Distribution March 2021

Retail Sales Jump 5.3% 
Retail sales jumped 5.3% in January after dropping a downwardly revised 1.0% instead of the 0.7% decline first reported. The big increase came after three consecutive declines. Core retail sales, which exclude automobiles, gasoline, building materials and food services, rose 6.0% after dropping by a downwardly revised 2.4% in December. Core retail sales correspond most loosely with the consumer spending component of GDP. Analysts said that the model used by the government to strip out seasonal fluctuations from the data typically anticipates a bigger post-holiday season drop in retail sales in January than actually occurred. Wells Fargo reported that all retail store categories posted gains in January, with most retailers seeing the largest gain in sales since the summer. Ecommerce continues to outpace retail gains from a percentage point of view, with a near-record gain of 11% in January. Since last year, ecommerce is up 28.7%, the largest year-over-year gain of any category. Of every dollar spent at US retailers in January, 15.5 cents was spent online; before the pandemic that share was 12.9 cents. 
 
The Home Depot
Q4 and full year fiscal 2020 sales set records. Q4 2020 sales rose 25.1% to $32.3 billion and comp sales rose 24.5% overall and 25% in the US. For FY 2020, sales grew 19.9% to $132.1 billion and comp sales grew 19.7% overall and 20.6% in the US, setting a new record.
 
Conference Call with Analysts:
 
CEO Craig Menear said that 2020 was a year no one will ever forget, and they would never been able to navigate the global pandemic and support their communities through multiple natural disasters and moments of crisis without extraordinary efforts from all of their associates. As a result, investing in their associates was one of the easiest decisions they made all year. Support from their supplier partners was also critical to success.
 
CV19 forced everyone to change the way they live, work and interact with one another, and taught them several things. The first was that the investments they’ve made in the business over the past decade were the right ones. They enabled the agility and flexibility that was the key ingredient in growing the business during a global crisis.
 
Among the key investments that paid off: technology and infrastructure that helped them quickly extend their in-store BOPIS to curbside and convert delivery centers to fulfillment centers. The mechanization of their upstream supply chain helped improve flow to the stores and investments in tools for associates helped get those products onto shelves.
 
They continue to see a blend of the physical and digital worlds and believe their One Home Depot strategy has never been more relevant.
 
Sales were driven by broad-based strength across the business. All top 40 US markets posted double-digit comps. Comps in Canada were above average and Mexico posted double-digit comps in local currency.
 
Digital sales boomed. For Q4, sales through their digital platforms increased 83% versus the prior year with 55% of online orders fulfilled through a store. For the year, digital-driven sales rose 86%, with 60% of online orders fulfilled through a store.
 
During fiscal 2020, homedepot.com had more than 3.6 billion visits and the conversion rate rose double digits across all platforms, including mobile, their app and desktop.
 
They reinvented their in-store workshop program. Their in-store workshop program was an important tool they used for customer engagement; CV19 forced them to develop a virtual alternative, and in just a few months they transitioned 100% of their workshop content online. In fact, live streaming allowed them to go from five in-store workshops per month to 40 online live-streaming workshops that have really driven a deeper level of engagement from participating customers.
Over the course of the third and fourth quarters they significantly improved their in-stock positions while still supporting massive sales volume. Despite some current port delays, they think they are well positioned as they head into the busy spring selling season.
 
All merchandising departments posted double-digit comps, led by lumber and indoor garden. Comp average ticket increased 10.8% and comp transactions increased 12.6%. For the past three quarters the growth in comp average ticket was supported by strong project demand, customers trading up to new and innovative products and some commodity inflation, especially in lumber, copper and wire. For Q4, big-ticket comp transactions, those over $1,000, were up 23%. There was double-digit growth from both Pros and DIY customers, with DIY once again outpacing Pros.
 
Sales to Pros continued to accelerate, with Q4 showing double-digit gains for Pros each month. Smaller Pros maintained consistent growth and growth from larger Pros continued to gain momentum. The operating environment for larger Pros is still recovering.
 
