Distribution June 2018
Retail Sales Rise 0.3%
Retail sales rose 0.3% in April after jumping 0.6% in March. Sales were up 4.7% from April 2017. Growth was broad-based despite rising gasoline prices. Core retail sales, which exclude autos, gasoline, building materials and food sales, rose 0.3% in April after rising 0.4% in March. Sales at building material stores rose 0.4% after dropping a downwardly revised 1.0% in March. Many economists continue to expect that the higher take-home pay that resulted from President Trump’s tax cuts will cause consumer spending to rise in the coming months.
The Home Depot
Q1 sales rose 4.4% to $24.9 billion and comp sales rose 4.2% overall and 3.9% in the US. Results were below analysts’ expectations. The weaker US dollar compared to last year impacted sales growth by 0.4%.
From their Q1 conference call with analysts:
Weather impacted their performance, causing outdoor categories to fall short of expectations. The Southern and Western divisions saw better weather trends and comped above the company average. Canada posted slightly negative trends in local currency.
They described “the bathtub effect,” which is based on when spring arrives. Relatively weak seasonal sales in the first quarter are typically balanced by strength in the second quarter. They expect that to occur this year, and in mid-May at the time of the conference call they were seeing strong customer demand in the US and Canada.
Pro sales once again outpaced DIY sales, as their investments aimed at deepening their relationship with their Pros are creating incremental spend.
They continue to invest in the interconnected shopping experience and see a positive response from customers, with better customer satisfaction scores and increased sales. Conversion rates are up more than 10% year-over-year across all devices. Online sales were up 20% for the quarter.
Sales exceeded expectations except for seasonal sales, which were impacted by extreme weather during the quarter, with April being one of the coldest and snowiest months in more than 20 years. Garden typically represents 15% to 20% of first quarter sales, but garden departments had negative comps for the first quarter.
Comp average ticket rose 5.8% and comp transactions decreased 1.5%. Excluding garden, comp transactions saw positive growth. Transactions for tickets below $50 were down for the quarter due to the decline in the garden business.
Pro-heavy categories all had above average comps. Big ticket sales in the first quarter, which are transactions over $900, were up 10%.
Merchandise inventories were up 6% to $14.4 billion at the end of the quarter and inventory turns were up slightly to 4.9.
They do not expect rising interest rates to lead to a slowdown in customer demand because home prices are appreciating and the economy is strong.
They will be rolling out to all stores the refresh and new signage packages they have already implemented in 250 stores over the past couple of years.
Lumber and panel prices are at historic highs, but because these commodity prices are posted weekly they have no problem passing those price increases along.
They will be piloting their first new supply chain facility this summer. The first ones they are doing are market delivery operations, which are stockless locations that will be delivery hubs for big and bulky products. Later this year they will be testing their flatbed distribution capability and opening their first local direct fulfillment center. They expect it will take about five years to completely transform their supply chain.
Their services business represents about 4% of total sales.
The online business is largely incremental sales; they are growing the categories in store at the same time they are growing online. Online comps grew 20%, and they continue to invest in enhancing their online shopping experience. The online business is now approximately 5% of sales.
They had eight basis points of gross margin contraction in transportation, of which three basis points were due to fuel costs and five basis points were due to the pressure on transportation. All companies are facing higher transportation costs.
They have a new labor model that kicks in during June; it should drive more labor productivity than they saw during the first quarter. They invested $144 million in increased advertising and increases in display costs during the quarter, as well as increased wages and headcount. They hired 350 people in the IT department alone. They need to make these investments in order to reach the goals for sales and margins they’ve laid out for 2020.
THD has reached their goal of investing $250 million in veteran-related causes two years earlier than their target date of 2020. The foundation has partnered with a variety of organizations, including Habitat for Humanity and Volunteers of America. The Foundation has enhanced nearly 40,000 veteran homes and facilities in more than 2,500 cities.
Q1 sales rose 3% to $17.4 billion and comp store sales rose 0.6%. Both results were below analysts’ expectations. Lowe’s expects FY 2018 sales to rise 5%, with comp store sales rising 3.5%.
From their Q1 conference call with analysts:
Unfavorable weather across geographies impacted the important outdoor categories, although spring arrived in May, and May comps are in the double-digits. Comp average ticket for the first quarter rose 4.3%.
In the US, comps rose 0.5% in the first quarter with positive comps in six of 14 regions, with two regions being flat. There were positive comps in five of eleven product categories; one category was flat.
