activity.
Consumer confidence continues to be the main driver for the elevated Index level – a 7% increase over this time last year, according to BlueTarp.
As a supplement to the Building Supply Index, BlueTarp conducts a quarterly survey of its contractors to gauge sentiment on the current and future state of the economy. Over half of respondents are seeing growing sales compared to this time last year. While optimism remains high, contractors are challenged to find quality employees with the labor shortage.
“Contractor optimism for the future seems to reflect the strong sales they are experiencing this year,” said Scott Simpson, president and CEO of BlueTarp. “We continue to warn that elevated delinquencies are a danger to be heeded. A shock to the system, whether from trade policy or other disruption, will transform these delinquencies into bad debts and bankruptcies. Prudent dealers and contractors should be preparing now for darker days to come.”
The report represents trends from 120,000 pro customers and more than 2,000 building material suppliers across the United States, according to BlueTarp. It also incorporates macro-economic drivers including: building permits, construction spend and consumer confidence as reported monthly by the Census Bureau and The Conference Board.