DIY customers continue to be engaged, and as they spend more time at home they report their project lists are growing, not diminishing. Completing smaller projects gives them the confidence they need to take on larger and more complex ones.
 
Customer engagement with their annual Black Friday and Gift Center events was strong. They made deeper buys in fewer SKUs, extended events over several weeks and changed the way they used end caps.
 
They are very excited for the upcoming spring season and their number one position in outdoor power equipment. They are resetting their outdoor base by branded battery platform so that customers can shop everything that works with their battery platform.
 
They are putting a stronger inventory position back in their forecast, and their supply chain teams, supplier partners and merchants have worked hard to get product in stock so they will be in a much better position to capture demand than they were last year.
 
They transitioned temporary support programs for associates with enhanced benefits to permanent programs. Those expenses were about $341 million during the fourth quarter. In total they spent about $2 billion related to enhanced pay and benefits for associates in 2020. As long as the CV19 environment persists, they expect to incur about $250 million in related operating expenses for 2021, primarily related to PPE and additional cleaning, as well as extended leave for associates directly affected.
 
There is still significant uncertainty about demand during 2021, as it is impossible to predict how the distribution of vaccines, short-term fiscal policy and other developments will impact demand.
 
They believe that in fiscal 2017 through 2020 they added about 275 basis points in market share, which represents about $10 billion of incremental sales annually compared to 2017.
 
They remain very excited about their acquisition of HD Supply and are putting together a plan to use all their asset base to grow and capture share in the fragmented $55 billion market.
 
There is no doubt commodity prices are hitting record-highs for some categories, including lumber, copper and wire but they aren’t worried about the impact on their bottom line because they are all priced to market. Approximately 18% to 20% of volume is impacted by moves in commodity prices. They are not factoring in moves in either direction for lumber prices.
 
Other News:
 
THD opened a new distribution center in Dallas to fulfill online and store orders. The 1.5 million square-foot facility will also support home delivery and buy online, pick up in store (BOPIS).
 
Lowe’s
Q4 sales rose 26.7% to $20.3 billion and comp sales rose 28.6%, beating analyst’s expectations. Q4 ecommerce sales rose 121%. Fiscal 2020 sales rose by more than $17 billion to nearly $90 billion.
 
Conference Call with Analysts:
 
Lowe’s invested more than $100 million into CV19-related support for front-line hourly associates during Q4 and more than $1.3 billion supporting employees, local communities and store safety for the full year.
 
Customers shifted more of their shopping online, especially over the holiday season. Lowes.com delivered sales growth of 121% in Q4, their third consecutive quarter of comp growth exceeding 100%. They began rolling out curbside pickup in the first quarter and launched in store lockers for pickup of online orders a few months later. There are now BOPIS lockers in more than 1,200 stores, with plans for them to be in all US stores by April. They also created dedicated fulfillment teams to handle all in-store fulfillment orders.
 
They’ve continued to enhance their mobile app, and in the fourth quarter rolled out Geofencing technology that alerts the store when a customer is on the way to pick up their order, making pickup much faster.
 
DIY comps outpaced Pro comps for the quarter, driven by a consumer mindset that remains focused on the home. All 15 merchandising departments generated positive comps of more than 16%.
 
Comp store average ticket grew 14.2% in Q4 and transactions grew 13.9%.
They are capturing more business from Pros and are focused on further enhancing their service levels both in-store and online. They are continuing to enhance their Pro Loyalty program by offering Pros the tools they need to get the job done. They are now providing Pro Loyalty members a $100 discount on Turbo Tax and the ability to export up to 24 months of transaction history. They are definitely underpenetrated in the Pro category, so have a lot of upside potential.
 
Canada delivered comp growth in the mid-teens despite several CV19-related restrictions that went back into effect in the fourth quarter. The new Canadian leadership team made tremendous progress in 2020.
 
