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Retail Sales Rise 0.7% Retail sales rose a strong 0.7% in July after rising an upwardly revised 0.3% in June, according to the Commerce Department. It was the fourth consecutive monthly increase and above expectations of a 0.4% rise. Analysts noted that the increase was partially accounted for by the big 1.9% boost in online sales from Amazon Prime Days. Excluding automobiles, gasoline, building materials and food services, retail sales rose a robust 1.0% after rising 0.6% in June. 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. The Home Depot Q2 sales fell 2.0% to $42.92 billion and comp sales fell 2%. Both declines were less than expected. THD backed their full-year guidance for an overall sales decline of 2%, a 5% decline in comp sales and a decline in EPS of 7% to 13%. THD also announced a $15 billion share buyback program. Conference Call with Analysts: THD reported that consumer spending patterns are shifting. While there was continued strength in small project sales there was a measurable decline in big-ticket project-oriented sales, with big ticket comp transactions falling 5.5%. Sales leveraging their digital platforms increased approximately 1.0%. Nearly half of online orders were fulfilled through their stores. Pro sales for the quarter fell slightly, although there was continued strength in Pro-related categories such as building materials, hardware and plumbing. The average ticket rose 0.1% to $90.07. Sales per retail square foot fell 2.3% to $684.65. Customer transactions fell 1.8% to 459.1 million in the period. Surveys suggest that Pro backlogs have fallen from the same time last year but are still healthy and elevated relative to historic norms. However, projects in backlog are generally smaller in scale and scope. The weather improved in most parts of the country during the second quarter and they saw an uptick in spring sales and small projects, particularly in the West. There was continued softness in big ticket, discretionary purchases. Lumber prices declined significantly during the quarter. As an example, on average, framing lumber was approximately $420 per thousand board feet compared to approximately $715 in the second quarter of 2022, representing a decrease of over 40%. They are focusing on products that simplify the project and save customers time and money. To that end they are adding a new line of Milwaukee hand tools for Pro customers. They are very excited about their lineup for Halloween as these products drive traffic and bring people into the stores. Their preview sales were excellent, and Halloween is a 100% discretionary purchase. They believe the approximately $1 billion of the annualized compensation investment they’re making is paying off and they are seeing lower attrition rates, particularly among their most tenured associates. More consistent staffing levels are resulting in improved customer service, productivity and safety. Unassisted cash-and-carry purchases account for a significant majority of in-store sales. That means it’s critical they have the right products in-stock in the right quantity and on the shelf available for purchase. They are very focused on improving their on-shelf availability, or OSA, positions. They are working to narrow the gap between what is considered in-stock, so systems indicate it is on the shelf and available for sale for the customer, not just in the store. They are using new technology such as computer vision that can provide associates with specific locations of depalletized product stored overhead. Smart phones and their innovative Sidekick application helps associates easily identify and prioritize the highest-value tasks. Sidekick has done extremely well in testing and they plan to roll it out later this year, which will help drive productivity. Their Order Up system is much more intuitive and provides a seamless experience that even a first-day associate can master to fulfill a wide variety of needs for the customer. It has speeded up the average customer experience by more than 40%, which has increased customer satisfaction scores. During the second quarter they opened two new stores, bringing their total store count to 2,326. Retail selling square footage was approximately 241 million square feet. At the end of the quarter, merchandise inventories were $23.3 billion, down $2.8 billion compared to the second quarter of 2022. Inventory turns were 4.4x, down from 4.5x last year. They remain very bullish on the sector overall and could not be more positive about the macro environment for housing and home improvement. They believe there is too much uncertainty to revise their guidance even though their in-stock rates have continued to improve and the customer has proved to be very resilient. They are continuing to work on the complex systems that are needed to attract larger Pros and capture a larger share of the Pro wallet. This is a big undertaking and will take some time but they feel that it will also give them an advantage that will be very difficult to duplicate. Net new requests for cost increases from the supply chain have pretty much abated and inflation has really gone down. However, they are not expecting a deflationary environment. The projected decline in housing value has not materialized; after a brief pull-back, housing prices have remained high because there is a chronic shortage of inventory and continued high demand. There is some indication people have come to grips with higher interest rates and are moving ahead when they find a home they want. Other News: The Home Depot Foundation and Home Builders Institute (HBI) have partnered to provide free skilled trades training and certification to separating service members on or near 10 military bases through the