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Retail Sales Steady Retail sales were steady in April, well below expectations for a 0.4% increase, and sales for March were revised down to an increase of 0.6% from the 0.7% first reported, according to the Commerce Department. Core retail sales, which exclude automobiles, gasoline, building materials and food services, fell 0.3% in April after rising a downwardly revised 1.0% in March and were up 3.6% year over year. It was the lowest percentage increase since spring 2022. Building materials sales rose 0.5% after falling 2.1% in March but were down 3.8% year over year. Online sales fell 1.2% after rising 2.7% in March. Core retail sales, which are mostly goods and not adjusted for inflation, correspond most closely with the consumer spending component of GDP. The retail sales report covers about a third of overall consumer spending and doesn't include services, such as travel and entertainment. Retail sales were also dragged down by a 1.2% drop in online business, reflecting a new sales event at Amazon and the earlier timing of Easter this year. The Home Depot Q1 revenue fell 2.3% to $36.42 billion and comp store sales fell 2.8% from Q1 2023. Comp sales fell 3.2% in US stores. Comps in Canada were slightly below average. Q1 Conference Call with Analysts: For the full year, they confirmed previous guidance and expect total sales to grow 1% and comp sales to fall about 1%. Total sales growth will benefit from a 53rd week; they expect the 53rd week to contribute approximately $2.3 billion in sales. They opened two new stores during Q1, bringing total store count to 2,337. Retail selling square footage was approximately 242 million square feet. At the end of the quarter, merchandise inventories were $22.4 billion, down approximately $3 billion or 12% compared to the first quarter of 2023, and inventory turns were 4.5x, up from 3.9x last year. Building materials and power departments posted positive comps, while outdoor garden, paint, lumber, plumbing and hardware were all above the company average. Comp transactions fell 1.5% and comp average ticket decreased 1.3%. However, they continue to see customers trading up for new and innovative products. Big ticket comp transactions (those over $1,000) were down 6.5% compared to Q1 2023. They continue to see softer engagement in larger discretionary projects where customers typically use financing to fund the projects such as kitchen and bath remodels. Housing turnover is at historically low levels and that is clearly depressing project sales. Big projects that are typically financed are also suffering. Sales leveraging digital platforms increased 3.3%. They rolled out an intent-based search engine that combines keywords, behaviors and intent to deliver more targeted results. They also enhanced their filtering capabilities to make it easier for customers to find exactly what they are looking for. Pro and DIY customers performance was relatively in line with one another, but both were negative for the quarter. Computer Vision helps them ensure that the products on the shelf meet their quality standards. They are also using Computer Vision in self-checkout to help mitigate shrink. Computer Vision can identify complex carts or high-value carts and signal the cashier to help the customer with their basket to ensure all products are scanned and accounted for. Shrink pressures profitability. More than 70% of returns for online orders can now be handled by customers who can create their own return and drop it off at UPS with a scan of a barcode. Later this year they plan to enable job site pickup or returns which will be a game changer for residential Pros, who will be able to initiate returns from the job site rather than have to return big/bulky items to the store. They addressed their programs to capture more Pro share during questions and answers. They described their work to improve wholesale distribution capabilities as challenging, which is why they believe no one has done it before. They like what they see and will continue to roll out to additional markets. It’s not about opening a distribution center (DC), they consider that the simplest part of the process. It’s building an entire ecosystem and introducing customers to the capabilities. They made some merchandising department changes to more closely reflect customers’ shopper categories and areas of focus. They have added two more departments and now have 16 and have also separated electrical and lighting and kitchen and bath. They renamed their tools department to the power department and included outdoor power equipment to capture synergies and maximize the strength of their battery-powered platforms. The trend away from gas to battery-powered products is continuing, and they are well positioned. They believe they have the brands their customers are looking for, including Ryobi, Milwaukee, DeWalt, Makita and Ridgid. They estimate that their assortment covers the vast majority of the nearly 500 million batteries in the market today. More than 70% of those batteries are with brands that are exclusive to The Home Depot in the big box channel with hundreds of products across each of these platforms creates an outstanding loyalty program that keeps customers coming back. Other News: THD is partnering with Instacart to expand their options and offer same-day delivery, sometimes in less than an hour, from 2,000 locations in the US. Customers can now order home improvement items, including home appliances, building supplies, light fixtures and garden essentials, for home delivery. The service also includes Instacart's Big & Bulky solution that enables retailers to offer same-day and scheduled delivery for large items up to 60 pounds. Home Depot partnered with the Walmart White-Label GoLocal delivery service in late 2021. Home Depot offers same-day and next-day delivery of items that easily fit in a car such as fasteners, paint