Distribution September 2024

Retail Sales Rise 1.0%
Retail sales rose 1.0% in July after falling a downwardly revised 0.2% in June, according to the Commerce Department. The increase was more than twice what economists were expecting. Retail sales were up 2.7% year over year after being up 2.3% in June. Core retail sales, which exclude automobiles, gasoline, building materials and food services rose 0.3% in July after growing an unrevised 0.9% in June. The best performers were big-box electronics retailers, groceries, home centers and pharmacies.
 
The Home Depot
Q2 sales rose 0.6% to $43.18 billion, beating expectations. Comp sales fell 3.3%, more than expected. Comp sales in US stores fell 3.6%, also more than expected.
 
Q3 Conference Call with Analysts:
 
Total sales include $1.3 billion from the recent acquisition of SRS, which represents approximately six weeks of sales in the quarter. SRS has been recording double-digit growth.
 
THD attributed the disappointing results to weaker spending overall on home improvement projects. CEO Ted Decker noted that consumers feel pressured by higher interest rates and greater macroeconomic uncertainty. In addition, spring projects were impacted by extreme weather changes throughout the quarter.
 
Comp transactions fell 2.2% and comp average ticket fell 1.3%. Power, building materials, appliances and paint all performed above average.
 
There is still softness in larger discretionary projects where customers typically use financing to fund the project such as kitchen and bath remodels. Big ticket comp transactions or those over $1,000 were down 5.8%.They continued to see customers trade up for new and innovative products.
 
Pros outperformed the DIY customer but both were negative for the quarter. They saw positive growth with Pros who utilize  their Pro Extra program, have deliveries to the job site and use their B2B website.
 
They lowered  their guidance for the year and now expect comp sales to decline 3% to 4% and expect total sales growth between 2.5% and 3.5%, including the SRS acquisition and the 53rd week. The 53rd week is projected to add approximately $2.3 billion to total sales. SRS is expected to contribute approximately $6.4 billion in incremental sales.
 
They remain focused on long-term market share growth and serving the customer and will continue to invest heavily in growth. Their capital expenditures were the highest they’ve been in the past 15 years because they are so confident about their potential to grow.
 
They operate in one of the largest asset classes, estimated at approximately $45 trillion, representing the installed base of homes in the United States. They have approximately 17% market share with tremendous growth potential.
 
They plan to drive incremental growth through several sales and cross-synergy opportunities and will focus on integrating SRS into their business. They plan to make SRS’ more comprehensive product offering in roofing, pool and landscape available to all of their customers through the Pro desk. They will offer SRS customers a form of credit tied to their account, which should make purchases at Home Depot stores much more convenient.
 
They continue to invest in associates, in-store capabilities, fulfillment channels and the customer experience. Their focus on in-stock and on-shelf availability using their Sidekick and Computer Vision and My View helps associates do a better job of serving Pros.
 
They launched a new platform known as Pipeline Management that enables interconnected product selling for kitchen designs.
 
They remain focused on complex projects and continue to make progress on their goal of growing wallet share with complex projects and now have full capabilities in 17 markets.
 
Sales leveraging digital platforms increased approximately 4%.  Nearly half of online orders were fulfilled through the stores. They also expanded their partnership with Instacart in order to improve the interconnected shopping experience nationwide.
 
They continue to see tremendous success in the outdoor power equipment categories, driving both positive unit and dollar comps in the quarter.
 
Their exclusive partnership with Milwaukee across the business has led to great adoption of electrical hand tools. Their partnership is expanding with a broader assortment of Made in the USA tools.
 
Higher interest rates have started to impact the housing market; housing turnover is down some 40% and is approaching 40-year lows on an annualized basis. Higher rates also impact  customers' interest in financing larger projects. People are expecting rates to fall soon and are deferring projects until they do. 
 
Many people are wearing “golden handcuffs” because they have mortgages as low as 3% to 5%. That means it takes more to motivate people to sell.
 
They opened three new stores during the second quarter, bringing total store count to 2,340, and expect to open a total of 12 new stores this year.
 
Retail selling square footage was approximately 243 million square feet. Merchandise inventories were $23.1 billion, down approximately $200 million compared to the second quarter of 2023. Inventory turns rose to 4.9x, up from 4.4x last year.
 
Lowe’s
Q2 sales fell 5.6% to $23.6 billion from Q2 2023 and comp sales fell 5.1%
 
Q2 Conference Call with Analysts:
 
Mid-single-digit positive comps in Pro and 2.9% growth in online sales didn’t offset continuing softness in DIY sales, which account for 75% of their business. 
 
