Home Improvement Retailers: Resilience Amid Economic Fluctuations

Current Sales Trends and Revenue Growth

Home improvement retailers are experiencing mixed sales trends. Tractor Supply Company noted a decline in comparable store sales despite growth investments. Lowe's saw a slight drop in gross margin due to supply chain investments and promotions. Home Depot expects modest total sales growth, while The Tile Shop reported a significant net sales decline.

"As a percentage of net sales, SG&A expenses increased 58 basis points to 23.4%. This increase was primarily attributable to our planned growth investments, which included the onboarding of a new distribution center and higher depreciation amortization, as well as modest deleverage of our fixed costs given the decline in comparable store sales." --- (TSCO, earning call, 2024/Q2)

"Gross margin was 33.2% of sales in the first quarter, down 49 basis points from last year, largely driven by ongoing supply chain investments, early spring traffic driving promotions and a modest decline in credit revenue." --- (LOW, earning call, 2025/Q1)

"We expect total sales growth to outpace sales comp with sales growth of approximately positive 1% and comp sales of approximately negative 1%." --- (HD, earning call, 2024/Q1)

"Additionally, we were able to make significant inroads executing our key strategies and controlling costs. Three Months Ended (unaudited, dollars in thousands, except per March 31, share data) 2024 2023 Net sales $91,728 $102,019 Net sales decline(1) (10.1)% (0.4)% Comparable store sales (decline) growth(2) (10.2)% 0.1 % Gross margin rate 65.8 % 64.2 % Income from operations as a % of net sales 2.5 % 4.0 % Net income $1,689 $2,512 Net income per diluted share $0.04 $0.06 Adjusted EBITDA $7,417 $10,313 Adjusted EBITDA as a % of net sales 8.1 % 10.1 % Number of stores open at the end of period 142 142 (1) As compared to the prior year period." --- (TTSH, press release, 2024/05/09)

"Kurt Barton: Thank you, Hal, and good morning to everyone on the call. In many ways, our second quarter topline results were consistent with our results in the first quarter, with solid seasonal growth and exceptional big ticket sales, while our year around discretionary categories remain pressured. As we expected, CUE performance was slightly below the chain average given the retail price deflation and moderating pet category trends the industry is experiencing." --- (TSCO, earning call, 2024/Q2)

Economic Impact on Sales and Revenue

Economic conditions have led to varied spending behaviors, with higher-income consumers continuing discretionary spending while lower-income groups feel inflation's impact (TSCO). Decreased store traffic has affected sales, though strong professional customer relationships have mitigated this (TTSH). Strategic investments aim to position companies for future economic cycles (LOW). Specific sales growth figures highlight the impact of additional weeks on revenue (HD). Transition from goods to services and disinflation are also key factors (TSCO).

"And then the second thing I'd say is, you are starting to see some delineation, at least in our business, on higher income versus lower income, and they have some well documented across retail the last couple of earnings cycles, if not prior to that, where you're seeing those who feel like whether it's stock market, just net wealth in general, feeling the ability to still spend, spend on discretionary, but those in a lower income feeling the impacts of inflation." --- (TSCO, conference, 2024/06/04)

"The decrease in traffic and the impact this had on our comparable store sales was tempered, in part, due to the strong relationships we have with our network of professional customers." --- (TTSH, earning call, 2024/Q1)

"But equally as important, we're making aggressive investments, you know, in our overall business, whether that's in store investments, online investments, technology, supply chain and the like, so that we will be well positioned when this cycle changes because, as you know, every economic cycle is just that." --- (LOW, conference, 2024/06/26)

"of approximately positive 1% and comp sales of approximately negative 1%. Total sales growth will benefit from a 53rd week and we expect the 53rd week will contribute approximately $2.3 billion in sales." --- (HD, earning call, 2024/Q1)

"Most importantly, the two economic conditions that were most impacting us with the transition from goods to services in the context of PCE spend and the notion -- and kind of disinflation." --- (TSCO, earning call, 2024/Q1)

Supply Chain Challenges and Management

Companies like Tractor Supply Company, Lowe's, and Home Depot are addressing supply chain challenges through strategic investments in new distribution centers, market delivery rollouts, and robust IT infrastructure, ensuring readiness and efficiency in various environments.

"cost management and lower cost drivers will contribute. And then in the second half, the third item that will begin will be the supply chain benefits from the new distribution center." --- (TSCO, earning call, 2024/Q1)

"The headwinds, we had many of these in Q1, ongoing investments in our supply chain as we finalize the rollout of market delivery, early investments in our Pro fulfillment initiatives, and spring promos as we continue to execute on our everyday competitive pricing strategy." --- (LOW, earning call, 2025/Q1)

"Our merchants, store and MET teams, supplier partners and supply chain teams are always ready to serve in any environment. They did an outstanding job delivering" --- (HD, earning call, 2024/Q1)

"And then in the second half, the third item that will begin will be the supply chain benefits from the new distribution center. As the" --- (TSCO, earning call, 2024/Q1)

"I mean, we wanted to have a strong supply chain. We wanted to have a solid IT infrastructure." --- (LOW, conference, 2024/06/26)

Consumer Behavior and Spending Patterns

Affluent DIY consumers are shifting spending towards services and experiences post-pandemic, while lower-income consumers focus on essential purchases. Larger home improvement projects are often debt-financed, indicating healthy base spending. Varying consumer feedback highlights low-end consumer weakness and diverse shopping behaviors.

