Retail Sales Fall 0.3%
Retail sales fell 0.3% in January and December’s increase of 0.4% was revised to show no gain in sales. The biggest decline in almost a year was chiefly due to drops in sales at auto dealers and home centers. Both declines were from sales numbers that had been driven up by hurricane recovery sales. Sales were flat at internet retailers but were up 13.2% from January 2017. Building materials and garden supply stores saw sales fall 2.4% in January; sales were up 6% year-over-year. Sales rose at gas stations as prices at the pump climbed. Analysts also pointed out that much of the country experienced very bad weather in January. Retail sales account for about one-third of all consumer spending, with services accounting for the other two-thirds.
Retail Sales Forecast
Overall retail sales will rise between 3.8% and 4.4% in 2018, according to the latest forecast from the National Retail Federation (NRF). Retail sales grew 3.9% in 2017 over 2016 to $3.53 trillion, which was higher than NRF originally forecast. NRF says the robust holiday season was just one of the indicators that consumers are feeling more positive about their financial health. As the overall economy gains strength consumer confidence should continue to grow. NRF believes that the economy will grow by an average 163,000 jobs each month, down slightly from 2017. Unemployment is expected to drop to 3.9% by the end of the year and GDP should range between 2.5% and 3%.
The Home Depot
Q4 sales rose 7.5% to $23.88 billion and comp sales rose 7.5%. Both results beat analysts’ expectations. Total sales growth was positively impacted by 0.5% by a weaker US dollar.
Comp transactions rose 1.9% and average check rose 5.5%. THD expects comp store sales growth of 5.0% this year, slightly below analysts’ expectations of 5.4% growth.
Fiscal 2017 sales grew 6.7% to $100.9 billion, setting a new record for THD.
From their Conference Call with Analysts:
All three of their US divisions had positive comps for the quarter but there were significant variations in regional performance due to the weather.
Canada and Mexico posted another quarter of positive comps in local currency.
Transactions for tickets under $50 grew 0.8% in the quarter; those tickets now make up approximately 16% of US sales, with strong sales for both DIY and Pro customers. Pro sales grew in the double digits in the quarter, as did pro-heavy categories.
DIY customers responded well to events throughout the quarter and traffic was strong both in-store and online during their Black Friday gift center and holiday events. DIY customers drove strong comps in power tools, hand tools, rugs, appliances and decorative holiday.
Online sales grew 21% in the fourth quarter compared to the fourth quarter in 2016 and were up 21.5% for the fiscal year to 6.7% of total sales. Approximately 46% of online US orders are picked up in stores.
Lumber, electrical and tools had double-digit comps for the quarter and appliances, plumbing and building materials were above the average comp.
Sales benefited from hurricane recovery efforts but they also had hurricane-related expenses. They believe they had $652 million in hurricane-related sales in the second half of 2017 and expect that same amount of sales in 2018.
DIY customers were more likely to shop with them again than last year, with 86% intending to shop again.
They reaffirmed their investment strategy to grow sales to $120 billion by 2020 and grow operating margins to 15%.
For the second half of the year, 99% of stores qualified for success sharing. They also paid out incremental one-time bonuses of more than $240 million to hourly associates due to benefits realized by tax reform.
They are planning their annual spring Black Friday event and are excited about their new patio offerings.
During the fiscal year they opened six new stores, including three in the US and three in Mexico, and ended the year with 2,284 stores and 237 million square feet of selling space.
For the fiscal year, total sales per square foot increased 6.7% to $417, the highest level since fiscal 1999. At the end of the quarter merchandised inventories were up $199 million from last year to $12.7 billion and inventory turns were 5.1 times, up from 4.9 times last year.
For fiscal 2018 they expect sales to grow 6.5%. Fiscal 2018 will include a 53rd week, so fourth quarter 2018 will have 14 weeks.
Customers are continuing to take on bigger projects as they feel more confident in their home values and THD sees that continuing in 2018.