Path to Pro program that began in 2018. The Foundation recently granted $1.6 million to Habitat for Humanity affiliates near those bases to enable Path to Pro students to gain on-the-job training by building Habitat homes alongside Habitat staff, volunteers and future homeowners. Fort Hood Area Habitat for Humanity is one of the first affiliates to pilot this program and host HBI students on its build sites. They also hired Path to Pro graduates and more recently joined with The Home Depot Foundation and HBI to construct a home for a local single mother. This effort is part of a new partnership that brings all three nonprofit organizations together to improve access to affordable housing. It will also provide free skilled trades training to transitioning military members stationed at Fort Cavazos. Lowe’s Q2 sales fell to $24.95 billion from $27.47 billion in 2022. Q2 comp sales fell 1.6%, slightly less than expected. Online comp sales grew 6.9%, with about half of online orders picked up in stores. Conference Call with Analysts: They saw growth in building materials, paint, seasonal, lawn and garden, hardware and outdoor living which helped partially offset significant deflation in lumber and continued pressure on big ticket discretionary purchases. Comp average ticket was up 0.3% compared to Q2 2022. Ticket increases in the majority of merchandise categories were offset by lumber deflation and more normalized appliance promotions. There was good momentum in outdoor power equipment. They also saw an increase in small, instant gratification projects such as landscaping projects and pre-potted plants. They are in a better inventory position than last year for the second half. They started the rollout of Klein Tools, the number one tool brand for electricians and HVAC professionals. They are excited about the launch of this brand, which is returning to Lowe's after nearly 15 years. As part of this launch, they will offer the largest assortment of Klein Tools anywhere in the home improvement retail channel between hand tools, storage, safety and electrical products in store and online. Their goal is to position themselves as the go-to retailer for these brand loyal customers. Their customers respond very well to their private-label brands, which are tested to make sure they deliver comparable performance. However, they make sure their increasing private brand penetration is balanced with a strong lineup of trusted national brands like Bosch, DeWalt, Rubbermaid and Scott's. They introduced a new digital Will This Fit? capability that helps customers determine if a refrigerator will fit into their space, and a refined search experience with better recommendations, filters, and featured categories. Their Halloween and holiday sets are already available online to attract customers who want to get a jumpstart on decorating. They believe their investment in their associates is paying off and have seen a 200 basis point improvement in both DIY and Pro customer service scores compared to last year. The small to midsize Pro remains resilient and continues to respond to their expanded national brands, MVPs Pro rewards program and enhanced online tools. Nearly 75% of Pros reported healthy project backlogs and lead volumes remained consistent with recent quarters, according to their most recent survey. New Executive Vice President, Quonta Vance, will continue to expand their online business tools for Pros that allow them to easily generate quotes and track orders as part of the MVP Pro rewards program. In August they launched online purchase authorization for Pros that allows the crew member dispatched to the store to pick up an order to simply scan a QR code rather than having the Pro desk call for authorization. This enhancement addresses a big pain point for Pros. They launched a new same day delivery option on lowes.com and their mobile app powered by OneRail that lets Lowe’s tap into OneRail’s network of 12 million drivers to deliver directly to Pro job sites and consumer homes in a matter of hours. This new delivery option allows them to leverage their 1700 plus store footprint to make those much needed last minute deliveries to Pro job sites saving Pros both time and money. They are also making progress in the rollout of a market delivery model for big and bulky products, with 13 geographic regions now supporting more than 1200 stores and are on track to complete the initial rollout by the end of the year. They are in the final phases of sunsetting their 30-year old operating system and are also seeing big gains from using intuitive touch screens instead of hard to navigate green screens. They are speeding up the supply chain with new mobile applications combined with automation and robotics to improve productivity, maximize speed, and minimize damages. They are also piloting a new brake pack process, which leverages automation to break down cases five times faster, making it far more efficient to replenish stores. Improved technology is giving them better visibility into how freight is flowing into their stores, which lets them better match staffing with the types of freight inbound and get products onto the shelves faster. The two strongest demand drivers of their business are real disposable personal income and home price appreciation; when both are favorable, they support demand. Home price appreciation has slowed but is still up 35% versus pre-pandemic, while real disposable income has been pressured by persistent inflation and elevated interest rates. Home improvement shoppers remain cautious, especially when it comes to big ticket discretionary purchases, and are more focused on smaller repair and maintenance projects. There have also been improvements in real disposable income and consumer sentiment, but that will need