Performance was above average with Pros in lumber and building materials, tools and hardware and millwork.
Comps in Canada were positive in local currency. They continue to make progress integrating RONA and believe the business is poised for continued growth. However, comps in Canada were also pressured by challenging weather conditions.
They are investing to improve the Pro experience in order to continue to grow Pro sales. They are building on their strength in the MRO space and launched a streamlined product catalog in May.
They are focused on strengthening day to day execution and improving traffic conversion. They are also reengineering key processes and testing ways to improve the flow of products from regional distribution centers to stores.
They completed the first phase of their process to centralize project quotes, started with flooring.
They made progress in stabilizing margins and plan to expand new pricing and promotion analytics tools and continue to work closely with vendors to reduce Lowe’s costs.
They are excited to be the exclusive home center channel for Craftsman and are planning to expand Craftsman offerings as the year progresses.
They are also very positive about their expanded partnership with Sherwin-Williams, now the exclusive national supplier to Lowe’s US retail outlets for interior and exterior paints.
Inventory turnover was 3.8 times, a decrease of 20 basis points compared to Q1 last year.
They cross-trained 17,000 non-selling associates so that they will be able to work the floor during peak periods and key holidays and promotions. They are also ramping up their strategic investment in associate training and education so associates can do a better job of engaging with customers.
They are anticipating recovering the majority of the sales they missed in the first quarter, and have factored that in to their guidance.
Marvin Ellison will join Lowe’s as CEO on July 2, succeeding Robert Niblock, who previously announced his intention to retire. Ellison was most recently chairman and CEO of J.C. Penney’s, which he joined four years ago after a long career with The Home Depot.
Craftsman mechanics tool sets, tool storage products, flashlights and other products are now being stocked in Lowe’s stores around the country, and Lowe’s is moving ahead with stocking more tools in time for the holidays.
Q1 revenue rose 4.4% to $122.7 billion and comp sales at US stores rose 2.1%. Results exceeded analysts’ expectations. Walmart’s online sales grew 33% in the first quarter after growing 23% in the fourth quarter, helping drive overall revenue above expectations. Net sales in the US rose 3.1% to $77.7 billion. Net sales at Sam’s fell 2.7% to $1.3 billion.
Walmart remained the nation’s largest corporation, taking the top spot on the Fortune 500 for the sixth year in a row and 14th time. Last year WM became the first company in US history to generate $500 billion in annual sales. Amazon moved into the top ten for the first time, ranking 8th.
Walmart updated their website in early May with new colors, fonts and layouts, and now sells 75 million items online, including many higher-end products not necessarily available in stores. The number of visitors to Walmart.com has grown 34% in the past year, double the 17% growth rate at Amazon, according to data from comScore. Of course, Walmart is coming from a very distant second place in terms of absolute numbers of visitors. Amazon had an online audience of nearly 183 million visitors in April, compared to Walmart.com’s 101 million. Analysts say that much of Walmart’s business is centered around lower-and middle-income shoppers, and they may pick up more customers as lower-income households decide they don’t want to pay Amazon Prime’s increase of 20%, which raises the annual price of membership to $119 a year.
Walmart is launching the Lord & Taylor store on their website with more than 125 brands, including Tommy Bahama, Lucky Brand and Vince Camuto as part of their efforts to attract more affluent customers.
Walmart’s online grocery delivery partnerships with Uber and Lyft have ended abruptly. Walmart’s decision to partner with Uber was announced with a lot of fanfare about two years ago. The arrangement was reportedly ended by Uber; an inside source acknowledged that it was incredibly difficult to meet expectations. Walmart says they will use other delivery service providers in the four markets where they’d been using Uber, and customers should not see any difference. Walmart was part of Uber’s Rush service, which also delivers clothes, flowers and other goods urgently needed. Uber ended the entire Rush program at the end of May. Walmart is the country’s largest grocer and derives 56% of revenue from groceries. Industry analysts noted that moving cargo requires a different business model from moving people.
Walmart is testing a personal shopping service for busy moms called Jetblack. The service is described as a personal shopping and concierge service for subscribers that combines the convenience of ecommerce with the customized attention of a personal assistant. The Jetblack name comes from Marc Lore, CEO and founder of Jet.com and now head of Walmart’s US ecommerce division. Lore reportedly had the idea for a high-end personal shopping service for Jet.com before it was acquired by Walmart in 2016.
