USA update
Home Depot outpaces Lowe's again
Lowe's trails Home Depot in the second quarter of 2017
Lowe's trails Home Depot in the second quarter of 2017
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Ace Hardware record revenue and True Value said it progressed with its multi-year strategic growth plan
HNN Sources
Professional renovators have provide growth for Home Depot and leaves Lowe's behind; Ace Hardware has its biggest revenue result of USD1.5 billion; and True Value CEO said he is encouraged by the company's "strong achievements" in the second quarter.
Pro customers deliver for Home Depot, less for Lowe's

Home Depot and Lowe's have both been beneficiaries of the improving housing market in the US. But there has been a stark divergence in their results, with Home Depot consistently beating out Lowe's, including the latest quarter.

The difference largely comes down to how they serve the "Pro" customer.
Q2 results comparison

Home Depot's net income for the second quarter grew to USD2.7 billion compared to USD2.4 billion, one year ago. Revenue came in at USD28.11 billion for the period, a 6.2% increase from the same time last year.

Sales at stores open for more than one year rose 6.3%, while comparable sales at US stores increased 6.6%, Home Depot said.

Lowe's said that its net profits rose to USD1.4 billion in the second quarter from USD1.2 billion in the same period last year. Its second quarter sales increased 6.8% to USD19.5 billion compared to the prior-year period.

Comparable sales were up 4.5% and hit a peak of nearly 8% in July, executives said in a statement.
Pro customers

Home Depot has catered more aggressively to the professional customer, which includes renovators, general contractors (tradies) and small business owners. In fact, 40% of Home Depot's sales come from this customer category, which tends to spend more, take more trips to the store and conduct bigger projects.

In contrast, Lowe's only gets about 30% of sales from this category.

This is a notable gap, especially as Home Depot's professional comparable sales growth was 9.6% in its most recent quarter compared to 4.6% comps in its DIY category, according to Wedbush Securities analysts. Meanwhile, Lowe's pro comps were estimated to be roughly 4%.

Importantly, the professional customer spends more on big-ticket items, which has dominated sales growth. This category includes appliances, roofing and special-order kitchens.

At Home Depot, comparable store sales for purchases of USD900 and above were up 12.4% last quarter. This has helped to lift overall results, as big-ticket items make up 22% of sales at Home Depot.

Serving pros with big-ticket items has been in focus as these areas are seen as more immune to encroachment by online retailers. Home Depot has continued to drive share in these categories with more exclusive products, more financing options, and delivery alternatives. The big box retailer recently beefed up this business with its acquisition of Interline Brands in 2015.

All of this is aided by a superior online strategy, analysts say, which is critical given increased concerns about Amazon getting into the home improvement category.

Last quarter, Home Depot e-commerce sales grew 23% year-over-year and now account for 6.4% of total revenue. The company has emphasised its order-online, pickup in store option, with 43% of online orders still being picked up inside stores.

Lowe's online business, while also growing rapidly, represented just 3.5% of sales as of the end of 2016.
Ace Hardware reports Q2 sales increase

Ace Hardware Corp. posted net income of USD51.1 million for the second quarter of 2017, down USD12.3 million from the 2016 period. In the second quarter, it recorded a USD7.8 million of one-time pre-tax charges primarily related to the future closure of certain warehouse and distribution facilities. The charge and higher expenses hit net income.

The retailer also reported a 3.2% increase in comparable store sales from the 3,000 of its affiliated retailers who share daily retail sales data. This is a gain it attributed primarily to the combination of more favourable weather and strong retail execution.

Net revenues for the second quarter were USD1.5 billion, up USD66 million or 4.6% from last year's period. Increases were noted across most departments with outdoor living, housewares, impulse and tools showing the largest gains.

Retail revenues from Ace Retail Holdings -- Westlake Ace Hardware stores -- were USD90.3 million versus USD87.4 million in the second quarter of 2017. This represents a 3.3% increase from the second quarter of 2016, and was the result of new retail stores added over the period.

