Distribution March 2023
Retail Sales Rise 3.0%
Retail sales rose 3.0% in January after falling a seasonally adjusted 1.1% in December, according to the Commerce Department. It was the largest monthly increase since March 2021 when stimulus checks were delivered. Excluding automobiles, gasoline, building materials and food services, retail sales rose 2.6% after falling 0.7% in December. Core retail sales correspond most closely with the consumer spending component of gross domestic product. 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.
NRF and MasterCard Spending Pulse
The National Retail Federation reported that holiday sales in November and December rose 5.3%, well below expectations and a dramatic slowdown from holiday sales in 2021, which increased 13.5%.
Retail sales jumped by 8.8% YOY in January in the US, according to Mastercard SpendingPulse. Ecommerce sales grew by 8.4% and in-store by 8.9%. Automotive is excluded from these results. Mastercard SpendingPulse noted that spending was resilient and the overall retail picture remains positive. Spending at restaurants jumped by 24.2% YOY. They believe this reflects a broad shift in consumer spending from goods, especially big ticket goods, to services. MasterCard noted that the primary factor driving spending decisions is the expectation of future income.
The Home Depot
FY 22 Conference Call with Analysts:
FY 22 sales grew 4.1% to a record $157.4 billion. Total company comp sales increased 3.1% and US comp sales increased 2.9%.
Q4 sales rose 0.3% from Q4 2021 to $35.8 billion. Total comp sales were down 0.3% for the quarter.
They saw resilience in the first half of the year but began seeing some deceleration in certain products and categories in Q3, which became more pronounced in Q4. Slowing sales plus the negative impact from lumber deflation led to fourth quarter comps that were slightly softer than anticipated.
During Q4, comp average ticket increased 5.8% and comp transactions decreased 6%. The growth in average ticket was driven primarily by inflation across product categories as well as demand for new and innovative products. Inflation from core commodity categories positively impacted average ticket growth by approximately 15 basis points during the fourth quarter.
They believe their people are the most important investment they can make and are increasing annual compensation by $1 billion for frontline hourly associates. They think this investment will position them favorably in the market and allow them to attract and maintain the most qualified talent in what is still a seller’s market for jobs.
They introduced a new store leadership structure for the first time since the company was founded. The purpose is to promote best-in-class associate development and customer service.
New management positions will focus solely on the customer service experience. There will be more managers on the floor at all times to give other leaders more time for associate training and development.
Another important goal is simplifying and streamlining processes and systems so associates can provide a better customer experience.
During the fourth quarter they saw a significant decline in lumber prices relative to a year ago. On average, lumber prices were down over 50% year-over-year. Given this dynamic, Q4 comp sales were negatively impacted by approximately 70 basis points.
Tools, building materials, plumbing, millwork, hardware, outdoor garden and paint had comps above the company average. Big ticket comp transactions, or those over $1,000, were up 3.8% compared to the fourth quarter of last year.
They saw big ticket strength across Pro-heavy categories like portable power tools, pipe and fittings and gypsum but experienced softness in other categories including laundry, soft flooring and roofing.
Q4 Pro sales growth outpaced DIY. Pro backlog still remain elevated compared to historical averages.
Sales through digital platforms were up more than 4% compared to the fourth quarter of last year. Approximately 45% of online orders were fulfilled through stores.
It was a record year for Black Friday, holiday and gift center sales. Their spring Gift Center event will include cordless innovation in mowers, trimmers, blowers and chainsaws.
They continue to see an industry shift from gas-powered to battery-powered outdoor power equipment and are well-positioned to take maximum advantage of that trend.
They successfully offset significant transportation and product cost pressures as well as increased pressure from shrink during the back half of the year while still providing the customer with exceptional value.
Retail selling square footage was approximately 241 million square feet and total sales per retail square foot were a record-setting $627.
At the end of the year, merchandise inventories increased by $2.8 billion to $24.9 billion and inventory turns were 4.2x, down from 5.2x from last year.
They lowered their guidance for 2023 and now expect comp store sales to be flat. They expect demand for home improvement products to soften this year because of heightened inflation and rising interest rates, a tight labor market and moderating equity and housing markets.
Pro backlogs are off their peak from 2022 but still healthy and customers are still spending time at home. Homes are aging and despite the softening resale market are still worth about 40% more than they were before the start of the pandemic.
However, people are starting to shift spending more towards services and they are seeing more price sensitivity.
From 2019 through 2022 they grew sales by $47.2 billion, at a compound annual rate of 12.6%. From the first quarter of 2020 through the first quarter of 2021, sales were driven by significant ticket and transaction growth. This growth reflected unique factors as homeowners spent more time in their homes and took on more projects as they saw their homes significantly increase in value over that period.
