Despite the summer’s generally strong role in driving home improvement project demand, Home Depot’s performance softened in Q2, with total sales increasing by 1.2% compared to the same period in 2018. In addition to slowing sales growth, the retailer’s comps took a relative miss, posting 3.0% growth overall and 3.1% in the US, largely hindered by continued deflation in lumber prices. While the retailer adjusted its Fiscal 2019 guidance to account for two consecutive quarters of weakened sales and new tariff pressures, it remained optimistic about the impact its One Home Depot strategy is having on customer experience and financial productivity.

Macro environment dampens growth outlook

Home Depot pointed to the steep decline in lumber prices as the main driver for its performance, but macro issues played a role as well. Sales of lumber, which makes up about 8% of the retailer’s total revenue, continued to soften as prices dropped below 50% of what they were a year ago. But uncertainty around future tariff policy and impact to consumer spending remains a concern for the retailer. To mitigate tariff pressures, the retailer continues to focus on its business as a project-focused one, planning to spread cost increases across its business to limit impact to shoppers. As a result of these continued macro uncertainties, the retailer now expects total sales growth for Fiscal 2019 to be 2.3% and comps to be 4%, each a percentage point decrease from initial guidance.

Key supplier question: For SKUs heavily impacted by tariffs, are there ways you can balance price increases across your total portfolio of products?

New initiatives underpin financial discipline

Despite slower sales than anticipated, Home Depot delivered strong earnings and margin performance in the quarter, giving recognition to a number of its productivity-driving initiatives. In stores, widespread adoption of the retailer’s new associate-facing “Order Up” tool helped drive more productive resets and reduced manual overhead associated with locating and stocking products and resulted in a 1.1% increase in sales per square foot to USD509.55. The retailer also continued to roll out its supply chain pilots during the quarter, converting a legacy facility into a parcel direct fulfillment center to eliminate inefficiencies from store-based picking and packing while expanding its one-day delivery reach from 30% of the U.S. population to 50%. 

Key supplier question: Are you proactively looking for ways to drive efficiencies in your assortment strategies and shipping forecasts?

Investments enhance interconnected customer experience

During the quarter, Home Depot continued to drive growth from investments in serving the pro shopper and creating a truly omnichannel shopping experience. Pro comps again outpaced those of DIY shoppers as the retailer continued the rollout of initiatives such as digital tool rental and its B2B website, which is on track to have one million pro users by the end of the year. Online, the retailer delivered another impressive quarter of online growth, increasing 20% compared to a year ago. In addition to digital growth, Home Depot continued to introduce more omnichannel touchpoints within its stores. The retailer continued to install more pickup lockers, which are now available in 1,100 stores. It also introduced digital price labels in select categories to enable connections to digital ratings and reviews.

Key supplier question: How does your digital product content need to shift to be the most impactful for shoppers on Home Depot’s primary website compared to pros shopping on its dedicated B2B website?

Next, we will turn our attention to Lowe’s, a retailer that will be looking for a strong quarter as it continues works through organizational and strategic changes to its business. For additional implications and predictions on what’s next, check back to KRiQ.com for Kantar’s in-depth analysis of the home improvement channel’s second quarter results and what they mean for suppliers.

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