Home Depot Strengths Reveal Consumer Uncertainty
Home Depot beat analyst earnings forecast, but the company drew a pretty depressing picture of the consumer mind set in its fiscal first quarter ended May 3.
In conference call yesterday, Craig Menear, Home Depot's senior vice president of merchandising, identified what he called four trends of relative strength across the company's business in the quarter:
- Seasonal categories. Consumers remained interest in outdoor projects like landscaping. Live goods, fertilizer and seed experienced flat or positive growth with particular strength in vegetable and herb sales as more consumers opted to grow their own edibles.
- Basic repair and maintenance. Product categories including caulk, water heaters, air circulation, fasteners, plumbing repair and roofing performed better than the company average.
- Simple remodel and décor. Characterized as demonstrating "some strength," categories customers shop to update their home without heavy investment such as interior paint, special order carpet, in-stock carpet, vinyl flooring, ceramic tile and window coverings at least showed improved sales.
- Safety and security products. Door locks and exterior security lighting performed better than average as, Menear suggested, tough economic times were making consumers more concerned about holding on to what they have.
Although it's numbers were similar, rival Lowe's stated its first quarter sales in a manner that indicated consumers might be starting to turn a corner on spending. Home Depot's management asserted that its fortunes lie, at least in the short-term, in careful cost control and driving market share gains. The target doesn't seem to be Lowe's but, rather, smaller retailers that might be more vulnerable to the economic downturn. In fact, after reporting share advances in seven of its 13 regions, Home Depot has shifted some advertising spending to the second half of the year to accelerate market gains.
In the first quarter, Home Depot had a handful of markets that recorded positive comparable store gains and Frank Blake, the retailer's CEO noted that 21 out of Home Depot's top 40 markets recorded a lower rate of comp decline. He cautioned, however, that the tough sales environment for home-related products, an historically low rate of private residential investment and an increase in California housing foreclosures make the company's focus on cutting inventories, lowering product prices and pursuing market share gains the best strategy available in an economy that hasn't bottomed out yet:
Overall it is important to emphasize that most of our markets that are improving versus last year are only showing a slower rate of decline, not positive comps. Getting to less bad is not the same as getting to recovery.