Their new Total Home strategy is gaining traction; that’s their commitment to provide everything a customer needs for their home. Total Home will drive market share acceleration by enhancing their investments in Pro, online, installation services, localization and elevating their product assortment.
 
Lumber and building supplies were top performers; lumber was driven by both very strong demand from Pros and DIYers and a huge runup in price. Merchants and supply chain partners did an exceptional job of working with vendor partners to keep up with demand and ensure stores were stocked with job lot quantities. All seasonal and outdoor categories also delivered comps above 30%, reflecting the consumers’ focus on the home.
 
They are confident their stores are now easier to shop for both Pro and DIY customers. They have been resetting all of their stores, and are now about 95% complete. They are committed to driving square foot by accomplishing three objectives:
 
Create a faster and more intuitive shopping experience for Pros by putting relevant products next to each other and adding a Pro Flex area at the front of the store for grab-and-go products. They will be launching Pro pickup lockers later this year.
 
Improve localization. They’re increasing their localized product assortment by eliminating unproductive bays without planograms, which they call junk bays. This opens up space for new products better tailored to the local market. They have new pricing tools that let them have localized pricing down to individual stores; they have some locations and parts of the store where they have frequent and sometimes very volatile price changes, and keeping up used to be very labor intensive. Now it can be done digitally. They’ve moved the basket-building category of cleaning products to the main power aisle of the store.
 
They can now deliver online orders to every location in the US in two days or less thanks to a dedicated dot.com fulfillment DC in Southern California they opened last year. That is relatively new to their strategy. They are also building out their bulk distribution centers and cross docks and will be moving heavily into Pro jobsite delivery.
 
They’re hiring more than 50,000 seasonal and full-time retail associates this spring and hired more than 90,000 associates into permanent roles in fiscal 2020. Store associate training is underway; they are also training teams to work with Pro customers.
 
They are taking a less promotional stance across all categories, trying to move to more everyday low prices (EDLP).
 
They continued to build inventory levels throughout the fourth quarter and ended the year with $16.2 billion in inventory, $240 million due to lumber inflation.
 
They are going to a market-based distribution model for appliances. This will make the business much more efficient and profitable than delivering appliances from every store as they do now. Market-based distribution will reduce labor, increase productivity, reduce transportation expenses and help them better manage inventory. 
 
Like many companies, they don’t have a clear vision of what the year ahead will bring. They believe that depends so much on things beyond their control, such as CV19 vaccine distribution, the course of the pandemic in the US and Canada and the staying power of the focus on home. Therefore they outlined three different market-based scenarios that could determine their actual performance this year. Ellison laid out three scenarios for a robust, moderate or weak market. In a robust market, the retailer’s outlook for 2021 anticipates a 5% to 7% drop in demand for the home improvement sector on a mix adjusted basis. In a moderate and weak market, demand would likely drop respectively by 7% to 9% and 10%.
 
All planning scenarios anticipate they will outperform the market, but that top-line sales will decline from fiscal 2020s unprecedented results. They consider the robust market scenario slightly more likely. Under this scenario, Lowe’s sales would approach $86 billion this year.
Other News:
 
Lowe’s was recognized as the Number One Most Admired Specialty Retailer by Fortune, the first time they have been number one. Lowe’s ranked Number 47 overall on Fortune’s annual ranking of the Word’s Most Admired Companies. Fortune partnered with California management consulting firm Korn Ferry to select the best-regarded companies in 52 industries. Companies had to have at least $10 billion in revenue to be considered. Lowe’s said they were also honored to make the Top 50 All Stars based on responses from more than 3,800 executives, directors and analysts.
 
Walmart
Walmart beat expectations on revenue for the fourth quarter and the full year, but missed on earnings, due to their extraordinary level of investment in the business. Q4 revenue rose 7.3% to $152.08 billion, beating analysts’ expectations. Walmart US comp sales increased 8.6%.
 
Ecommerce sales in the US rose 69% for the quarter and 79% for the full year. For the full year, Walmart's total revenue rose 6.7% to $559.2 billion.
 