Comp average ticket was up 0.8%, helped by strength in Pro-heavy categories, as well as less average selling price pressure in appliances.
 
Comp transactions fell 5.9%, pressured by DIY project spend as well as lower seasonal transactions, partly offset by growth in Pro transactions.
 
Inventory ended the quarter down $581 billion as they managed inventory and continued to invest in high-velocity Pro items.
 
Their sales are much more concentrated in bigger-ticket DIY discretionary purchases where DIY demand was softest.
 
Weather really impacted sales, with cold and wet weather in May followed by intense heat in June and July. Live goods and smaller outdoor projects were particularly impacted. The effect was even more pronounced compared to very strong seasonal performance in Q2 last year.
 
Online sales grew across all three business areas, driven by continued improvement in conversion rates as customers responded to offers and their new expanded same-day delivery options now available on multiple platforms.
 
In Q2 they added Uber Eats to their list of delivery partners, which also includes DoorDash, Shipt and Instacart, in addition to last-mile technology partner, OneRail.
 
Multiple delivery platforms help extend their reach into both urban and suburban areas and drive incremental sales with different types of customers, especially younger generations who are more digitally savvy.
 
They’re very pleased with the MyLowe's Rewards loyalty program they launched nationwide in March. They are learning more about customers’ lifestyles and purchasing trends as well.
 
They piloted an in-store design experience for customers in three test markets. A Lowe's associate could help customers use Apple Vision Pro and the Lowe's Style Studio app to explore and customize hundreds of kitchen designs in 3D using products, fixtures and appliances all available at Lowe's.
 
They are affected by macro trends, as higher mortgage rates keep people in their current homes and drive housing turnover down to the lowest level since the mid-nineties. The preference for spending on services, especially for the more affluent consumer, has persisted much longer than expected.
 
CEO Marvin Ellison visited all 15 geographic regions in the first half of the year to talk with associates and see what was going on locally.
They’re pleased with the success of Craftsman Days events, where they highlighted Craftsman products for multiple merchandising divisions with more than 100 products featured both in-store and online.
 
Halloween is bigger than ever before with everything from new animatronics to inflatables along with fall cleaning and fall harvest and décor.
 
They’ve made a lot of progress working with their suppliers to take out costs that they absorbed over the last few years. They will continue to work with suppliers to claw back these costs while also reinvesting in marketing and merchandising strategies to drive traffic and sales.
 
The new In-Store Mode on their mobile app provides customers with detailed product and location information to help them easily navigate the store. In-Store Mode also helps free up associates so they can spend more time selling and focusing on customers who need help.
 
They are trying to better manage returns and are collecting more precise information on why an item was returned so they can work together with their vendors to address any issues and prevent returns from happening in the first place. They are also identifying key inflection points in their supply chain to reduce damages on more fragile items, like appliances.
 
They continue to gain momentum with their core small and mid-sized Pro customers. The recent investments they’ve made in job site delivery and high velocity Pro SKUs are paying dividends and online Pro sales are booming
 
They continue to see lower freight rates and transportation costs. They are mostly insulated from rate fluctuations because they have contract pricing. They see those favorable rates extending through the first part of 2025.
 
They will be going into detail about their plans for next year at their Analysts’ Conference in December.
 
Other News:
 
Lowe’s rebranded the media network they launched in late 2021, switching from Lowe’s One Roof Media Network to the more simple and straightforward Lowe’s Media Network.
Lowe’s also announced expanded ad placements on their app and four new channels this year: email, in-store audio, paid search, and direct mail for install services.
 
The expanded portfolio of omnichannel advertising solutions and services Lowe’s now offers via Lowe’s Media Network includes onsite premium native display and sponsored product ads on Lowes.com and the Lowe's app, activation across multiple channels, offsite advertising placements including paid search and audio advertising in Lowe’s stores nationwide.
 
They will now be able to provide customers with custom insights on current campaigns and measurement and closed-loop reporting. Currently, Lowe’s Media Network has more than 300 participating brands across home improvement categories including appliances, lawn and garden, and tools.
 
Q2 sales rose 4.7% to $167.8 billion and comp sales for Walmart US rose 4.2%, a slowdown from 6.4% for Q2 last year but an improvement over the previous two quarters. Walmart US reported growing numbers of upper-income customers as well as a 17% increase in ecommerce sales. Walmart did not see a slowdown in July as some retailers reported and said that August was off to a good start.
 