Walmart is reportedly testing an entirely new store format in the Tampa Bay area. The new store has lower-profile counters, new signage, added assortments of specific brands that appeal to specific customer segments and many new convenience options such as express deli pickup, fresh pickup and cooler counters in the front of the store. The entertainment department looks like “an Apple store,” with modern black and white décor and accessible technology that customers can touch and try out. Walmart has also added more Pickup Towers, which are similar to Amazon’s lockers but more high-tech. They are 16 feet tall and look like giant vending machines. Customers scan their QR code and the tower retrieves the items ordered and drops them into the tray within two minutes. Customers reportedly love it.
Walmart beat out Amazon in the battle for control of Indian ecommerce giant Flipkart, which was founded by ex-Amazon employees in 2007. Walmart reported paid $15 billion for a 75% stake in the company. Analysts say that while the Indian market is huge, Walmart may also be using Flipkart as a model for the US. Analysts are already describing the new Flipkart as “Flipmart.”
Total revenue fell 31% in the first quarter to $2.89 billion. Total merchandise sales fell 34% to $2.2 billion. Comp store sales at Sears locations fell 13.4% and declined 9.5% at Kmart stores. Sears operated 894 total locations as of May 5, down from 1,275 at the same time in 2017.
Sears announced they will close another 72 stores they have deemed unprofitable and has hired advisors and initiated a formal sales process for Kenmore, the Sears Home Improvement and Parts Direct businesses and some real estate, as well as $1.2 billion in debt secured by the properties.
People who buy tires on Amazon will be able to have them installed at Sears Auto Centers around the country. Sears says it is the first deal of its kind between Amazon and a brick-and-mortar retailer.
Q1 revenue rose 6.0% to $1.31 billion. Comp sales rose 2.2%. Results were helped by a 34% increase in online sales coupled with new store growth from existing Ace retailers and rising conversions from competitors. Comp stores sales are reported by the 3,000 Ace retailers who share daily retail sales data; the increase came from a 3.3% rise in average ticket, partially offset by a 1.1% decrease in comp sales. Total wholesale revenues were up 5.3% to $1.25 billion, with increases noted across all departments. Total retail revenues were up 21.3% to $63.1 million. Ace added 28 new domestic stores in the first quarter and cancelled 28 stores. Revenue gained from the new stores was four times larger than revenue lost from cancelled stores.
John Tovar is the new VP of retail operations and new business. He joins Ace from GameStop, where he served as VP of merchandising; he has also held leadership roles with The Home Depot and 24 Hour Fitness. He’s taking over from Dan Miller, who retired in April, and will report to EVP John Surane.
Laura Graham, Senior Vice President of Communications and Investor Relations, will retire July 1 after eighteen years with Grainger. Grainger will transition its Investor Relations and Communications functions. Investor Relations will be led by Irene Holman, who will report to Tom Okray, Senior Vice President and CFO. Communications will be led by Michele Mazur, who will report to the company's Senior Vice President of Human Resources, a role the company is actively seeking to fill.
Amazon and Walmart are both improving their share of traffic among the top 100 shopping sites in the US, rising from a respective 29.6% and 5.3% to 30.7% and 5.9%. But Amazon’s traffic is higher-quality, with visits averaging more than 2.5 minutes longer and taking in five more pages per visit than Walmart according to “Amazon vs Walmart—The Battleground for Online Retail” a new study from SimilarWeb.
Amazon is trying to combat the “porch thief” problem by starting a new program to deliver packages to members’ parked cars. Amazon is rolling out the program in 37 US cities for customers with newer compatible vehicles and plans to expand the service. The in-car delivery service is free for Prime Members and builds on a program launched last fall called Amazon Key that allows drivers to put packages inside homes.
Amazon is expanding Amazon Go, the little grocery store without checkout lines, to Chicago and San Francisco. No opening date was announced.
VP of Alexa Jim Freeman is the latest to depart from Amazon, adding to the string of a dozen executives and senior managers that have left the company over the past 10 months. While higher-ups had asked him to stay, he was finally poached by German ecommerce company Zalando. Freeman had a lot of support internally, having previously run Prime Video and Amazon Studios.
Synchrony Financial announced a partnership with Amazon that enables customers to manage their Amazon store cards using voice commands through Alexa. Synchrony plans to implement voice payment technology for all its retail cards in the future, according to company sources.
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