They have invested significantly to eliminate friction between different channels as they pursue their One Home Depot strategy.
They will be rolling out more end caps dedicated to connected home products and have some exciting new products coming out. They believe there will be more and more products enabled through technology over the next five years and manufacturers will find ways to enhance their products for customers.
Q4 sales fell 1.9% to $15.5 billion, topping analysts’ estimates. Comp stores sales rose a strong 4.1%, better than analysts’ estimates.
Full year sales for 2017 rose 5.5% to $68.6 billion from $65 billion in fiscal 2016. It was Lowe’s highest annual sales ever.
Comp sales for the US home improvement business rose 3.7% in the fourth quarter and 3.9% for the full fiscal year.
Lowe’s expects total revenue to rise roughly 4% in 2018, with comp sales rising 3.5%. Lowe’s expects to open 10 new stores in 2018.
From their Conference Call with Analysts:
Comp sales on Lowes.com grew 28% for the quarter and 34% for the full year. They are enhancing their in-home selling program and centralizing the process for providing customers with installation quotes.
They’ve optimized functionality and display on mobile and touch screen devices, improved their product content recommendations, refined search algorithms, improved click-to-chat capabilities and used digital line reviews to optimize assortments.
Their never-out strategy drove above average comps in Their never-out strategy drove above average comps in tools and hardware, as well as rough plumbing and electrical.
They have re-leveraged their MyLowes platform to drive loyalty and build deeper relationships. MyLowes members spend 35% more than non-members. In 2017 they added more than 4.5 million new MyLowes members.
Not everything they did during the year delivered on expectations. They are pleased with traffic growth but are actively working to improve conversions and gross margins while better managing inventory.
They improved sales floor coverage, but now realize they must accelerate associate readiness and knowledge through training programs as well as re-engineer some key processes.
They are investing in a new direct fulfillment center that they expect to be operational in the third quarter, which will allow them to expand their online product offering and offer faster parcel shipping.
They are also investing in delivery capacity to meet increased demand and advancing their pick-up-in-store experience to allow customers and installation service providers to pick up products within five minutes of their arrival. They have been pilot testing that program since last August.
Some of the investments they are making in their supply chain will start paying dividends this year, others will be further into the future. They realize that consumer expectations have changed and they have to competitively deliver what people are looking for.
As previously announced, they will be introducing Craftsman in stores and online in the second half of the year.
They expanded their partnership with Sherwin-Williams. They will now be Lowe’s exclusive national supplier for interior and exterior paints, and Lowe’s will also become the only US home center to offer Minwax, Cabot and Thompson’s WaterSeal.
Their installation services teams complete about 60,000 in-home installations each week. They are testing the commercialization of Lowe’s Vison Pro with in home project specialists, allowing customers to use augmented reality to visualize their completed projects.
Inventory turnover was 3.9 times, down 15 basis points from last year, 6 points of which was due to the extra week in 2016.
They are pleased with their double-digit comp growth in appliance sales, and they are now the category leader.
Promotions and pricing are driving increases in traffic, but conversions are down and they need to improve them by giving associates better tools to work with and figuring out how to get all the work done that needs to be done every day while still having enough associates in front of customers.
They are reevaluating their long-term targets and plan to present a full update on their business strategy and long-term outlook at their analyst and investor conference in December. They continue to expect an annual sales increase of at least 4% and expect operating margins to improve after this year; they are expecting flat margins this year. They plan to make incremental capital investments this year as a result of tax reform.
For this year Lowe’s plans to leverage analytics in order to know their customers better and change how they engage with them. They also intend to expand fulfillment options, grow sales with the Pro customer and differentiate themselves with services.
Strategically they will focus on several areas, including investing in further strengthening competitiveness and enhancing their position as the omni-channel project authority.
It was a strong quarter internationally, with high single-digit comps in Mexico and mid-single-digit comps in Canada, both in local currency.
