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Retail Sales Rise 0.4% Retail sales beat expectations and rose 0.4% in October after rising an upwardly revised 0.8% in September, according to the Commerce Department. Sales at auto dealers, appliance stores and electronics drove much of the gain. Sales at home and garden stores rose 0.5%, potentially reflecting rebuilding activity after two major hurricanes within four weeks. Sales were up 2.8% year over year. Core retail sales, which exclude automobiles, gasoline, building materials and food services dipped 0.1% in October after jumping an upwardly revised 1.2% in September. The Home Depot Q3 sales rose 6.2% to $40.2 billion, ahead of expectations. Comp sales fell 1.3%, much less than the 3.1% decline expected. Q3 comp transactions decreased 0.6% and comp average ticket decreased 0.8%. Big ticket comp transactions or those over $1,000 were down 6.8% compared to Q3 2023. Online sales leveraging their digital platforms increased 4% compared to the third quarter of last year. Nearly half of all online orders were fulfilled through the stores, a percentage that has remained the same for the past few years. Power, outdoor garden, building materials, indoor garden and paint departments posted positive comps while lumber, plumbing and hardware were all above the company average. THD raised their full-year guidance and now expects sales to grow about 4%, up from prior guidance of 2.5% to 3.5%. The extra 53rd week this fiscal year is expected to contribute about $2.3 billion to total sales. THD expects comp sales to fall about 2.5%, less than prior guidance of 3% to 4%. Q3 Conference Call with Analysts Before starting on the conference call with analysts, CEO Ted Decker paid tribute to THD’s iconic founder, Bernie Marcus who passed away in November at the age of 95. Decker calling Marcus a master merchant and a retail visionary and noted that even more importantly, he valued THD associates, customers and communities above all. He thanked Marcu for leaving THD with an invaluable legacy in the backbone of their company, their values and culture. Excluding the impacts from the hurricanes, their third quarter performance exceeded their expectations. They continue to see pressure on larger remodeling projects, driven by the higher interest rate environment and continued macroeconomic uncertainty. Just 4 of 19 US regions delivering positive comps. Storms in the Southeast and better than normal weather in other parts of the country throughout the quarter drove a higher degree of variability in the performance across their divisions. They were pleased with the results of their Labor Day and Halloween programs both in-store and online. For their holiday center they will lean into brands their customers value the most, including DeWalt, Ridgid, Husky, Milwaukee, Ryobi and others. They do continue to see customers trading up for new and innovative products. Retail selling square footage was approximately 243 million square feet. At the end of the quarter, merchandise inventories were $23.9 billion, up approximately $1.1 billion compared to the third quarter of 2023, and inventory turns were 4.8 times, up from 4.3 times last year. They are making significant progress serving Pros working on larger complex projects. Their Pro ecosystem capabilities are now in 17 US markets. Their focus remains on creating the best interconnected experience and growing their wallet share with Pros. For big projects credit is the key; almost all large Pros open a house account. They plan to roll out order management and bill on delivery by the end of 2025. They are extremely pleased with the engagement of their team in-store to create a great experience for that in-store Pro. They are laser focused on driving speed and ease for checkout for Pros, making sure that they have large quantities of the products that the customers need in stock. They’re also integrating the tools, resources and features that are being developed for the outside Pro to add value to the in-store Pro experience. Over the last several years they built a network of downstream supply chain facilities, including 19 direct fulfillment centers, that allow them to reach 90% of the US population with same or next day delivery. They recently expanded their assortment in these facilities to allow for faster delivery speeds across more products. They also made significant website enhancements to better communicate faster delivery options after discovering that many customers were not aware of their robust delivery options. In the third quarter, they launched a marketing campaign that builds awareness of their faster delivery speeds. While just launched, they are seeing the intended results, greater customer engagement, higher conversion and incremental sales. They are making great progress bringing down shrink with major investments in initiatives to combat organized retail theft and crime, which is a serious industry-wide problem. If rates stabilize and turnover picks up, activity will pick up as well. When rates came down towards 6% they immediately saw activity in housing; that was months ago, before rates recently went up. Whatever happens with new tariffs will have an industry-wide impact, it won't discriminate against different retailers and distributors who are importing goods. The type of product the industry sells is generally sourced