Distribution June 2023

Retail Sales Rise 0.4%
Retail sales rose 0.4% in April after falling a revised 0.7% in March, according to the Commerce Department. While a big reversal from March, the increase was well short of analysts’ expectations of a 0.7% increase. Excluding automobiles, gasoline, building materials and food services, retail sales rose 0.7% in April after falling 0.3% in March. Core retail sales correspond most closely with the consumer spending component of GDP. Sales rose 1.2% at online retailers after rising 1.9% in March. Unlike many government reports, retail sales aren't adjusted for inflation and can reflect rising prices or one-time events that boosted spending. The retail sales report covers about a third of overall consumer spending and doesn't include services, such as travel and entertainment.  
 
The Home Depot 
Q1 sales fell 4.2% to $37.3 billion. Comp sales fell 4.5% overall and 4.6% in the US.
 
Q1 Conference Call with Analysts:
 
Billy Bastek, new EVP Merchandising, has been with THD for 33 years and was hailed as a great steward of the Home Depot culture.
 
There was relative strength in project-related categories like building materials, plumbing and hardware but they continue to see downward pressure in a number of big-ticket discretionary categories.
 
Sales for the quarter were below expectations, primarily driven by lumber deflation and unfavorable weather, particularly in the Western division where extreme weather events in California disproportionately impacted results.
 
DIY customers outperformed the Pro in the quarter, but both were negative. While internal and external surveys suggest that Pro backlogs are still healthy compared to historical norms, they are lower than they were a year ago.
 
Only four of 14 departments posted positive comps, including building materials, millwork and hardware.
 
Data from outside indicates that the types of projects in these backlogs are changing from large-scale remodels to smaller projects.
 
Comp average ticket increased 0.2% and comp transactions decreased 5%. Excluding core commodities, comp average ticket was primarily impacted by inflation across several product categories as well as the demand for new and innovative products.
 
Deflation from core commodity categories negatively impacted average ticket growth by approximately 335 basis points during the first quarter driven primarily by deflation in lumber. During the first quarter they saw a significant decline in lumber prices relative to a year ago. As an example, on average, framing lumber was approximately $420 per thousand board feet compared to approximately $1,170 in the first quarter of 2022, which is a decrease of 64%.
 
Sales on their digital platforms dropped 2.9% compared to the first quarter of last year. More than 45% of online orders were fulfilled through stores.
 
Big ticket comp transactions or those over $1,000 were down 6.5% compared to Q1 last year. There was some big ticket strength across Pro-heavy categories like portable power.
 
There was softness in big-ticket discretionary categories like patio, grills and appliances as well as softening demand for flooring, kitchen and bath, all of which most likely reflect customers moving to smaller projects, according to THD.
They are seeing improvements in customer scores and a lower attrition rate for associates. Since Sidekick, the AI program that directs associates to key bays where inventory is low or out of stock, rolled out last year they have seen a big improvement in in-stock and on-shelf availability, particularly in high-velocity SKUs.
 
Retail selling square footage was approximately 241 million square feet. Merchandise inventories were $25.4 billion, essentially flat compared to the first quarter of 2022 and inventory turns were 3.9x down from 4.4x last year.
 
They expect it to be a year of moderating demand, given the already negative impact on first quarter sales from lumber and weather, with further softening of demand relative to expectations and continued uncertainty regarding consumer demand patterns. They lowered their guidance to reflect a range of potential outcomes and now expect fiscal 2023 sales and comp sales to decline between 2% and 5%.
 
They are most excited about how their new programs are helping them gain spend and wallet share with Pros. Engaging their new supply chain assets and expanded Pro capabilities has helped Pros become more willing to consolidate their purchases with THD.
 
They will be talking more about the Pro business and their outlook for the year during their analysts meeting in June.
 
Lowe’s
Q1 sales fell nearly 6% to $22.3 billion. Comp sales fell 4.3%, driven by record lumber deflation, unfavorable weather and lower DIY discretionary sales.
 
Lowe’s revised their guidance downward slightly and now anticipates total sales of  $87 billion to $89 billion for the full year, down from $88 billion to $90 billion. Comparable sales are expected to range from a decline of 2% to an increase of 4%. Lowe’s is planning $2 billion in capital expenditures in 2023.
 
Conference Call with Analysts:
 
Despite the overall decline, comp Pro sales were slightly positive for Q1 with broad-based strength across multiple categories measured against strong Q1 2022 comp sales of 22% for US stores. DIY sales were pressured by the delayed spring and lower-than-expected discretionary demand.
 
They are replacing their 30-year-old operating system with a modern omnichannel architecture that will deliver a seamless, intuitive experience for customers and be less complex for associates. This project has been underway for 4 years and they plan to retire their legacy green screens by the end of the year. They are pleased that they are on track to retire all legacy green screens by the end of this year.
 
in Pro, growth was fueled by growth of their MVPs Pro Rewards program and CRM tool, along with an improved Pro assortment, more inventory depth and omnichannel capabilities. They are gaining with their core Pro customer, small to medium-sized Pros.
 
Online comp sales grew 6% for the quarter and now represent more than 10% of sales. Online growth was supported by an increase in Pro sales due to upgrades in the Pro digital experience, new tools and personalization. They are also continuing to improve the online experience for DIY customers.
 
They’re continuing to roll out their market delivery model of 12 geographic regions across the country. This model is much more efficient at delivering big, bulky items, which is fueling share gains in appliances and enabling future growth in the category.
 
Five of 14 merchandising categories were positive for Q1, including building materials and appliances. There was Pro-based strength across all three merchandising divisions.
 