They’ve made significant progress integrating RONA in Canada, achieving double-digit online sales growth, rolling out appliances to 100 locations, completing five RONA big-box conversions, driving strong growth in their affiliated dealer business and optimizing shared supplier partnerships and procurement efforts. RONA posted their highest comps in 13 years, and Lowe’s believes they are well positioned to continue to grow and are on track to double operating profitability in Canada by 2021.
Lowe’s will pay a one-time bonus of $1,000 to more than 260,000 hourly US employees as they take advantage of changes in the US tax code. Lowe’s will also expand benefits.
Lowe’s is rolling out a pilot program in Charlotte and three other cities that will pay employees $2,500 toward certification in a range of trades, from plumbing to HVAC jobs. It’s called Track to the Trades. Lowe’s says they know they are training their people to potentially leave them, but something needs to be done about the lack of potential workers in the skilled trades. Studies show that a full 25% of workers are approaching retirement and there is no labor pool of trained workers to take their place. Lowe’s picked Charlotte for the pilot because Charlotte scored last in social mobility in a recent study. Of course, employees can choose to remain with Lowe’s and provide expert advice to shoppers in their subject area.
Walmart sales rose 4% to $136 billion in Q4, but net income dropped as Walmart sunk capital into competing with Amazon. Ecommerce sales rose 23% for the fourth quarter, a big drop from 50% growth in the third quarter. Walmart expects online sales to grow 40% this year. Some of the decline in online sales came from what Walmart says was an over-emphasis on holiday goods in warehouses at the expense of staples. Online sales are generally less profitable than sales made in stores. Ecommerce accounts for less than 4% of Walmart’s annual sales.
Walmart has aggressively cut prices and plans to double the number of stores where groceries can be ordered online and picked up curbside to 2,000 locations this year.
Walmart will start sharing more data with suppliers in a move to faster replenish out-of-stock items as part of their strategies to compete more effectively with rivals such as Amazon. Their On Shelf Customer Availability (OSCA) data, which was formerly only accessible internally, was shared at their Supplier Growth Forum in early February. Walmart will also tighten deadlines for deliveries. Walmart will now require large suppliers to deliver full orders within a specified delivery window 85% of the time or face a fine of 3% of cost of goods; the previous threshold was 75%. Walmart hopes to add $1 billion in revenue by improving product availability in stores.
Sam’s is rolling out free shipping for Sam’s Club Plus members on most items sold online, with no minimum purchase requirement. Sam’s is on track to open their first ecommerce fulfillment center in Memphis, Tennessee, with the first packages expected to ship in early spring. Sam’s is planning to expand the ecommerce distribution network in the second half of the year based on learnings from the Memphis center. In addition to building new locations, Sam’s will turn 12 of the Sam’s Clubs closed in January into distribution centers.
Sam’s Club is also simplifying their membership structure. Going forward, there will be two levels of membership, Club and Club Plus. Club will be $45 a year and Plus will have an annual fee of $100. Sam’s is also lowering the fee for additional Club memberships to $40.
The Sam’s Club changes are viewed by analysts as a way to help Sam’s compete with Amazon as well as Costco and BJ’s Wholesale Club. Sam’s typical customer is a single or dual income, busy family living in the suburbs making between $75,000 and $125,000 per year. Many own small businesses. While Sam’s is not promising two-day delivery, a spokesperson said they are optimizing their network to get items closer to members and speed up delivery, with the goal of getting customers items in one to two days. Sam’s also has a pick-up service where customers can order up to midnight and pick up as early as 7 a.m. Their goal is get the waiting time to pick up orders down to five minutes or less.
Sears Home Services division is considered one of Sear’s most valuable and marketable holdings, according to a report from CNBC, so it could bring considerable cash as Sears looks to shed assets and increase liquidity.
Sears Holdings is closing 64 Kmart stores and 39 Sears locations between early March and early April 2018. Sears wants to better align their physical store footprint and their digital capability needs. Sears' comparable sales have been falling for several years and dropped 15.3% in Q3 2017.