from the named countries. There has been some diversification of those sources, but clearly a bit of concentration remains in Southeast Asia and China in particular. THD sources considerably more than half of their goods domestically and in North America, but there certainly will be an impact. The SRS team is on track to deliver $6.4 billion in sales for the approximately seven months THD will own them in fiscal 2024.Their immediate focus with SRS is supporting their growth, both organically and through acquisitions. However, they are also seeing incremental cross-sell opportunities from their distinct product catalogs and competitive advantages. THD expects to open a total of 12 new stores this year. Lowe’s Q3 sales were $20.2 billion and comparable sales were down 1.1%. Q3 Conference Call with Analysts: CEO Marvin Ellison, who once worked for THD, began the call paying tribute to THD founder Bernie Marcus, who passed away in November, calling Marcus and partners Arthur Blank, Ken Langone and Pat Farrah, the founders of the modern home improvement business model, and noting that Marcus was his mentor early in his career. Q3 results were slightly better than expectations driven by strong Pro and online sales and smaller ticket outdoor DIY projects. Demand for DIY discretionary bigger ticket projects remain soft. DIY was down 4% for the quarter and down 7% for the first half of the year. They are now expecting 2024 sales in the range of $83 billion to $83.5 billion, with comparable sales in a range of down 3% to down 3.5%. Comparable average ticket was up 0.2%, driven by strength in Pro, an increase in average ticket for appliances and sales of storm-related products. Comparable transactions declined 1.3% as continued softness in DIY discretionary projects was partly offset by growth in Pro transactions. They see sustained strength in two key areas: Pro and online sales. Pro sales were up and delivered high single-digit positive comps. Their focus is on expanding their Pro brands. The small to medium Pro customer is a target group with a total addressable market of about $250 billion. Online comp sales grew 6%. They’ve increased both online conversion and traffic and seen a double-digit increase in traffic on the Lowe's mobile app. New tariffs will impact them and everyone in retail. Roughly 40% of their cost of goods sold are sourced outside of the US, including both direct imports and national brands through their vendor partners. Ellison reiterated that they are a DIY dominant business, which means the DIY customer is very important to them. Their MyLowe’s Rewards loyalty program was specifically designed around putting more control of the DIY business under their stewardship. This free program is designed to reward DIY customers for choosing Lowe's. MyLowe's Rewards is rapidly growing. In October, they launched their first ever member week, which became a record enrollment week. Members will get early access to some MyLowe's Rewards offers. Customers are also leveraging our new in-store mode in the Lowe's app, which gives them product information at their fingertips The macro environment puts a lot of pressure on their DIY business because they skew more to the big-ticket DIY discretionary like appliances, flooring, kitchen and bath. They believe they will be in good shape financially if they can continue to grow Pro at 2x to market, continue to grow online, and get DIY business growing at market rate. Housing turnover remains near 30-year lows. Mortgage rates are remaining stubbornly high and there's still a meaningful gap between current mortgage rates to purchase a home and the homeowners’ existing rates, with over half of current rates below 4%. There is also a real lack of available homes for sale. Three primary drivers of the business continue to work in their favor. One, strong home price appreciation. Two, disposable personal income is outpacing inflation. And three, the medium age of homes is the oldest it's been in U.S. history currently sitting at 41 years old. All things considered, they remain optimistic about the medium- to long-term outlook for the home improvement industry. They will continue to heavily invest in their Total Home Strategy to position the Company for long-term growth and sustainable market share gains. They were very engaged in preparation, recovery and repair operations caused by two major hurricanes that severely impacted the Southeast. Recent investments in Pro job site delivery, especially in hurricane prone areas, helped with their relief efforts so they can more quickly flow larger orders to Pro customers to support their work helping homeowners recover. More than 1,000 emergency response team members voluntarily left their homes to support stores in the impacted areas. They recently launched Shop the Job, a digital shopping experience that helps their Pro loyalty customers purchase everything they need for specific jobs more quickly and efficiently. Pros in their recent survey indicated that their backlogs remain strong and consistent with prior year. They also remain confident about their access to financing, labor and materials. Building Products delivered comps above the company average, driven by positive comps in building materials with the continued strength in Pro as well as hurricane-related sales. The MyLowe's Rewards loyalty program has good momentum with promising