Distribution June 2016
RETAIL SALES JUMP 1.3%
Retail sales jumped 1.3% in April after falling 0.3% in March. Big gains by auto dealers, gas stations and internet retailers led the way, but every segment of the retail industry saw sales gains except for home centers, where sales fell 1.8%, due at least in part to unusually damp and rainy weather. Results exceeded economists’ expectations of a 0.8% increase. Online sales increased 2.1%, the largest gain for the category in nearly two years. Core retail sales, which exclude automobiles, gasoline, building materials and food services, shot up 0.9% in April after an upwardly revised 0.2% gain in March. These core retail sales correspond most closely with the consumer spending component of gross domestic product. Retail sales account for about one-third of all spending, with services making up the other two-thirds.
THE HOME DEPOT
Q1 sales rose 9% to $22.8 billion. Comp sales were up 6.5% from Q1 2015, and were up 7.4% for U.S. stores. They raised their sales growth guidance for the year to 6.3% with comp sales growth of 4.9%.
From their Q1 Conference Call with Analysts:
All three divisions posted positive comps, led by the southern division. All 19 U.S. regions and top 40 markets saw single to low double-digit comps for the quarter. Weather positively impacted sales by about $250 million, but spring had not yet arrived by the end of the quarter in many markets.
Total comp transactions grew 4% for the quarter, and comp average ticket increased 2.5%, somewhat impacted by commodity price deflation from lumber and copper.
Transactions for tickets under $50, which represent about 20% of U.S. sales, were up 2.7%.
Transactions for tickets over $900, about 20% of sales, were up 9.5%. The drivers behind the increase in big ticket purchases were appliances, roofing, sheds and windows. Tools outperformed the company’s average comp.
Pro heavy categories continued to show a lot of strength, and the core of the store performed well. Tool storage, portable power, power tool accessories and hand tools turned in double digit comps.
They’ve added new benefits to the private label credit card they offer for Pros, and now offer 60 days to pay, 365 day returns and discounts at the fuel pump. New Pro accounts are ahead of plan.
Their Spring Black Friday event was very successful, and they have several events planned for the summer season. Even discounting the 150 basis points that favorable weather contributed to their results, they made plan.
Online sales grew 21.5% for the quarter, and online traffic grew in the double digits. About 40% of customers who order online choose to pick up their purchases in store. They believe that about 25% of the items they sell are at risk from online competition.
The rollout of COM, their new customer order management system, is on track to be up and running in all U.S. stores before the end of the year. They’ve been able to leverage their supply chain so they are able to meet 94% of customer demand with next-day shipping.
In some markets where Buy Online Deliver From Store (BODFS) has been introduced, demand has been much stronger than anticipated and is challenging their delivery capacity. They expect that just about everything they sell will be eligible for delivery and they will leverage the supply chain network to find the most effective ways to do that.
They hired more than 80,000 seasonal associates for the busy spring selling season.
Their supply chain Sync is in the initial phases of a multi-year rollout, but they are pleased with the initial results.
First quarter inventory was $13.2 billion, up $913 million from last year, and inventory turns were up one-tenth to 4.8.
During strategic planning last summer they had several groups of millennials work on what Home Depot will look like eight to ten years from now. Their research shows that the millennial generation has many of the same desires as earlier generations, but millennials wait about six years longer than other generations before they act on those desires, and, for example, buy a home.
CEO Craig Menear told shareholders attending the company’s annual meeting in May that the Home Depot is sticking with their goal of having $101 billion in annual revenue by 2018, and is currently about $12 billion shy of that number. While acknowledging that meeting the goal will be challenging, Menear said it is achievable. In 2000 THD was opening a store about every 48 hours, but over the past few years has opened only a handful, primarily in Mexico and Canada.
Q1 net sales rose 7.8% to $15.23 billion, beating analysts’ estimates. Comp sales rose 7.3%, well ahead of the 4.3% increase expected by analysts. Lowe’s also raised their full-year guidance for profits.
From their Q1 Conference Call with Analysts:
For 2016 they expect total sales to increase 6%, based on a comp sales increase of 4%, the impact of the 53rd week in this year’s fiscal year and the opening of approximately 45 stores, which includes 20 U.S. stores and 12 in Canada.
