Home Depot Q2 – Pro Insights

Home Depot shared its Q2 results yesterday and, while the company continues to perform well as indicated with over $28B in sales, its Pro business, defined as contractors and its Interline business, outperformed the core business.

NAED’s TED Magazine, through its re-publishing relationship with The Associated Press, shared a credible overview of the company’s financial performance.  But it begged the question of “what can the electrical channel learn from the report?”

Some quick insights that can pertinent to electrical distributors and electrical manufacturers from the analyst call:

• Comp sales were up 6.3% vs last year and US stores were up 6.6%
• “Saw double digit comps in electrical in the quarter”. (One of the top four areas mentioned, means electrical was up 13%+, obviously with some benefit from wire!)
• Commodity price inflation mentioned regarding copper.  Overall, commodity inflation (including lumber and building materials, added 68 basis points to growth.
• Lighting growth was mentioned, although below the company average
• A growth segment for Home Depot is tools, especially power tools
• “Seeing great activity on a broad base of goods servicing the trades …” and electrical was mentioned along with plumbing and HVAC (appears that the renovation / remodeling market is strong.)
• Investing $359M in stores including lighting improvements (benefiting some lighting manufacturers)

As many will recall, Home Depot purchased Interline Brands, which serves MRO buyers,  last year.  Home Depot has been able to leverage this deal very well.  Some comments during the call regarding Interline.

• Avenue to better serve the needs of our Pros
• The rollout of Interline’s catalog to Home Depot stores is now completed
• Interline customers can shop Home Depot stores(1958 stores) using a swipe card linked to their Interline account (increases Interline “locations” and product offering while making product more accessible. Nice leveraging of two different style businesses. Shows retail locations can work for an MRO company when they are a secondary purpose.)
• 1500 stores have access to Interline products next day and 458 have two day delivery
• Interline growth is in the areas of plumbing, electrical, hardware, HVAC
• Interline sales growth outpaced the company average in the quarter
• Home Depot is gaining access to project-based purchases from Pros due to Interline.  Also helping significantly increase the number of Home Depot transactions that are over $900 (a key metric for the retailer.)

And if you don’t know Interline Brands, they focus on “Institutional & Commercial Facility Owners & Service Contractors, Multifamily Apartment Owners & Property Managers, Residential Service Contractors & Retailers/Resellers.”  Essentially this is the commercial MRO market.  They compete directly with HD Supply’s Facilities Maintenance Group, Grainger and potentially Amazon Business.

And some insights about the “Pro” buyer in general from Home Depot:

• Pro sales once again outpacing DIY sales in the quarter (Home Depot doesn’t segment their quarterly report by product category but, in general, it can be said that the remodeling / renovation market is strong and that “small” contractors are buying from them. It’s also been reported that they are migrating to larger (i.e. mid-sized) contractors to grow their project business. Delivery systems and project quotation have improved. A definite threat to building materials wholesalers.  Also one of the few companies that can provide “everything” needed for a new house / home renovation project.)
• Enhancing their services to Pro customers.  (Now can guarantee delivery in 2 hour and 4 hour windows based upon specific criteria.)
• Can buy online and receive delivery from store at all locations
• Acquisition of Compact Power Equipment will support rental of larger job-site equipment (Home Depot has worked with this company since 2009 at over 1000 stores.)
• Paint is a big Pro category for Home Depot
  • With Pros reportedly representing about 40% of sales, this may mean that the % of Pros buying electrical may not be too significant (but they still sell much electrical material!)

And some other interesting points:

• their online business grew 23% during the quarter and now represents 6+% of sales
• Spent more on digital in Q2 than did on TV and radio combined

So,

• Growth in the renovation / remodeling market, growth in tools, strength in wire.
• Growth in the “commercial MRO space”
• Competing on delivery

While not a core electrical contractor or MRO competitor, they are playing on the edges as well as being able to better serve the commercial MRO space.

Distributors – Do you know if you are competing against Home Depot or Interline?

Manufacturers – How do you see Interline?