The home improvement market also captured a greater share of the consumer's wallet, as spending on goods outpaced spending on services during the period.
Strong sales and earnings growth driven by ticket drove growth beginning in the second quarter of 2021 and continuing throughout 2022. However, transactions steadily normalized back towards 2019 levels, as the broader consumer economy shifted from goods and back into services. Nevertheless, they had positive sales growth in every quarter up to present.
When they were setting targets for 2023 they considered three factors they believe will influence performance:
First, they think we will see flat real economic growth and consumer spending this year based on the guidance of many leading economists.
Second, they believe the shift from goods to services will continue at its current pace, which will leave the home improvement market down low single digits.
Third, they plan to leverage all their competitive advantages to continue to capture market share to offset this pressure.
Falling home prices have not made an impact on a market-by-market basis and they have not seen any relationship between comp sales and either the home price appreciation or correction that they’ve seen. Home prices peaked in June of 2022 when they were 45% higher than at the end of 2019. Since then, they’ve fallen about 3%, so a very modest correction.
The Home Depot started the countdown to spring, launching new special Buys of the Day, interactive workshops for DIYers of all ages, instore workshops for kids and a new Countdown to Spring Hub to inspire spring projects inside and out and inspire with all the latest trends.
The Home Depot ranked #1 in the specialty retail category on Fortune's 2023 Most Admired Companies list and ranked #20 overall. Fortune worked with Korn Ferry to survey 1,500 companies and determined the best-regarded companies in 52 industries. The Home Depot also ranked #1 ranking in people management, use of corporate assets, social responsibility, quality of management, financial soundness and quality of products/services.
Q4 sales rose 5% to $22.4 billion, short of expectations. Comparable sales declined 1.5% overall and 0.7% in the US, also well below expectations.
FY 2022 sales were $97.1 billion; Lowe’s noted that sales were up on a three-year basis.
Revenue for FY 2022 rose 6.7% to $9.2 billion and Q4 revenues rose 6% to $2.2 billion. Ace also made a record contribution to the Ace Foundation of $22.7 million.
The approximately 3,600 Ace retailers who share daily sales data reported a 5.2% increase in US retail comp store sales during the fourth quarter of 2022. Estimated retail inflation of 9.0% drove a 6.4% increase in average ticket. Comp transactions were down 1.2% during the quarter.
For the full year, retail comp store sales increased 3.2%Estimated retail inflation of 10.7% and an 8.4% increase in average ticket contributed to the increase. Comp transactions were down 4.7% for the full year.
Wholesale merchandise revenues from new domestic Ace stores rose to $230.3 million in FY 2022. This increase was partially offset by a decrease in wholesale merchandise revenues of $52.8 million due to domestic Ace store cancellations.
Ace added 168 new domestic stores in FY 2022 and cancelled 52 stores. This brought their total domestic store count to 4,867 at the end of FY 2022, an increase of 116 stores from the end of FY 2021.
Amazon reported their first unprofitable year on record, losing $2.7 billion in 2022 despite net sales rising 9% to $514 billion. North American sales rose 13% to $315.9 billion. In the fourth quarter of FY22, Amazon’s net sales grew by 9% to $149.2 billion. Amazon’s North American segment grew sales 13% during Q4 while international revenue dropped 8%. Sales beat expectations but profits disappointed.
Amazon’s massive 20% investment in electric vehicle manufacturer Rivian accounted for much of the loss; after several missteps, Rivian’s stock dropped more than 80% last year. Growth is even slowing down at Amazon Web Service, which has been the fastest growing, albeit smallest, segment of the company. Amazon expects slower growth over the next few quarters but plans to continue to invest in new ventures.
New CEO Andy Jassy's primary mission is cutting costs while still supporting profitable ventures and business segments and investing in new ones. Amazon has already trimmed more than 18,000 people from the payroll and put the brakes on several initiatives, including Amazon Smiles and Amazon Fresh Groceries.
Amazon is asking employees to be in the office a minimum of three days a week beginning May 1. Amazon says this will make collaborating easier and support the businesses that surround Amazon offices and operations in many different cities. There will be some exceptions; customer support and sales staff will still have the option of working remotely. Amazon had previously stated they would allow team leaders to decide how many days a week their team members should be in the office. Amazon employees have rebelled, with thousands worldwide signing a petition asking for the requirement to be removed.
Both the FTC and the European Union plan to investigate Amazon’s $1.7 billion acquisition of iRobot Corp, maker of the autonomous vacuum cleaner Roomba. Roomba's ability to take pictures as it moves about a home has raised questions about privacy and use of customer data. Amazon says they use customer data to improve customer experiences with their products and services and don’t sell data to third parties or use it in ways customers have not consented to. Amazon declined to comment further, saying that the deal is not yet closed.
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