They had positive sales across all regions and product categories. Comp transactions grew 5.1% and average ticket grew 2.2%. Pro categories are outperforming the company average.
Tools and Hardware has been affected by increased project activity from both Pros and DIYers. To capitalize on that, they’ve improved their tool brand assortment and added exclusives from Hitachi and Bostitch.
Lowes.com sales grew 23.5% for the quarter and there was also strong growth in traffic as well as conversion. They have made a lot of improvements to their website to make it more user friendly.
Customers are choosing to either pick up or have delivered about 70% of the items ordered on Lowes.com.
They’ve improved their online shopping experience and provided opportunities for people to engage with knowledgeable associates whether they are in the store or online.
Their omnichannel offerings for Pros are being very well accepted and they are focused on making it easy for Pros to do business with them. They currently have more than 180 Pro outside representatives in the field and are seeing great success with that program.
They have tools in place so they can analyze how promotions are doing and leverage their supply chain so they don’t run out of popular products.
Lowe’s is targeting millennials with a series of new advertising spots on social media, some of which are being posted on YouTube. This approach allows them to create much longer, story-based spots. Other elements are posted on Instagram, Facebook and Snapchat. Lowe’s says that millennials’ use of media is very scattered, and concentrated on smart phones and tablets. Lowe’s wants to be sure they understand millennials and are their brand of choice when they do become homeowners. The YouTube spot attracted 43 million views in the first six days it was up. Lowe’s is also airing long-form ads in movie theaters. Social media advertising is much less expensive than television. BBDO New York handles Lowe’s social media program.
Revenue rose 0.9% to $115.9 billion. Excluding the impact of currency, revenue rose 4%. Comp store sales increased 1%, excluding the effect of fuel prices, marking the seventh consecutive quarter of comp sales gains. Ecommerce sales growth continued to slow, rising 7% in the first quarter after rising 8% in the fourth quarter. Customer traffic rose 1.5%, but profits fell 7.8%. Results beat analysts’ expectations.
Walmart had warned that profits might take a hit because they were spending heavily on categories that will help get customers back in the store and improve customer satisfaction. More than half of Walmart’s revenue comes from groceries.
Walmart recently launched a 3-2-1 Save cash-back rewards program in partnership with Synchrony Financial. Cash-back rewards range from 1% to 3% for people who use the co-branded Walmart credit card. The highest reward category targets purchases made on Walmart.com. The previous rewards program offered $5 back for every $500 spent and savings of up to 5 cents per gallon at participating Walmart service stations.
Walmart spent $10.5 billion on information technology in 2015, according to market researcher International Data Corp. Five of the companies in the top ten are in financial services. WM is attempting to manage shifts in shopper behavior by building up ecommerce capabilities. WM plans to spend $2 billion on ecommerce by the end of 2017.
Walmart will offer two-day delivery for products shipped under its Shipping Pass, the members-only pilot program they are testing that’s designed to compete with Amazon Prime. Walmart also cut the cost of the program from $50 to $49. Shipping Pass, still in the testing phase, currently offers free, unlimited shipping on more than 1 million items for subscribers. The products reportedly include the most popular items ordered on Walmart.com. Interested customers have to join a waiting list and receive an invitation to participate. Walmart has not disclosed the number of people participating in the pilot program.
Daily sales increased 4% in April 2016 from April 2015. The sales growth included a 4% contribution from Cromwell Group, which was acquired September 1, 2015. Excluding acquisitions, organic daily sales were flat, driven by a 1% increase in volume and a 1% benefit from the timing of the Easter holiday, offset by a 2% decline in price. The month of April 2016 had 21 selling days, one fewer than the previous year. The 2016 second quarter will have 64 selling days, the same as the 2015 second quarter. Daily sales fell 1% in the U.S. and 14% in Canada (14% in local currency).
Amazon launched a video upload service similar to YouTube. Like YouTube, Amazon will make money from subscriptions, rentals and ads on the free broadcasts.
Amazon is shifting into private label groceries, a move analysts say appeals to millennials, who appreciate quality, price and taste, but are brand agnostics, and attracted by the concept that private label will be cheaper. Millennials already trust Amazon, so they are predisposed to trust products like coffee or detergent that come from Amazon.
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