A healthy housing market and a confident consumer helped boost sales in the most recent quarter at the biggest home improvement retailers.
Home Depot on Tuesday reported its net sales in the fourth quarter fell 2.7% to $25.8 billion, though its comparable sales increased 5.2%. Its same-store sales in the U.S. alone increased 5.3%. The Atlanta-based home improvement retailer's net profit increased nearly 6% to $2.5 billion, while its operating income increased slightly to $3.4 billion from $3.38 billion in the year-ago period.
Home Depot's customer transactions fell 6.4%, but the average ticket price increased to $68.29 from $65.59 last year, which Ted Decker, executive vice president of merchandising, said was in part due to a warmer winter.
"While we're happy with transactions, they were a little bit depressed with the lack of cold weather," he said on a call with analysts on Tuesday. "During a winter you get a lot of people stopping in for ice melt, for that smaller pickup, even car washer fluid, etc., and with the more mild winter a lot of the biggest suppression there of transactions were those quick cold weather pick up items."
The retailer did, however, experience growth across all markets and merchandise categories, as well as across both Pro and DIY customers, executives said.
For the fiscal year, Home Depot reported net sales increased 2% to $110 billion, while comps increased 3.5% (comps in the U.S. increased 3.8%). "The company's core categories and successful holiday events (record Black Friday sales) drove the comp, with no material impact from unfavorable weather given a weather-depressed comparison," Wedbush analysts led by Seth Basham said in emailed comments.
Home Depot's strong results, executives said, were driven by a positive housing market. According to the S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index released Tuesday, home prices rose 3.8% annually in December, which was up from the reported 3.5% gain in November. The 10-city composite annual increase was 2.4% from 2% the prior month, while the 20-city composite experienced a 2.9% year-over-year increase from 2.5% in November. This also marks eight consecutive years of increasing housing prices, according to the report.
"Home Depot's numbers are important as they, perhaps more than those of other retailers, reflect underlying consumer confidence: the housing market and big-ticket spending are leading indicators of the broader economy," GlobalData Retail Managing Director Neil Saunders said in emailed comments. In a separate report released Tuesday from the Conference Board, consumer confidence increased slightly in February following a January increase.
Though the picture was slightly less rosy for smaller rival Lowe's this week, which reported a 2.5% comparable sales gain in the fourth quarter (2.6% gain in the U.S.), missing the consensus of 3.5%, according to Basham. The retailer, however, reported net sales increased 2.4% to $16 billion in the quarter. Lowe's also swung to a profit reporting net income of $509 million from a loss of $824 million in the year-ago period. Operating income was $958 million, up from a loss of $567 million last year. For the full year, net sales increased 1.2% to $72 billion.
But Lowe's outlook fell below some analysts' expectations, according to MarketWatch. The company expects net sales to increase between 2.5% and 3%, while comps are projected to rise 3% to 3.5%. Meanwhile, Home Depot on Tuesday reported it expects sales to grow between 3.5% and 4% during fiscal 2020, while same-store sales are expected to increase 3.5% to 4%. The retailer also plans to open six stores during the year.
Both home improvement retailers are also focused in on their transformation efforts, primarily to their digital operations.
Home Depot is working to integrate its in-store and online operations and has made its way through the second year of its three-year One Home Depot investment program. And its efforts appear to be paying off as CEO Craig Menear told analysts that its online sales grew 20.8% in the fourth quarter and 21.4% for the full year.
"[I]n our view, Home Depot has excelled at making life easy for the customer by removing roadblocks on the purchase journey — something that helps it to gain market share and to stimulate spend," Saunders said. "A lot of this is about multichannel execution, which is attractive to both trade and regular shoppers as it saves them time. However, greater investment in digital — including functions like visual search, which allows people using the app to take a picture of a product which Home Depot then matches with products it stocks — are helping to further improve engagement."
Lowe's, with Marvin Ellison at the helm, who joined the company in 2018, has been in turnaround mode, working to right missteps in its online business. While the retailer experienced positive sales growth, it was driven primarily by its physical stores, Ellison said. "We have a detailed road map in place to modernize our e-commerce platform and accelerate Lowes.com sales, which combined with the sales productivity improvement in our physical stores, underscores our opportunity to unlock additional growth," he added.
The retailer last year announced it was investing half a billion dollars annually between 2019 and 2021 to transform the technological makeup of its business, which included opening a new tech center in Charlotte, North Carolina.
The pace at which Lowe's is growing its digital channels is slower than the overall sector, Saunders said. However, Lowe's "is working hard to remedy weaknesses in its business model and has a coherent plan to be a more effective player," he added. "However, it is also clear that the transformation will take at least another year and a bit before it fully delivers. The biggest challenge of all, however, will be to create a very clear point of differentiation with Home Depot and, at least in some categories, make Lowe's the first port of call."
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