Q4 transactions declined 10.9% in the fourth quarter as customers made fewer trips, while the average ticket jumped 21.9% as shoppers stocked up during those visits.
 
Sam’s Club saw strong growth. For the year, Sam’s Club US comp sales rose 10.8%. Ecommerce sales grew 42% and membership increased 12.9%, the strongest growth in six years.
 
Ace Hardware
Sales for the fourth quarter and full year set records. Q4 revenue rose 39.2% to a record $2.1 billion and full year revenues rose 27.9% to a record $7.8 billion. US comp sales rose 28.7% for the fourth quarter and 25.9% for the full year. Ecommerce sales rose 214% for the quarter and 272% for the full year. Ace paid out record patronage dividends of $292.9 million to shareholders, up 60.8% from 2019.
 
Comp sales growth for the full year was due to a 14.7% increase in average ticket and 9.8% increase in comp store transactions.
 
Ace added 167 new domestic stores in fiscal 2020 and cancelled 76 stores, bringing the company’s total domestic store count to 4,647, up 91 stores from the end of fiscal 2019.
 
Ace raised $17.9 million for Children’s Miracle Hospitals in 2020, which despite the pandemic, was another record-breaking year. Much of the money was raised literally pennies at a time, with $11 million raised by local Ace stores and their customers through in-store programs such as Ace Miracle Bucket Days and change round-up at the register.
 
David Goh is the new president of Ace International. The current president and general manager, Jay Heubner, will retire March 1 after 38 years with Ace. CEO John Venhuizen said that Jay is one of the most effective and wise leaders he knows. Goh is currently managing director of several Philippine-based retail chains and previously held a variety of international executive positions, including CEO of 7-Eleven Singapore.
 
Amazon
Amazon reported record results for the fourth quarter and the full year, with Q4 sales rising 44% to $125.5 billion, passing the $100 billion milestone for the first time and easily beating analysts’ estimates. Full year revenue rose to $386.1 billion from $280.5 billion. Amazon expects another record quarter going forward, with sales rising between 33% and 40%.
 
Amazon hired 175,000 new employees in Q4, more than triple the number added to the payroll in Q4 2019. Amazon spent $11.5 billion on hiring, expansion and other costs related to CV19 last year. Amazon expects to spend about $2 billion on CV19-related expenses during the first quarter, which would be about half of what they spent during Q4.
 
Amazon Web Services revenue increase was slightly below expectations. Revenue rose 28% to $12.7 billion. AWS continues to drive much of Amazon’s profits despite the fact that it accounts for just 10% of total sales.
 
Jeff Bezos surprised the world with the announcement that he will be stepping down this year from his position as Amazon CEO. Andy Jassy, head of AWS, will replace him as CEO. Jassy joined Amazon in 1997, three years after the company’s launch as an online bookseller. He’s been running AWS since 2006, turning it into the company’s most profitable and fastest growing division. Bezos will still have broad influence over Amazon.
 
Amazon is offering front-line employees who get vaccinated a bonus of up to $80, $40 for each dose if they have to travel off-site to get vaccinated. Several other companies are also offering incentives to employees, including Target and McDonald’s. Amazon says they have made more than 150 changes to their operating procedures to keep employees from getting sick and have spent $11.5 billion on CV19-related measures. Amazon reported last fall that nearly 20,000 of their 1.3 million front-line workers had been infected with CV19 between March 1 and September 19, about 1.44% of Amazon’s workforce.
 
Amazon is beginning to deliver orders with custom electric delivery vehicles on delivery routes in Los Angeles. They are testing electric vans that were designed and built in a partnership with manufacturer Rivian. Exterior cameras around the vehicle are linked to a digital display in the cabin, giving the driver a 360-degree view outside the vehicle. Alexa provides hands-free access to route and weather info, and a “dancefloor” inside the driver’s cabin makes moving around inside easy. 

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