Most question-and-answer segments of earnings calls have a signature exchange that deserves to make the highlight reel on the 10 p.m. news.
From the recent Home Depot conference—the one during which the company reported upticks in sales and earnings for its third quarter—included the following:
Analyst: “Are there other types of opportunities outside of the core stores that would make sense to you?”
CEO Frank Blake: “We are focused on our core business.”
Executive VP merchandising Craig Menear: “There’s several billion dollars over the past two years that we gave up that we need to go get.”
Indeed, since a 2006 peak of $79 billion in annual sales, the world’s largest home improvement retailer has seen annual revenues shrink steadily. It finished with $66.2 billion last year.
Third-quarter results shows sales and earnings gains, and the company is on page to deliver about a 2.2% sales gain over last year—though the estimate was revised downward from an August forecast of 2.6%.
During the conference call, Home Depot executives were very careful to use the word “stabilizing” as opposed to “stabilized,” and, at one point, CFO Carol Tomé corrected an analyst for slipping into the past tense.
To show a stabilizing market, Blake pointed to lower standard deviation in the performance of the top 40 markets. The spread between the best and worst in 2009’s third quarter was about 35 percentage points. That’s down to about 18 percentage points in the recent quarter.
“So, from an overall perspective, we see a stabilizing business,” Blake said. “And as the business stabilizes, we continue to improve our operational performance.”
He talked about the massive supply chain transformation (see article.) But he also talked about a business strategy that fits in the palm of your hand. It’s called the F.I.R.S.T. Phone—a combination communicator, scanner and portable checkout.
The phone, named for the company’s “Customer F.I.R.S.T.” initiative, “was developed through close cooperation with our store operations and IT teams—perhaps the best collaboration we’ve ever had on a project like this,” Blake said. “And we see it as a foundational element of improving our service for our DIY and pro customers, putting knowledge and communication closer at hand to our associates on the floor of the store.”
Sales for the third quarter totaled $16.6 billion, a 1.4% increase from the third quarter of fiscal 2009. And the company’s third-quarter profits increased 21% to $834 million.
On the shelves, the departments that outperformed the company’s average comp were lumber, garden, electrical and lighting, according to Menear. Building products and millwork, however, were negative for the quarter.
Menear had high praise specifically for the company’s third-quarter “Vanity Insanity” event. The launch of LED bulbs in the EcoSmart collection—a technology deemed the eventual successor to CFL bulbs—and dual-flush projects, both Glacier Bay and HydroRight, resonated with customers seeking electric and water conservation solutions. And Martha Stewart kitchens, he said, are off to a fast start in the stores.
Getting customers to shell out for big-ticket items remains a big challenge, he said. Transactions for tickets of $900 or above—roughly 20% of the chain’s U.S. sales—were down 3.4% in the quarter, Menear said.
In the $50 and under price range—also accounting for about 20% of the U.S. sales—transactions were up 2.7%.
In a stabilizing market, it’s important to react to where customers respond favorably.
“Our strategy remains focused on driving value and innovation in our stores,” he said.
ON THE SHELVES: WHAT’S GOING TO MOVE?
During the company’s Q3 earnings call, executive VP merchandising Craig Menear pointed to several areas that are expected to generate interest and sales in Q4:
Heaters, fireplaces and snow removal equipment
An expansion of Klein tools for professional electricians
USG lightweight drywall—30% lighter than regular panels
Anew line of epoxy grout from Customer Building Products—no sealing required