Revenue rose 6.8% in the fourth quarter to $1.32 billion. Consolidated revenues for fiscal 2017 rose 5.1% to $5.4 billion. Increases were noted across all departments, with power tools, outdoor living and lawn and garden showing the largest gains. New store growth and a 3.1% increase in comp store retail sales along with revenue from their acquisition of The Grommet at the end of the third quarter were the primary drivers behind the strong increase in sales and revenue in the fourth quarter. Revenue from Ace Retail Holdings, or Westlake Ace Hardware was up 5.3% in the fourth quarter to $67.8 million.
Announcements from True Value’s annual Reunion in Washington, DC, included the fact that 1,200 warehouse items will be designated as available only in stores. The new website, TrueValue.com, will also show local in-store pricing, and has a reported goal of driving more traffic into stores. The website is expected to go live April 1. Both announcements were greeted with rousing applause.
W. W. Grainger
More than 12,000 people attended the annual Grainger Show in Orlando, Florida. In its 14th year, the 2018 Grainger Show featured approximately 700 suppliers on more than 450,000 square feet of trade show floor space. The show includes seminars and workshops on workplace safety, operational efficiency, healthcare facility management, food safety regulations, emergency preparedness, energy efficiency and digital technologies used in manufacturing. Grainger also offers attendees the opportunity to learn more about Grainger’s offerings in safety, inventory management, ecommerce, facility services, metalworking and consulting services at solution centers throughout the show floor.
Q4 net sales rose 38% to $60.5 billion. For the full year of 2017, Amazon’s net sales rose 31% to $177.9 billion. Amazon expects net sales for the first quarter of 2018 to rise between 34% and 42% to $47.5 to $50.7 billion. Amazon’s profits for the fourth quarter topped $1 billion for the first time as they sold more voice-activated technology, enlisted new Prime members and benefited from their recent purchase of Whole Foods. Analysts noted that Amazon got its start as an online bookstore in 1995.
Revenues from subscription fees, which include Prime membership fees, rose 49% from 2016. Amazon said they added more Prime members last year than any previous year but did not provide hard numbers. Amazon also said that sales at Whole Foods were better than expected, and sales of Alexa were also a big contributor to sales and profits.
Amazon Web Services’ (AWS) fourth quarter sales rose 45%, intensifying Amazon’s battle with Microsoft’s Azure for public cloud market development. AWS accounted for 63% of Amazon’s total operating income in the fourth quarter, providing $1.35 billion in operating income.
Amazon’s ad revenues grew 58% in 2017 to $1.12 billion, and Amazon said that advertising was a key contributor to strong growth. Amazon’s search marketing options have been growing rapidly as Amazon has invested in updating technology. Analysts estimate that Amazon’s ad revenue will continue to grow and reach between $4.5 billion and $10.2 billion this year.
Amazon will reportedly cut hundreds of corporate employees in a move to reduce the number of management positions. Amazon says they are aggressively hiring in many locations and other areas of the company, especially distribution. Amazon created 130,000 jobs in 2017 and acquired 90,000 employees along with Whole Foods.
Amazon opened their long-awaited new headquarters in Seattle, which news sources described as a rainforest with alternatives to desks. Jeff Bezos opened the space by commanding “Alexa, open the spheres.” The ceilings turned blue as he spoke. The futuristic Sphere’s three glass domes house 40,000 plants of 400 species. Amazon invested $3.7 billion in buildings and infrastructure in Seattle between 2010 and the end of 2017.
Amazon’s Jeff Bezos wants to change healthcare in America, and to that end has teamed up with veteran investors Warren Buffet and JP Morgan’s Jamie Dimon to create a not-for-profit venture. Details are currently scarce, but reportedly the healthcare venture will focus on technology for “simplified, high-quality and transparent healthcare at a reasonable cost” for their combined 500,000 employees. Analysts say the complex US healthcare sector is ripe for disruption, with both employers and consumers very anxious to find more affordable options, better choices, better outcomes and higher price transparency.
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