Operating income was USD53.6 million versus USD67.3 million in the year-prior quarter.

Ace added 27 new domestic stores in the second quarter of 2017 and cancelled 28 stores. This brought the company's total domestic store count to 4,357 at the end of the second quarter of 2017, an increase of 42 stores from the second quarter of 2016.

On a worldwide basis, Ace added 52 stores in the second quarter of 2017 and cancelled 31, bringing the worldwide store count to 5,024 at the end of the second quarter of 2017.

In an interview with Business Insider, Ace Hardware CEO and president John Venhuizen, said of Amazon:
[It] is quite arguably the most disruptive company in the history of business and they impact everybody without question.

That Amazon can lose money to help its customers and still hold Wall Street's support is "terrifying," he said. The online retailer recently forecast its first quarterly loss in two years.

Investors have sent Amazon's stock up 31% this year, compared to a 10% gain for the S&P 500. The US iShares home construction exchange-traded fund, which includes major players like Home Depot and Lowe's, is also surging, up 26% year-to-date.

But home-improvement retailers won't enjoy endless favour from Wall Street. Home Depot shares fell after Sears announced it planned to start selling its Kenmore-branded appliances on Amazon, and was launching a line of appliances that can be voice controlled with Amazon's Alexa.

Longer-term, however, stores like Home Depot and Ace Hardware have three key attributes that can protect their market share from e-commerce giants: what they sell, service, and location.

The nature of the products they sell lends itself to human interaction. Buyers still want to ask a person how things work, or how to mix paint, or which colours to select in the first place.

And the more exceptional the service, the better. Mr Venhuizen said:
When a local business provides an irrational level of service to their local neighbours, that's hard to compete with on a big-box or a dotcom national scale. Every small business can do that.

Although free shipping is convenient, having thousands of stores near the neighbourhoods that customers live in is also a big advantage, Mr Venhuizen said.

Ace Hardware, like other hardware retailers, has billions of dollars worth of inventory sitting in its stores across the USA. One way to exploit that is by promoting online pick-ups (online orders that are picked up at a store), essentially blending online and offline strategies.

Mr Venhuizen said Ace Hardware's online sales grew 61% in the second quarter. Ninety-three per cent of those transactions were picked up in the store. The company is also starting to experiment with home delivery, he added.
Many people like to still physically see and touch and have the five senses. We had a big 5,000-store celebration...Many of them were out there smoking meat on a grill. You can't smell that on Amazon.
Progress and expansion in Q2, says True Value

True Value Company saw its comparable store sales edge up in the second quarter, as the hardware retail co-operative said it progressed with its multi-year strategic growth plan.

Total comparable store sales were up 0.9% for the quarter ending July 1, 2017, with increases in seven of twelve regions in the US and in six of the company's nine product categories.

Targeted initiatives and investments led to a 22% increase in visits to and a 19% increase in online sales. Destination True Value format comparable store sales were up 1.8% in the quarter and 1.1% year-to-date.

Revenue was USD430.4 million, a decrease of 1.9% or USD8.3 million.

The company posted a net margin of USD16.7 million in the second quarter, up 28.1% from a year ago. The increase in net margin was primarily driven by good gross margin rates and tight monitoring of overhead expenses, according to the company. President and CEO John Hartmann said:
We are now in the third year of our multi-year strategic plan and I'm very encouraged by the strong advancements we are making. After a record-breaking year for ground-up and remodelled stores in 2016, we have continued to make good progress in building a stronger business.
Our retailers are benefiting from strategic initiatives in areas such as omnichannel, retail excellence and product assortments that improve the customer experience and generate sales growth. And we are doing all of this at the same time as delivering strong net margin expansion.
Looking forward, we will continue to look for ways to accelerate our strategic growth plan to ensure that True Value is helping our stores to remain relevant in their communities and supporting their long-term growth, profitability and independence.
HNN Sources

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