"While we see the more affluent DIY consumer, they're still spending on services and experiences, and that's still a result of being pent up doing the pandemic. People are getting out and they want to" --- (LOW, conference, 2024/06/26)

"And so I'd say kind of the base of customer spending is very healthy. When you get to larger ticket projects and for us, when you're thinking about a project associated with your home, the larger they get, the more likely they are to be debt financed." --- (HD, conference, 2024/04/04)

"As we talked about, just kind of buying a bit more towards need for the lower-income consumers." --- (TSCO, earning call, 2024/Q1)

"While we see the more affluent DIY consumer, they're still spending on services and experiences, and that's still a result of being pent up doing the pandemic." --- (LOW, conference, 2024/06/26)

"If you look across different companies with the consumer, there's varying feedback on green shoots and some COVID winning categories, low end consumer weakness, shopping around occasions." --- (HD, conference, 2024/04/04)

Strategic Initiatives and Innovations

Home improvement retailers are focusing on strategic initiatives such as store remodels (TSCO), capital investments to enhance customer service and store improvements (LOW), AI-powered cloud innovations (HD), and expanding product assortments and e-commerce capabilities (TTSH). These efforts aim to strengthen customer relationships and competitive differentiation.

"Yes. One of our very exciting strategic initiatives we have is an ongoing store remodel program with 2,250 stores." --- (TSCO, conference, 2024/06/04)

"Our capital expenditures generally consist of investments in our strategic initiatives to enhance our ability to serve customers, improve existing stores, and support expansion plans." --- (LOW, sec filing, 2024/Q1)

""Google Cloud is proud to support The Home Depot's strategic technology initiatives, with projects on the horizon that will help it continue to lead the industry in AI-powered cloud innovation." Over the last several years, The Home Depot has worked with Google Cloud to introduce several new capabilities to make its customers' interconnected experiences smoother, faster and more efficient and improve its operations." --- (HD, press release, 2024/04/11)

"In closing, we intend to maintain our focus on executing our strategy to enhance our relationship with professional customers, expand our assortment of products that cater to middle market customers and invest in our e-commerce capabilities." --- (TTSH, earning call, 2024/Q1)

"for the second half of the year. We continue to create more separation between us and our competition, thanks to our team members and the meaningful relationships they have with our customers in combination with our strategic initiatives." --- (TSCO, earning call, 2024/Q2)

Competitive Landscape and Market Share

Home Depot is expanding its market share through strategic acquisitions like SRS Distribution, targeting specialized trade professionals. Meanwhile, Lowe's is enhancing its competitive position by investing in associate compensation and competitive wages, which may drive market share gains in Pro-oriented categories.

"You mentioned roofing and landscape and pool. And in order to enter another market, say HVAC, plumbing, pick, take your pick, can you do that organically or would you need an additional acquisition to go into one of those more specialized complex pro verticals?" --- (HD, conference, 2024/04/04)

"And at Lowe's, we've invested a lot in our associate compensations and offering competitive wages across all the markets where we operate." --- (LOW, event transcript, 2024/05/31)

"So up until SRS, we had defined our addressable market as $950,000,000,000 There were elements of that specialty trade pro, the roof or the landscape contract pro that we didn't feel were addressable." --- (HD, conference, 2024/04/04)

"Obviously, there's a lot that you're doing to drive that. But any sense whether that reflects market share gains or just broader improvement in some of those Pro-oriented categories?" --- (LOW, earning call, 2025/Q1)

"SRS is a leading residential specialty trade distribution company across several verticals serving the professional roofer, landscaper and pool contractor. The agreement to acquire SRS was announced on March 28, 2024." --- (HD, press release, 2024/06/18)

Technological Advancements and Digital Transformation

Home Depot and Lowe's are driving significant technological advancements and digital transformations. Home Depot has undergone a substantial technology overhaul across various facets, while Lowe's is progressing through its transformation, focusing on infrastructure needs and anticipating notable benefits.

""Since he joined the company in 2008, he has spearheaded an enormous technology transformation across our stores, supply chain, merchandising and digital presence."" --- (HD, press release, 2024/05/30)

"It sounds like it's progressing and we're only 1/3 of the way through. But any color on sort of what the comp lift is or the waterfall benefit we should sort of think through as we work through the whole transformation here?" --- (LOW, earning call, 2025/Q1)

"So Marvin, going back that's very helpful. Going back to the comment just about how the business has transformed, I mean, so as you look about as you look towards the progress from here, are there still key pieces of the infrastructure needs to be built out?" --- (LOW, conference, 2024/06/26)