U.S. DIY and Professional Home Improvement Industry was weak in Q1 2024 (4)

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

We now look at Home Depot, which announced earnings for Q1 2024 today. Signs look grim, as the stock fell 0.6% today (half a day) and the headlines from their earnings are negative.

Isabel Janci – Vice President of Investor Relations and Treasurer
Ted Decker – Chair, President and CEO
Ann-Marie Campbell – Senior Executive Vice President
Billy Bastek – Executive Vice President, Merchandising
Richard McPhail – Executive Vice President and Chief Financial Officer
Chip Devine – Senior Vice President-Outside Sales

According to Ted Decker, CEO, "Sales for the first quarter were $36.4 billion, down 2.3% from the same period last year. Comp sales declined 2.8% from the same period last year and our U.S. stores had negative comps of 3.2%. Diluted earnings per share were $3.63 in the first quarter compared to $3.82 in the first quarter last year."

"While the quarter was impacted by a delayed start to spring and continued softness in certain larger discretionary projects"

"Remember, we operate in a $45 trillion asset class, which represents the installed base of homes in the United States and we serve a highly fragmented addressable market of approximately $1 trillion. Within that TAM, the greatest opportunity is with the residential Pro contractor, who shops across many categories of home improvement products while working on complex projects. We've defined that specific opportunity as an approximately $250 billion TAM, of which we have relatively little share today."

Billy Bastek, EVP Merchandising, said "our sales were impacted by a delayed start to spring and continued softness in certain larger, discretionary projects. However, where weather was favorable, we saw good customer engagement and strength in outdoor projects."

Renamed the TOOL department to POWER: "Additionally, we have renamed our tools department to power and included outdoor power equipment to capture synergies and maximize the strength of our battery-powered platforms."

"power departments posted positive comps"

"During the first quarter, our comp transactions decreased 1.5% and comp average ticket decreased 1.3%. However, we continue to see our customers trading up for new and innovative products. Big ticket count transactions or those over $1,000 were down 6.5% compared to the first quarter of last year. We continue to see softer engagement in larger discretionary – projects where customers typically use financing to fund the projects such as kitchen and bath remodels."

"Turning to total company online sales, sales leveraging our digital platforms increased 3.3% compared to the first quarter of last year. For those customers that chose to transact with us online during the first quarter nearly half of our online orders were fulfilled through our stores."

" Pro and DIY customers’ performance was relatively in line with one another, but both were negative for the quarter."
"While Pro backlogs remain relatively stable, we hear from our Pros that homeowners continue to take on smaller projects. "

POWER TOOLS
The gift the keeps on giving. The loyalty program that keeps customers coming back to The Home Depot.

"The trend away from gas to battery-powered products is continuing, and we are well positioned with our assortment. We have the brands our customers are looking for, whether it's RYOBI, Milwaukee, DEWALT, Makita or RIDGID. We estimate that there are nearly 500 million batteries in the market today, and our assortment covers the vast majority of these batteries. In fact, more than 70% of batteries with brands that are exclusive to The Home Depot in the big box channel with hundreds of products across each of these platforms, this is one of the best loyalty programs that keeps customers coming back to The Home Depot."

CFO. Richard McPhail, said "In the first quarter, total sales were $36.4 billion, a decrease of approximately 2.3% from last year. During the first quarter, our total company comps were negative 2.8% with comps of negative 4% in February, negative 0.8% in March, and negative 3.3% in April. Comps in the U.S. were negative 3.2% for the quarter with comps of negative 4.8% in February, negative 1.3% in March, and negative 3.6% in April."

Margins were flat, with some small benefits: "In the first quarter, our gross margin was 34.1%, an increase of approximately 45 basis points from the first quarter last year, primarily driven by benefits from lower transportation cost and shrink."

Home Depot expects flat sales in 2024, mostly.

"We expect total sales growth to outpace sales comp with sales growth of approximately positive 1% and comp sales of approximately negative 1%. Total sales growth will benefit from a 53rd week and we expect the 53rd week will contribute approximately $2.3 billion in sales. Our gross margin is expected to be approximately 33.9%, an increase of approximately 50 basis points, compared to fiscal 2023."

In summary, Home Depot is very excited and upbeat about how they are ready for the future, but sales, pricing, and volumes are lower...and will remain lower for the remainder of 2024. The economic recovery isn't there...April was bad.