to be sustained before it will translate into consistent consumer spending. Home improvement projects are typically postponed rather than cancelled. Since home improvements’ spend as a percentage of home equity is below the historical average, demand should pick up as consumer sentiment improves. They are bullish on the mid-to-long-term outlook for the industry, based on the fact that aging housing stock results in remodel and repairs combined with other favorable trends like millennial household formation, aging in place, and persistent remote work. They confirmed their sales guidance for the year and continue to expect 2023 sales in a range of $87 million to $89 billion, representing a comp sales decline of 2% to 4%. This includes a 150 basis point impact from lumber deflation for the full year. They plan to outperform the market by 100 to 200 basis points by consistently focusing on their Total Home strategy. This outlook reflects continued strength in Pro and online, offset by ongoing pressure from DIY discretionary purchases. Q3 has the toughest comps of the year so they expect Q3 comp sales to come in at the lower end of guidance. Other News: Lowe’s is developing RFID technology they can embed in power tools in order to prevent theft. The power tool will not operate until it is activated at the register. Retail theft is an industry-wide problem that resulted in $94.5 billion in losses in 2021, according to the National Retail Federation’s National Retail Security Survey. Walmart Q2 revenue rose 8.4% to $152.9 billion and US net sales rose 7.1% to $105.1 billion. US comp sales were up 11.7% on a two-year stack, driven by strong private brand sales and higher average ticket. Ecommerce sales grew 12%. They confirmed their guidance for the second half and expect net sales to grow 4.5%. Walmart topped Fortune’s Global 500 list for the tenth consecutive year, with sales of $611.3 billion in 2022. Amazon was ranked number four on the list, the only other retailer in the top ten. Rankings are based on annual revenue. Collectively, the Fortune Global 500 companies generated revenues totaling $41 trillion last year, or more than one-third of the world's GDP. That's an increase in collective revenue of 8% over last year, but cumulative profits were down 7% from a year ago, at $2.9 trillion. Companies on the 2023 list employ 70.1 million people worldwide and are based in 232 cities and 33 countries and regions around the world, according to Fortune. Ace Hardware Q2 revenue rose 3.9% to $2.6 billion. A 45% increase in visits to Acehardware.com drove an 18% increase in digital business, a 3% increase in store visits, and a 1.1% increase in comp store sales. The approximately 3,600 Ace retailers who share daily retail sales data reported a 0.4% increase in US retail comp sales during Q2, due to a 1.1% increase in comp transactions, partially offset by a 0.8% decrease in average ticket. Increases were seen across a majority of departments with lawn and garden, paint, and grilling showing the largest gains. Ace added 36 new domestic stores in the second quarter of 2023 and cancelled 13 stores. The Company’s total domestic store count was 4,924 at the end of the second quarter of 2023 which was an increase of 108 stores from the second quarter of 2022. Amazon Q2 sales rose 11% to $134.4 billion. CEO Andy Jassey credited the big improvement to the success of Amazon’s regionalization efforts as Amazon shifted from a single national US fulfillment and transportation network to eight focused regions. According to Jassy, since the regionalization shift began, Amazon touches delivered packages 20% less and travels 19% fewer miles to make a delivery. It now fulfills 76% of orders from the region around the customer. Quarterly shipping costs rose 6% to $20.4 billion. Paid units shipped rose by 9%, an improvement over the 8% growth in the prior two quarters. CFO Brian Olsavsky said Amazon still has room to cut costs as they continue to optimize their fulfillment network, which nearly doubled through the Covid-19 pandemic. For the third quarter, Amazon expects net sales between $138 billion and $143 billion, a 9% to 13% increase from 2022. Merchants in early trials who use Buy with Prime saw their shopper conversion increased by 25% on average. Merchants who participate in Prime Day activities experienced a 10X increase in daily Buy with Prime orders during the sales event period versus the month before we announced Prime Day, according to Jassy. AWS segment sales stabilized after several quarters of slowing growth and increased 12% year-over-year to $22.1 billion. Third-party seller service sales rose 18% to $32.3 billion, while advertising service sales grew 22% to $10.7 billion. Subscription services, including Prime membership revenue, rose 14% to $9.9 billion. AI has become a significant focus for Amazon, with virtually every team working on ways to incorporate and benefit from AI. Amazon Prime Days saw big jumps in some categories and declines in others, according to Numerator’s “Prime Day 2023 Recap” report. Prime Days outpaced past years in household penetration (36%), orders per household (3.1), spend per household ($180.82), and order size (1.9 units). However, compared to Prime Day 2022, Prime Day 2023 saw lower order size ($58.41 vs. $60.73) and lower spend per unit ($31.27 vs. $32.71). Amazon will host a second Prime-Days style event in October tentatively called Prime Big Deals Days. Last October Amazon offered a Prime Early Access Sale. Amazon has a penchant for hosting events Tuesday and Wednesday and Amazon watchers are betting on October 10 & 11. © Robert Bosch Tool Corporation. All rights reserved, no copying or reproducing is permitted without prior written approval.
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