U.S. DIY and Professional Home Improvement Industry was weak in Q1 2024 (2)

May 14, 2024 Jeffrey Cohen, US Advanced Computing Infrastructure, Inc.

Tools business faces headwinds in Q1 2024, driving flat to declining sales. We see one manufacturer losing gross margins on flat sales, while the other saw much higher gross margins, but on much lower volumes. Both of these CEOs blamed the macro environment for home projects and repair work. One talked about fear, due to the news cycle and inflation, reducing the demand for investments in tools used in trade.

Let's take a look at Snap On Tools for Q1 2024.
Snap-on Tools is a little different than DIY because it is targeted to professional auto repair shops. The shops themselves buy tools, as well as the individual technician. However, we expect some DIY and home car enthusiasts are buying, so we include them here.

Nick Pinchuk, Snap-on's Chief Executive Officer,
"From an overall perspective, we believe the automotive repair arena remains favorable. Vehicle OEM and dealerships continue investing in tools and equipment, preparing for the tie to new models, bringing the latest technology and drivetrains to the market. "
" And the report was generally that shops are humming, the bays are running at full capacity"
"Techs are well positioned, and they continue to invest but it's in quick payback items that will make a difference right away, but don't require a long-term payment stream."

"Now our Commercial and Industrial Group or what we call C&I, serving critical industries in the most international of all our groups, and in the quarter, C&I manages the difficult challenge of balancing multiple economies that are in economic turbulence."
"Europe now has more than half a dozen countries in technical recession. And then China – in the China environment, including the nearby countries, depending on it, they continue to struggle. India on the other hand, it's booming. Modi has the train running. So that's a positive in Asia amidst some very difficult economies."

Tools Group pivoting to smaller items, smaller purchases, with immediate payback.


​"The first quarter for the Tools Group was below our standard. However, we do remain confident, and we do see a pivot to focus on quick payback items registering a positive momentum and movement. Sales in the quarter were $500.1 million, including – reflected an organic decrease – including an organic decrease or reflecting an organic decrease of 7%. The Group's operating income margin was 23.5%, down 100 basis points."



Aldo Pagliari, Snap-on's Chief Financial Officer,
"Net sales of $1,182.3 million in the quarter compared to $1,183 million last year, reflecting an 0.8% organic sales decline."
"Consolidated gross margin of 50.5% improved 70 basis points from 49.8% last year, primarily reflecting benefits from lower material and other costs and savings from the company’s RCI initiatives."

Hillman Solutions Corp (HLMN)
In May 2024, Hillman reported their Q1 2024 earnings.

Chairman, President and CEO, Doug Cahill, "Net sales in the first quarter of 2024 increased slightly to $350.3 million from the year-ago quarter. Driving these results were the contribution of new business wins. The Koch acquisition was closed in January of this year. These were partially offset by the overall market and a 40 basis point headwind from price. "

"Adjusted gross margins totaled 47.6%, marking a 610 basis point improvement over the 41.5% during the year-ago quarter."

"The macroeconomic landscape in the home improvement sector continues to show muted signs of improving. As we've all heard, inflation continues to hang around, which has prevented the Fed from cutting rates. The result is that mortgage rates have remained elevated. These higher rates are limiting existing home sales, which does impact our business, as homeowners are unwilling to trade out of a 3% mortgage rate into a 7% mortgage.
While pent-up demand for existing home sales continues to build, we agree with our customers. A strong increase in existing home sales is likely to happen when we start to see rates move downward.
In the meantime, the Pick Up Truck Pro continues to be busy albeit, with smaller projects. And we did see the DIY is starts to get more active, as the weather improved throughout the quarter.
That said, the overall market and foot traffic at our retailers were both negative compared to last year which fell in line with our expectations. Our retailers are cautiously optimistic for the second half of this year. And if they're right we will be ready. But until then, we'll continue to manage our cost structure and business for this environment."

"Gross margin and EBITDA margins remain healthy at 71.6% and 30.7%, respectively."

"We provide a wide variety of hardware and related products across multiple product categories. Our products are used for repair, maintenance, remodel and these projects cannot be completed without Hillman type products."
"During 2022 and 2023 the home improvement industry has been under pressure yet Hillman continued to perform well, like it has for the last 60 years. Despite a tough macro environment, we continue to win new business, deepen our partnerships with our customers and strengthen our competitive moat."
Rocky Kraft, our Chief Financial Officer, said, "net sales in the first quarter of 2024 grew $350.3 million, an increase of 0.2% versus the prior year quarter of $349.7 million. First quarter adjusted gross margin increased by 610 basis points to 47.6% versus the prior year quarter of 41.5%.  "