Walmart is partnering with Burger King. Members of Walmart+ will receive a 25% discount on every digital order they place at Burger King through the chain's app or website. Beginning in September, members also get a free Whopper once every three months when they make any kind of purchase at Burger King. Walmart+ members must link their memberships to a Burger King rewards account to access the discounts. WM says the decision to roll out this new perk was driven by member insights and research showing that members already dine at Burger King and would consider the perk a real value.
 
Ace Hardware
Q2 revenue rose 3.1% to $2.7 billion. Online sales grew 16%. Ace has opened 110 new stores so far this year and expects to open 90 more. The 3,800 Ace retailers who share daily retail sales data reported a 1.7% drop in US retail comp sales, due to a 2.6% decline in comp transactions, partially offset by a 0.9% increase in average ticket. 
 
Ace unveiled a new store concept, “Elevate3 Ace,” inviting attendees at their fall convention in Chicago to tour a full-scale model of the 13,000-square foot format. Elevate3 Ace will begin rolling out in January, featuring brand showrooms, an outdoor backyard space, enhanced customer service and new product assortments that focus on strong brands that are fueling growth for Ace, including grilling and power tools. Over the next five years, Ace plans to invest more than $1 billion in opening new stores and remodeling existing stores to install the Elevate3 Ace concept. The new store format will be adapted to all of Ace’s basic store formats, including 6,000, 9,500 and 13,000-square foot plans.
 
The new format will highlight Ace’s most popular brands including Weber, Traeger, Big Green Egg, Craftsman, DeWalt, Milwaukee, Ego and Stihl in ways designed to make customers feel as if they are shopping in a brand store.
 
The store will also include an outdoor space with a live goods display and grilling space for demos and events that will provide an "aspirational" backyard experience.
 
Ace is implementing digital shelf labeling (DSL) which will allow them to update on the shelf pricing in a matter of seconds.
 
Ace was awarded two 'Best of the Best' designations by Entrepreneur magazine. Ace Hardware was named Best of the Best franchises overall.  Ace Handyman Services was also named a 'Best of the Best' opportunity in the home repairs and handyman services category. Entrepreneur's Best of the Best Franchises ranking is based on information submitted for the annual Franchise 500 and is part of the brand's continuing effort to best understand and evaluate the ever-changing franchise marketplace.
 
The franchises selected as 2024's Best of the Best are ranked not only in the increasingly competitive Franchise 500 list this year but also at the top of their respective industry categories, based on an evaluation of more than 150 data points in the areas of costs and fees, size and growth, franchisee support, brand strength, and financial strength and stability.
 
Ace Handyman Services, a subsidiary of Ace Hardware, was created in 2019 and consists of locally owned franchise businesses staffed by professional craftsmen and women trained to handle a wide range of home maintenance tasks, including carpentry, plumbing, electrical, drywall, painting, and flooring.
 
Amazon
Q2 revenue rose 10% to $148 billion but earnings missed forecasts and Amazon stock took a beating.
 
CEO Andy Jassy reported that they are seeing lower average selling prices, something he attributed to shoppers choosing to buy cheaper products. Retail sales only rose 4% compared to overall revenue which rose 10%, much of which was attributed to Amazon Web Services and advertising. 
 
Discretionary higher-ticket items like TVs and electronics are doing better for them than for the retail industry as a whole but sales are definitely slower than they see in a more robust economy.
 
CFO Brian Olsavsky said Amazon expects the consumer spending trends to continue into the third quarter. They lowered third quarter forecasts to 8% to 11% growth, or net sales of $154 to $158.5 billion.
 
Amazon is ramping up fulfillment capabilities to handle fourth-quarter holiday volumes across their regionalized networks. More than 5 billion items now arrive at customers’ homes the same day or next day, an increase of 30% year over year.
 
Amazon expects to open 170 more warehouses across the U.S. in the future according to data from supply chain consulting firm MWPVL International. Of the future facilities, 103 are expected to be delivery stations for packages, which are smaller, local distribution centers strategically positioned for last-mile delivery.
 
Despite scaling up their network Amazon still has the goal to lower its “cost to serve,” which is the cost to get a product from Amazon to a customer.
 
They are working on changes that will allow them to combine more units per box which improves customer satisfaction, is better for the environment and lowers their costs.
 
Recently launched Project Private Investigator uses a combination of generative AI and computer vision to uncover defects before products reach customers.
 
Inventory from third-party sellers must arrive at Amazon warehouses by October 19 to ensure Black Friday fulfillment. The deadline is a full week earlier than last year’s. They also recommended sending inventory in September and October for holiday fulfillment. 

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