Americans continue to spend at elevated levels in and for the home. And now that people are becoming more comfortable with others in their homes, the renovation projects that were sidelined during the pandemic are coming back in a major way. Home Depot posted another great quarter this week, as it sees continued strength from DIYers and the best quarterly growth rate for its Pro customers on record.
- Total comp. sales +31% yoy
- Digital sales +27% yoy
- EPS $3.86 vs. $3.08 consensus
Frenetic demand for home improvement unabating. According to Bank of America’s consumer spending data, Americans have been spending between 40% and 60% on home improvement vs. 2019 through the first five months of the year. This comes after a stretch of many months during which spending ran up triple digits year-over-year. When we look back at what happened during the pandemic, we will see changes that were accelerated by COVID, and we’ll see fleeting developments that were induced by COVID, but we’ll also see longer-lasting structural changes to behavior, including home improvement, in part due to migration from cities but mostly from remote work. Whether in a hybrid model or fully remote, working from home is sticky and Home Depot loves it.
Home Depot One Supply Chain taking shape. In 2017, Home Depot announced a $1.2 billion dollar supply chain investment over five years, with a goal to add approximately 150 logistics facilities in the U.S. to bring next-day delivery to 90% of Americans. During the company’s Q1 call, EVP of Supply Chain and Product Development Mark Holifield gave an update on how the expansion is going.
Home Depot has a wide range of different facilities and it’s expanding each of them this year. Here are a few of the different facilities:
FDCs: Flatbed Delivery Centers — HD currently operates four flatbed delivery centers, with plans to expand to 35 or so over the next few years. These facilities “are all about really driving share opportunities in lumber and building material-type categories, big and bulky things,” according to CEO Craig Menear.
MDOs: Market Delivery Operations — Home Depot currently runs 39 of these facilities and opened eight in Q1. HD is planning for roughly 100 of these facilities as “part of our overall plan to drive the fastest, most efficient delivery in home improvement,” Holifield said. These facilities are stockless and act as a delivery hub in a local area. Initially, it is primarily appliances being delivered from these locations, but the company plans to add more products as it learns.
MDCs: Market Delivery Centers — These are HD’s newest addition to the portfolio, and it only operates two currently but plans for 20-ish eventually. These are “supportive of core business as well as the opportunity to accelerate growth in MRO (maintenance, repair and operations),” said Menear. These centers are focused on distribution of MRO products and fast-turning store-based products.
What you’re seeing is a dominant leader in its industry not getting complacent and continuing to invest to improve service and expand categories. And its investments in both the physical and digital aspects of its supply chains are paying off. The headlines are touting Target’s store fulfillment numbers, but Home Depot’s right behind, fulfilling 55% of online orders from stores. This is particularly advantageous for Home Depot, which sells goods that are more often heavier and bulkier than its retail counterparts.
TL;DR — The duration of extremely high demand for home improvement has been unbelievable. American’s can’t seem to get enough for their homes, and the results are clearly visible in these results. Home Depot’s supply chain investments of the past several years have positioned it to seize this moment and capitalize on the demand. This time last year it saw its Pro customer demand dwindle as Americans delayed renovations, but the company has posted four consecutive quarters of growth off the bottom and had its highest ever growth from Pro in Q1. It’s investing heavily to serve both its Pro and DIY segments with purpose-built facilities.
It’s omnichannel strategy is paying dividends as the company has boosted margins through higher store fulfillment. And it keeps bringing new services to market like the mixed cart feature that enables associates to more efficiently and effectively serve the total project needs for a customer as products from both the website and store can be added to a single transaction.
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