Distribution June 2022

Retail Sales Rise 0.9%
Retail sales rose 0.9% in April and March sales were revised up from an increase of 0.9% to 1.4%. The increase in sales was broad-based. Sales at gas stations actually fell as gas prices temporarily declined. Excluding gasoline, sales rose 1.3%. Ecommerce sales rose 2.1% after falling 6.4% in March. Sales at building material stores unexpectedly fell 0.1%. Core retail sales rose 1.0% in April and core sales for March were revised up to a 1.1% increase from the initial 0.1% decline reported. Core retail sales correspond most closely with the consumer spending component of GDP.
 
The Home Depot
Q1 sales rose 3.8% to $38.9 billion and comp sales rose 2.2% overall and 1.7% in the US.
 
THD raised their fiscal guidance for 2022 and now expects sales growth and comp sales growth of about 3%, with stronger comps in the first half of the year than in the back half.
 
Q1 Conference Call with Analysts:
 
CEO Ted Decker noted that the strong performance was even more impressive because Q1 2021 set records. Strong demand continued despite a slow start to spring in many parts of the country.
 
Eleven of 14 merchandising departments posted positive comps, including building materials. Seasonal departments saw double-digit negative comps, due mostly to the late arrival of spring.
 
Comp average ticket rose 11.2% and comp transactions fell 8.4%. Growth in average ticket was primarily driven by inflation across several product categories as well as demand for new and innovative products. On a two-year and three-year basis both comp average ticket and comp transactions were healthy and positive.
 
Inflation impacted average ticket growth by 240 basis points. For example, lumber peaked at $1,300 per 1,000 board feet in the first quarter before falling to about $900. Inflation is definitely higher than they anticipated. A lot of the growth in average ticket is being driven by inflation. Thus far, customers seem very resilient and are very engaged in their homes. Home prices have appreciated more than 30% in the past two years; home price appreciation has typically been the biggest driver of customers choosing to invest more in their homes.
 
Big ticket comp transactions, those over $1,000, were up 12.4% compared to Q1 2021. There was big-ticket strength across many Pro-heavy categories.
 
Pro sales outpaced DIY sales for the quarter. Pros report strong backlogs and during the quarter many customers turned to Pros to help them with larger renovation projects.
 
Virtually all sales to Pros are on behalf of a homeowner, taking into account that many Pros are also homeowners.
 
Nearly 40% of existing occupied homes are owned outright. Homeowner intent to do all sorts of projects, small, medium and large, has never been higher.
 
Demand exceeded their expectations; project backlogs are very healthy and customers tell them that their homes have never been more important.
 
They are focusing on building capabilities that will attract more planned purchases from Pros. They are very encouraged by early signs that the supply chain investments they made are paying off.
 
Sales leveraging their digital platforms rose 3.7% during the quarter, delivering the highest sales dollar volume in their history. More than 50% of online orders were fulfilled through the stores.
They are seeing an industry-wide shift from gas-powered to battery-powered mowers and have a lineup of battery-powered motors including Ryobi, DeWalt FlexVolt and Makita.
 
At the end of the quarter inventories were up $6.1 billion to $25.3 billion. The level of inventory reflects outsized demand for home improvement projects. Their in-stock position is not back to pre-pandemic levels but is the healthiest it’s been since the start of the pandemic.
 
Customers continue to trade up for premium innovative products, a trend that’s been going on for several years.
 
Product Walk was a highlight of their first in-person store managers meeting in three years. Vendors showcased the latest in product innovation and the level of innovation across the business is very robust. Almost 90% of the products on display at Product Walk were entirely new SKUs to THD.
 
They are very focused on removing friction at every touch point of the shopping experience. To that end, Matt Carey will assume the newly formed role of Executive Vice President of Customer Experience. In addition, Fahim Siddiqui was promoted to Executive Vice President and Chief Information Officer, responsible for all aspects of tech development and strategy.
 
Lowe’s
Q1 sales fell to $23.7 billion compared to $24.4 billion for Q1 2021. Comp sales fell 4% compared to Q1 2021 but were up 19.7% on a two-year basis.
 
Q1 Conference Call with Analysts:
 
Q1 results year-over-year were disappointing but were very solid on a two-year basis.
 
Pro sales grew 20% in the quarter on top of 36% growth for last year. DIY sales in seasonal categories were down $350 million for the quarter due to the slow start to spring in much of the country. DIY transactions were also down in the double-digits.
 
There were strong positive comps in building products driven by Pro demand and supported by strong in-stock positions and a portfolio of outstanding Pro brands, including Bosch, DeWalt and Simpson Strong-Tie.
 
They are introducing a new fiberglass rebar from Owens Corning called PINKBAR that is stronger than traditional steel rebar and seven times lighter.
 
Sales at lowes.com grew 2% for the quarter and were up more than 39% on a two-year basis. They continue to expand their omnichannel capabilities and enhance the user experience.
 
Inventory rose $2.6 billion from Q4 to $20.2 billion and was up 10% from Q1 2021. Their inventory balance reflects a 13% increase from both product and commodity inflation and balances were higher due to the late spring.
 
It was the coldest April in 20 years and one of the wettest years as well. Roughly 75% of their sales are to DIY consumers in many seasonal categories. Spring was delayed across all regions but was particularly late in the north where sales were down double-digits in many northern markets. However, sales in many southern markets were well ahead of expectations.
 