and small tools via GoLocal in multiple markets across the country. Products that qualify have a Walmart GoLocal option offered during online checkout. Instacart partners with more than 1,500 national, regional, and local retailers to facilitate online shopping, delivery and pickup services from more than 85,000 stores across North America. Lowe’s has been partnering with Instacart since 2022. Lowe’s Q1 sales fell to $21.364 billion from $22.347 billion in Q1 2023. Comp sales fell 4.1%; analysts had expected them to fall 5.5%. Lowe’s confirmed full-year 2023 guidance of sales between $84 and $85 billion and a decline of 2% to 3% in comp sales. A decline in big-ticket items was partially offset by an increase in online and Pro sales. Q1 Conference Call with Analysts Comp transactions declined 3.1% as homeowners continue to delay larger discretionary projects. Comp average ticket was down 1%, with strength in Pro partly offsetting the impacts of lower DIY big-ticket sales and ongoing appliance pricing pressure. Large tickets greater than $500 were down 7.6% for the quarter. Most of that is still related to DIY, continuing the Q4 trend that saw big-ticket sales fall 8.8%. They are trying to meet the customer where the customer currently is at. Even when the customer is looking for value, value does not always equate to low price, it equates to a great return for the dollar you spend. They focused on spring promotions because they believe that if they win the customer early, they will get multiple shopping occasions throughout the spring and the year. This year their SpringFest strategy went more local than ever as they used weather-triggered digital marketing as the spring season broke across different regions. They also introduced sneak peaks for SpringFest, featuring door busters focused on driving traffic into stores and online by using targeted offers in seasonally relevant categories such as soils, mulch, and live goods. Overall, the Western region outperformed the rest. The slowdown started first in the West and they may also be coming out of it first. Western rural stores continue to be their best performing subset; some initiatives begun with pet and apparel continue to perform very well in those locations. They continue to evaluate the expansion of those categories in their rural environments. Pro comps were positive in Q1, which Lowe’s credited to strategic investments to improve the Pro experience driving increased sales and improved customer engagement. They improved service levels and expanded their brand portfolio, which now includes Klein Tools, which strengthens their relationships with their core Pro customer. Pro customers are proving to be resilient. Their recent Pro survey showed healthy backlogs in line with last year. Their Pro strategy continues to focus on taking share with the small to medium-sized pros such as repair and remodel contractors, property managers and trace people, which represent half of the highly fragmented $500 billion Pro market. They are investing in service in order to continue to boost their credibility with this segment. They continue to invest in Pro growth, which includes expanding their capabilities to handle the delivery of larger orders to the job site and opening new Lowe's Pro supply branches around the country. They have “a significant runway” ahead of them to grow sales with these customers while also leveraging their retail footprint to drive profitability. Online sales were up approximately 1%. Ongoing improvement in conversion rates in Q1 offset continued pressure in bigger ticket DIY categories. During Q1 they expanded their same-day delivery options by partnering with DoorDash and Shipt. They are the first home improvement retailer to offer these options. They are tailoring the online experience to support the unique needs of each customer and focus on project-based shopping. They are using virtual and mixed-reality to make it easier for customers to explore and visualize possibilities. This quarter they rolled out their DIY loyalty program, MyLowes Rewards. Customers earn points towards earning MyLowes cash and get free standard shipping and other benefits. Launch and adoption have been very successful. They provided their first perk for Rewards members for Mother’s Day, and it was very successful. They signed soccer super star Lionel Messi to the Lowe’s Home Team to expand their reach beyond their role as the official home improvement retailer of the NFL. They are hoping to reach the 34 million soccer fans in the US who are not NFL fans and are excited by the rapid growth of soccer fans in the U.S. As far as macro goes, while real wage growth and home appreciation are real, customers are still showing a preference to spend money on experiences and services. They’ve made real progress in expanding their private brand penetration. The core focus of their private brand strategy is to offer brand-agnostic DIY customers style and quality at a great value. Their private label products, including Kobalt tools, do this and also provide significantly higher margins compared to national brands. Customer satisfaction scores were up 100 basis points over last year as they continue to improve their shopping experience for homeowners and pros while driving productivity. They are investing in associate training and retention and are seeing strong spring staffing levels and higher retention as they continue to invest in wages, associate development and internal mobility. More than 80% of their store leadership positions were filled internally last year and nearly 90% of store leaders started in hourly roles. Modernizing store operating systems enables associates to close omnichannel sales from within the stores and help customers get everything they came for. They are only one-third of the way through their multiyear transformation of the front end of their stores, which includes proprietary self-checkout registers, pick-up in