They are very pleased with their strong assortment of Pro brands, including Bosch, DeWalt and Simpson-Strong Tie.    
 
They announced they are expanding their rural blueprint to as many as 300 additional stores by year-end, with a wider offering of farm, ranch and outdoor products. Their goal is to position Lowe’s as a one-stop shop for rural customers. Research showed that these stores, once considered a big competitive disadvantage, can instead be a huge opportunity.
 
Their rural format includes broader product offerings in many categories such as pet, livestock, trailers, fencing, utility vehicles, specialized hardware and their new Carhartt apparel, all designed to meet the unique needs and preferences of rural homeowners who work and play outdoors. They expect these stores to deliver higher sales per square foot than a traditional Lowe’s.
 
They completed the rollout of new dedicated Zebra smartphones for all MST associates ahead of schedule. The system automatically prioritizes planogram changes, pricing updates and other projects to optimize associates’ time on the floor and recommends the most efficient, highest value next task. It also gives associates step-by-step instructions to maximize productivity and minimize the learning curve for new associates. The app was built internally to seamlessly integrate with their other mobile apps.   
 
They just launched new Pro online business tools to enhance their MVP’s Pro Rewards program, which is designed to make Pros of all sizes feel like MVPs at Lowe’s. Surveys showed that Pros wanted time-saving tools that help them shop quickly and minimize time away from the job site. Pros enrolled in their loyalty program shop with them more often, spend more per visit and overall spend three times as much as Pros who are not part of the program.  
 
Lowe’s also discovered that their Pro associates spend a lot of time building quotes and checking order status, tasks that take them away from serving customers in their stores. So they launched a suite of tools online and in their mobile app that make it easy for Pros to manage their orders from anywhere. Instead of having to drive to the store to get a quote, Pros can now build and update online quotes in minutes. It automatically applies to their volume savings pricing and discounts and lets them quickly download a PDF quote for their customers. They can also use order tracking to track the status of the order throughout the fulfillment process. Feedback from Pros has been very positive.
 
They are also focused on improving productivity and have been replacing their legacy self-checkout system with a proprietary one that customers like better and use more often.
 
Walmart
Q1 revenue for Walmart rose 7.6% to $152.30 billion, beating expectations of $148.94 billion. Sam’s Club sales rose 4.5% to $20.50 billion, slightly below expectations. Walmart raised their guidance for the year and now expects consolidated net sales to rise about 3.5%.
 
Comp store sales for Walmart US increased 7.4%, excluding fuel, with transactions up 2.9% and the average ticket up 4.4%. Ecommerce sales jumped 27%, led by pickup and delivery.
 
Comp store sales at Sam’s increased 7.0%, with transactions rising 2.9% and the average ticket up 4.0%. Ecommerce sales rose 19%, led by curbside. Membership income grew 6.3%, with the largest quarterly member sign-up on record.
 
Walmart’s performance was also helped by advertising. Walmart Connect ads grew nearly 40% during the quarter.
 
Walmart also reaffirmed their commitment to building a nationwide network of charging stations for electric vehicles.
 
Ace Hardware
Q1 revenues fell 5.8% to $2.1 billion. Ace attributed the first decline in revenues in more than six years to both the mild winter across much of the country and the late arrival of spring-like weather, which led to declines in the sales of both winter and spring goods. 
 
The approximately 3,600 Ace retailers who share daily retail sales data reported a 4.4% decrease in comp sales, due to a  3.0% decrease in same-store transactions and a 1.4% decline in average ticket.
 
Ace added 50 new domestic stores in Q1 and cancelled 16 stores. The Company's total domestic store count was 4,901 at the end of the first quarter, an increase of 111 stores from Q1 2022.
 
Ace earned the top spot the home improvement category on J.D. Powers annual Home Improvement Retailer Customer Satisfaction study. It was the 16th time in the past 17 years Ace has been ranked number one overall. Ace came out on top in four of the five categories measured in the study: Staff and Service, In-store Experience, Online Experience and Merchandise.  Ace scored 873 on a 1000-point scale. Ace was the only home improvement store listed to score more than the average score of 851. The study showed that while online shopping remains popular, 87% of home improvement purchases are made in brick-and-mortar stores. The study also showed that 89% of customers make a purchase on their first in-store visit. J.D. Powers surveyed 2,728 customers who purchased home improvement-related products from a retailer between December 2022 and March 2023.
 
Amazon
Eligible Citi credit card members can now pay in monthly installments for Amazon products with Citi Flex Pay when using Amazon Pay during checkout. The new payment option applies to eligible purchases of $50 or more. This is the first time Citi credit card members can use Citi Flex Pay through a digital wallet. The digital wallet uses customer information stored in their Amazon wallet when they check out. Citi cardholders get 0% APR for initial instalment plans on Amazon Pay with Citi Flex Pay through the end of July.
 
Amazon is offering US customers $10 to pick up their purchases of $25 or more at Amazon pick-up locations such as Whole Foods, Amazon Fresh and Kohl’s, rather than have them delivered. Amazon says it is not a cost-cutting measure, and a spokesperson said the program has actually been around for more than two years. Analysts say that widespread adoption would dramatically reduce delivery costs for Amazon and train customers to take returns back to these locations.
 
Amazon will incorporate some features of open AI into digital assistant Alexa to make her more interactive and conversational. In December, Amazon quietly acquired a small audio-focused artificial-intelligence firm called Snackable. Financial terms weren't disclosed, but Mari Joller, the founder and CEO of Snackable, now serves as an artificial-intelligence and machine-learning product leader at Amazon. Snackable will initially be working on podcast features offered through Amazon Music. 

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