results in key performance metrics like repeat purchases, average order value and penetration of loyalty member purchases. They have moved to data-driven cost conversations with suppliers. Their cost discussions with suppliers used to be emotional conversations with no internal data. Now they’ve built out a team and systems and processes that are data-driven with component costs, raw material costs and very detailed analysis that gives the teams the ability to sit down and have very data-driven conversations with suppliers relative to any cost increase or cost clawback. This will be their business model going forward. Walmart Q3 revenue rose 5.5% to $169.6 billion, beating expectations, and comp sales for Walmart US rose 5.3%, handily beating the 3.8% growth that analysts expected. It was the 11th consecutive quarter of Walmart US beating analyst expectations on that metric. Walmart raised their fiscal-year guidance for the third time. They now expect net sales to grow 4.8% to 5.1% on a constant currency basis, up from the 3.75%-to-4.75% range they provided in Q2. Many high-growth revenue streams grew robustly during the quarter. Q3 ecommerce sales for Walmart US grew 22%. Their US advertising business grew 26%, Walmart+ membership income rose by a double-digit percentage and more sellers on their third-party marketplace are paying for their fulfillment services. Last quarter, 75% of Walmart's market-share gains came from households earning more than $100,000; some analysts say that Walmart is eclipsing Target as the discount retailer of choice for high-income customers. Ace Hardware Q3 revenue rose 2.8% to $2.4 billion. Net income was down due entirely to planned strategic investments in their supply chain infrastructure and digital marketing expense to support future growth. The approximately 3,700 Ace retailers who share daily retail sales data reported a 2.2% drop in US retail comp sales, due to a 2.2% drop in comp store transactions, partially offset by a 0.1% increase in average ticket. Increases were seen across many departments with grilling, power tools and outdoor power equipment showing the largest gains. True Value A group of lenders announced they won’t approve True Value’s planned sale of nearly all assets to Do it Best Corporation, saying that the proposal lacks projections of future profitability and would instead result in losses exceeding $100 million for the lenders. According to Bloomberg Law, the lenders also refuse to allow their cash collateral to be used to pay professionals involved in the sale. Without lender support, they say the sale is doomed to fail. Amazon Amazon is developing smart eyeglasses for their delivery drivers to guide them to, around and within buildings, as they try to smooth the final stretch of an order's journey to a customer's home. If successful, the glasses would provide drivers with turn-by-turn navigation on a small embedded screen, along their routes and at each stop, according to inside sources who talked with Reuters on condition of anonymity because the project is not public. Such detailed directions could shave valuable seconds off each delivery by providing left or right directions off elevators and around obstacles such as gates or aggressive dogs. With millions of packages delivered daily, seconds add up. The glasses would also free drivers from using handheld GPS, which would allow them to carry more packages. The "last mile" for deliveries is costly and complicated because it requires navigating neighborhoods, deploying more couriers and using more fuel. By some estimates, half the cost of a product's trip to a customer's doorstep lies in the last mile. Amazon delivery drivers visit more than 100 customers per shift. With increased efficiency, Amazon could ask drivers to increase the number of packages and customer deliveries that each driver could achieve. CEO Andy Jassy has denied accusations that the company’s strict return to the office mandate is a way of slimming down Amazon’s workforce. Jassy also denied that the policy was being driven by city leaders wanting to boost businesses around the Amazon hubs. Despite rebellion from many employees, most recently 500 from an Amazon Web Services (AWS) unit, Jassy has held firm to his policy, stating he expects staff to be in the office five days a week unless they have a household emergency or sick child. Amazon’s low price, longer delivery time store has a name: Amazon Haul and is now in beta-testing in the US. Haul is viewed as Amazon’s strategic move to compete with fast-fashion retailers such as Shein, Temu and the TikTok Shop. A selection of products, including fashion, home, lifestyle, electronics, and more, is available at the digital storefront for $20 or less, with most priced at $10 or under and some as low as $1. The service is integrated into the Amazon app; users can access it by searching for "Haul". Amazon noted that delivery will take one to two weeks, as items are shipped directly from a warehouse in China. Amazon Haul is designed to provide a unique shopping experience, with its own search, cart, and checkout process. Customers can accumulate a collection of low-priced items, with discounts available for larger orders. © Robert Bosch Tool Corporation. All rights reserved, no copying or reproducing is permitted without prior written approval.
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