store experience that significantly improves their bottom line, a streamlined returns process and an optimized front-end selling space. They have significantly reduced their return and cancellation rate through improved vendor partnerships, decreased damages and a clear and a consistent returns process that's now systematically applied through enhanced technology. They are enhancing their shrink prevention ecosystem to maintain their best-in-class shrink performance including a new AI technology in partnership with NVIDIA that prompts customers to scan missed items during self-checkout. They’re also piloting new product protection with a product security door that unlocks with the customer's phone number so there is no need for the customer to find an associate with a traditional key. They worked with the Department of Defense to bring jobs directly to transitioning service members and military spouses and have a program to provide training and work experience with Lowe's during their last months of service. Walmart Walmart Q1 sales rose 6.0% to $161.5 billion, with gains driven by online sales and upper-income households attracted by their lower prices. WM online sales grew 22%, following 17% growth during the strong holiday season. Growing use of their pick-up and delivery services and increased sales on their third-party marketplace pushed up sales. Net profits soared to $5.3 billion, compared to $1.9 billion for Q1 2023. Walmart+ has turned out to be very appealing to households earning more than $100,000 per year, who have become a driving force for their online operations. During the pandemic, Walmart invested heavily in online operations by expanding their range of sellers and products and introducing their Walmart+ subscription service that offers fast delivery and scan & go technology in stores for a $98 annual subscription fee. Walmart says they are focused on saving their customers both money and time, and they are both important. Walmart announced plans to cut hundreds of jobs at headquarters and relocate most of their US and Canadian remote workforce to three offices. Walmart employs 2.1 million people. Ace Hardware Q1 revenues rose 2.5% to $2.1 billion. Sales growth was fueled primarily by 78 new domestic Ace stores, acquisitions by their Ace Home Services business, a 0.4% increase in comp store sales, and a 9% increase in their digital business, which included a 47% increase in sales though the Ace App. The approximately 3,700 Ace retailers who share daily retail sales data reported a 0.4% increase in US retail comp sales, due to a 1.1% increase in average ticket, which was partially offset by a 0.7% drop in comp store transactions. Ace introduced Vintage Threads, a collection of high-quality shirts and hats that feature historic logos from Ace Hardware's history, some dating back to the company's founding in 1924. The new product line is part of the 100-year anniversary celebrations taking place this year. Ace partnered with another company with a rich history, Chicago’s American Needle, to create the collection of shirts, baseball caps and knit hats, available online and in participating stores. Ace Hardware is giving away 1 million American flags nationwide on May 25. Ace is collaborating with the Veterans of Foreign Wars (VFW) once again this year to honor and remember the brave men and women who made the ultimate sacrifice for our country that inspired Memorial Day. Consumers who visit a participating Ace store on May 25 will receive a free 8" x 12" American flag. A second flag will be donated to a local VFW Post to be used for marking and honoring veterans' graves this Memorial Day. Last year, more than 500,000 American flags were given away to customers at Ace stores nationwide. In addition, Ace sent 562,000 flags to more than 1,700 VFW Posts for placement on veterans' graves. Amazon Amazon reported record Q1 results with revenue rising 13% to $143.3 billion and profits jumping to $10.4 billion. Both exceeded expectations. Sales in Amazon Web Services (AWS) increased more than 17% to about $25 billion with operating profits of nearly 84%. CEO Andy Jassy has noted several times that AI will be a big focus going forward and the next “big thing.” Amazon’s ad revenues grew 24% to $11.8 billion, representing 8% of its total revenue. Amazon Web Services CEO announced he's stepping down from the cloud computing business he spent 15 years working into a profitable and strong market leader. Adam Selipsky, who became CEO of the Amazon subsidiary in 2021, is leaving to "spend more time with family for a while, recharge a bit, and create some mental free space to reflect and consider the possibilities," according to Amazon’s press release. Selipsky did such a good job of creating a leadership team he will officially be replaced on June 3 by Matt Garman, who began with AWS as a summer intern in 2005. Amazon began a pilot program that uses Amazon drivers to pick up returns from customers' houses and bring them to Amazon facilities for processing, according to insiders familiar with the test. Amazon is testing the idea at several warehouses in Texas and Florida and will rely on full-time drivers in Amazon-branded vans as well as Amazon Flex gig workers who use their own vehicles. Amazon’s Alexa voice assistant is getting an AI overhaul and Amazon will charge a monthly subscription fee when Alexa 2.0 debuts, according to CNBC. The offering will not be included in Amazon Prime subscriptions, according to a source. The new, more conversational version of Alexa, which will be launched later this year, would potentially position Amazon to better compete with new generative AI-powered chatbots from companies including Google (GOOGL) and OpenAI, according to two sources familiar with the matter. © Robert Bosch Tool Corporation. All rights reserved, no copying or reproducing is permitted without prior written approval.
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