Following a record sales year in 2017, Home Depot started 2018 off with a (relative) sales miss in Q1. The retailer reported sales of USD24.9 billion, up 4.4% from the same period in 2017 and comps of 4.2% overall and 3.9% in the United States. While its Q1 results were weaker than we’ve come to expect from Home Depot, its underlying business performed strongly as highlighted by two key areas in the first quarter of 2018:
Cold weather pushes spring spending from Q1 into Q2
A late start to spring was the main driver to a weaker than expected sales quarter for Home Depot. A crucial season for home improvement retailers, comps were largely affected by poor performances in seasonal categories, such as garden. Despite a slow start to the year, optimism exists for the retailer on two fronts:
- Home Depot’s core business remains strong. While shoppers understandably are not focused on outdoor projects during late-season snowstorms, other categories showed encouraging growth. In fact, when pulling out the garden category, Home Depot’s comps were 6.5%. Additionally, when looking at regions unaffected by cold weather, such as the southern division and Mexico, sales were above the company average. Additionally, online sales grew 20% compared to the same period a year ago.
- Seasonal sales will likely be recouped in Q2. The retailer anticipates that many shoppers will still carry out their spring projects, albeit later in the year, now that weather has turned. Based on prior long winters, the retailer expects to recover the majority of missed sales from Q1 over the course of Q2. In fact, CFO Carol Tomé notes that comp sales month to date for May register double-digit growth.
Pros continue to drive growth
As Home Depot seeks to evolve into a primary destination for pro shoppers, creating value for the lucrative segment is a top priority for the retailer. Pros currently account for 40% of sales but only 3% of the shopper base, and growth in sales to pros has been outpacing growth in sales to DIY consumers of late. In Q1, the retailer highlighted key indicators that its pro initiatives have been successful.
- Big ticket sales increase. Traditionally driven by pro shoppers, Home Depot’s big ticket sales (tickets over USD900) increased by 10%. Pro heavy categories such as lumber, building materials, and pneumatics all posted comps above the company average and highlight the strength of Home Depot’s pro business.
- Interline growth picks up. Home Depot has prioritized creating a unified pro catalog combining its own products with Interline Brands products. In combination with new order management tools for its pro account managers (PASAs), the retailer reported that pros were shopping an expanded set of categories in Q1, particularly in MRO categories with Interline sales registering above the company average.
While Home Depot sales missed on Wall Street expectations, the retailer plans to make up the performance in the coming months and reaffirmed its 2018 guidance for sales and earnings targets. While it is likely that sales will pick up as warmer weather settles in, it will be important for Home Depot and its suppliers to create messaging highlighting seasonal merchandise and add convenience for shoppers by creating summer-project tutorials and solutions to recoup seasonal sales.
As we look ahead to next week, we’ll be keeping an eye out on Lowe’s performance. As a retailer who often relies on seasonal trends to boost sales and is in the midst of operational and strategic changes, Lowe’s will be looking for a strong Q1 to build momentum in 2018.
For additional implications and predictions on what’s next, check back to KRiQ.com for Kantar Consulting’s in-depth analysis of Home Depot’s first quarter results and join us in Atlanta on May 23rd at our Home Improvement Workshop to gain a more detailed understanding of key retailer, shopper, and macro trends and what they mean for your business.