They are ready to take advantage of the months ahead and are seeing improved sales trends in May. They are ready to take advantage of increased demand.
 
Spring Fest is their new approach to spring. It’s a multi-week event with several strategic promotions. They have not seen any trade down among either DIY or Pro customers.
 
They believe the housing situation today is not a bubble, but rather a reflection of a chronic lack of enough supply to meet demand. With home prices appreciating, customers feel very confident investing in their homes.
 
They are very focused on being competitively priced every day and monitor all their competitors very closely by category and geography. In some cases, they have to pass higher costs along to the consumer.
 
Private brands drive margin improvement and give customers great innovation and style at a competitive price. They are going to continue to focus on their private brands initiative.
 
Pro sales penetration has gone from 19% in Q1 of 2019 to 25% in 2022. They are very pleased with the adoption rate for their recently launched MVP Pro Rewards and Partnership Program.
 
They have converted their fourth geographic area to bulk distribution centers for big and bulky products and expect to have all stores on this system by the end of 2023.
 
Associates can now spend 60% of their time serving customers and just 40% on manual tasking thanks to the tech enhancements they’ve made over the past several years. As recently as 2018, that proportion was reversed. Handheld mobile devices and new technologies have freed up time. 
 
They are unlocking further productivity through their Perpetual Productivity Improvement (PPI) initiative. They are gaining valuable insights into their Pro customers that will allow them to expand their share of wallet with this important group.
 
More than 300,000 associates are now eligible to participate in more than 50 free academic programs available through Lowe’s University as well as their new debt-free education program.
 
They expect the impact from inflation to begin to moderate in the second half.
 
They confirmed their full year outlook for 2022 and expect sales in the range of $97 to $99 billion, which would reflect comp sales in a range of down 1% to up 1%. They expect transactions to be down and tickets to be up in the mid to high single-digits for the balance of the year which will result in relatively flat comps. Margins will be pressured because lumber prices declined several weeks earlier than expected.
 
Walmart
Q1 sales rose 2.4% to $141.57 billion, beating expectations and US comp store sales rose 3%. However, profits unexpectedly dropped 25%. CEO Doug McMillon said elevated costs for everything from fuel to labor dragged down earnings. Ecommerce sales rose about 1% for the quarter, a big slowdown from 8% growth in Q1 last year.
 
WM expects Q2 sales to rise 5% and raised their full year sales forecast to a 4% increase in constant currency from the 3% previously projected. WM also expects earnings for the year to be down 1%.
 
Walmart noted that some customers seem to be downgrading products, shifting to private labels and substituting less-expensive brands.
 
Walmart is expanding their partnership with supply chain automation company Symbotic to deploy robots in all 42 of their regional distribution centers. The two companies will retrofit the facilities over the next eight-plus years. Wilmington, Massachusetts-based Symbotic Systems is owned by Rick Cohen, who also owns grocery supply chain C&S Wholesale. The proprietary AI-driven software powers a fleet of fully autonomous robots that receive, retrieve and store items.
 
Ace Hardware
Ace reported record first-quarter revenues of $2.2 billion, up 8.9% from Q1 2021 and net income of $119.8 million, an increase of $14.4 million from last year. 
 
The approximately 3,500 Ace retailers who share daily retail sales data reported a 1.4% increase in U.S. retail same-store-sales during the first quarter of 2022. Estimated retail price inflation of 9.5% helped drive a 10.0% increase in average ticket. Same-store transactions were down 7.8%.
 
Ace Hardware earned J.D. Power's highest ranking for customer satisfaction among home improvement retail stores for the 15th time in the past 16 years. Ace ranked in the top spot in all five categories measured in the study: Staff and Service, In-store Experience, Online Experience, Merchandise and Price. The 2022 J.D. Power U.S. Home Improvement Retailer Satisfaction Study is based on responses from more than 2,100 consumers who purchased home improvement products or services over the past 12 months. Ace ranked highest among major retailers with an overall satisfaction index score of 869 on a 1000-point scale. Lowe’s (849) and Menards (849) ranked second in a tie.
 
Ace Hardware collaborated with the Veterans of Foreign Wars (VFW) once again this year to honor the men and women who gave their lives for our country by giving away 1 million American flags nationwide on Saturday, May 28. Consumers who visited a participating Ace store received a free 8" x 12" American flag. A second flag was donated to a local VFW Post to be used for marking and honoring veterans' graves on Memorial Day. Ace did the flag giveaway as part of their Stars and Stripes BBQ Party.
 
Amazon
Amazon reported their first quarterly loss since 2015, with losses of $3.8 billion in Q1 after reporting more than $8 billion in profits in Q1 2021. Even more surprising was the drop in online sales, the first one since Amazon began reporting this metric five years ago. Overall revenue rose by 7%, the slowest pace in nearly two decades. Amazon cited rising costs due to inflation and supply-chain congestion. After absorbing inflation for several months, Amazon hit third-party sellers with a 5% fuel and inflation surcharge. Sales for Amazon Web Services rose 37%.
 
Amazon is reportedly looking to sublease 10 million square feet of warehouse space as ecommerce slows. Amazon apparently has more warehouse space than they need in some of their largest markets, including New York, California, Atlanta and New Jersey. They acknowledged that during the pandemic they faced unprecedented demand and very long lead times on extending capacity and now have more space than they need.

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