Specialist
Former VP at The Home Depot Inc
Agenda
- Home Depot’s (NYSE: HD) current market positioning within the equipment rental service provider space
- Pricing and product-to-service mix offering vs legacy providers of equipment rental
- Tool rentals segment analysis and demand outlook ahead of decreased DIY spending
- Medium-to-long-term growth outlook for rental equipment and tool market
Questions
1.
What are your thoughts on Home Depot as of FY23 and your outlook heading into the next year or so?
2.
What range of CAPEX will be required for Home Depot to continue expansion beyond the legacy transaction of Compact Power, considering its competitive positioning vs United Rentals and the major heavy equipment rental players?
3.
Looking at what Home Depot has available in its service offering, I’m discussing mini excavators, things you’ve noted are towable by a pickup truck. Where is the crossover in terms of United Rentals and other players that, while focusing on heavier equipment, still have an offering in the smaller scale Home Depot plays in? Could you talk about Home Depot’s ability to grow that business and take market share?
4.
A figure I’ve seen touted publicly is that USD 1bn mark that Home Depot hit in 2020. Obviously, there’s a disaggregation between tools and equipment very generally. How would you estimate the proportion between those two categories for the company? Purely thinking about equipment, small-scale equipment to heavy equipment, then regular tools more catered to DIY.
5.
Across categories and subcategories, what are the margin champions vs volume plays for Home Depot’s rental offerings? What particular SKU categories or items are highest-ticket vs lower-margin but drive higher volume?
6.
One figure I’ve seen touted is the equipment and tool rental market being a USD 50bn-per-year business. With respect to Home Depot’s penetration as of 2020 of USD 1bn, what is a growth trajectory you would estimate for it? Discounting that it may not want to make the investment to heavy equipment, how much white space does the company have to expand? How do you see this macro or demand environment benefiting it or negating that outlook a bit?
7.
How much of a differentiation is there between Home Depot’s rental business and the traditional DIY and pro services business in terms of demand elasticities and given developments in the home improvement space? There’s been discussion surrounding the project backlog and concerns surrounding cancellations. Could you talk about that and the implications on the tools business?
8.
How does consumer downtrading typically play? With DIY, we’re seeing a decrease in average ticket price spends. Is there any migration between consumers not looking to make finalised purchase and gravitating more to the handheld tool rental business? Could it possibly be a tailwind in any regard?
9.
What do you make of the saturation of the lighter-grade equipment rental market, along with the tool rental market? Some speculators have flagged that it is a highly fragmented space. It seems Home Depot, with a pretty large access to capital and very healthy balance sheet, would be aggressive in a macroeconomic downturn to take advantage and bring more assets under its reach at a discount. What do you anticipate for acquisition activity within the next 1-2 years for the company to expand its reach in North America?
10.
From my understanding, the marginal OPEX Home Depot would take on to bring new facilities geared towards heavier equipment, the retrofitting, remodelling, etc, would just get much too expensive, and also the regulatory factors you brought up. What is the strategic value you think the company sees in its current rental business outside basic handheld tools and into smaller-scale remodelling equipment? How much space exists for the company to grow organically, in regards to the facilities it has in the first place?
11.
What was the value Home Depot’s leadership saw in the initial acquisition of Compact Power to expand, considering it’s an expensive venture to take on those facilities, the OPEX necessitated to remodel them and get them ready for use and to full productivity? Why do you think the company keeps on this business, if it’s significantly differentiated from its core home improvement retail business?
12.
At what point could Home Depot’s pro segment outgrow its current capacity, which might necessitate a growth initiative, through acquisition or, long term, organically? What is your impression of the current saturation of the company’s pro service demand? Right now, we’re dealing with a downturn, but in 2020 or a more normalised year such as 2019, how did the business look?
13.
Which geographies is Home Depot’s rental business positioned strongly in? The company is such a wide-spanning retailer, obviously the largest one in North America. On the retail side, it has non-rentals. It would seem to have a wide span, but how expansive or far-reaching is its rentals business, holistically, in North America?
14.
How do you think competitors such as Sunbelt and United Rentals view Home Depot and Lowe’s in this market? We’ve had a few industry observers call out Home Depot, particularly as an industry disruptor. How much weight would you give to that sentiment and opinion? Based on previous Forum Interviews [see United Rentals – Rental Equipment Demand Outlook & M&A Activity Analysis – 4 January 2023], there’s some qualification that you would have to it, but could you share your thoughts?
15.
What do you make of Lowe’s competitive positioning within the tool rental and lighter equipment rental space vs Home Depot? With consideration to the much smaller size of its pro business, which is rapidly growing, could the company come to a point where it would want to make acquisitions with a former partner such as Sunbelt Rentals, for that business to stand much more competitively?
16.
Assessing the CAPEX expansion required of Lowe’s and Home Depot, to further expand in terms of physical locations and specialised rental facilities, Lowe’s leadership has said the rental department expansion will primarily be made up of stores about 4,000 square feet. These will be newly constructed spaces or expansions of the stores located very near existing real estate. Do you think this is the right way to go about it? What do you make of the locations’ size? Is this optimal from an operational standpoint, based on your experience?
17.
Could you discuss the P&O [profit and overhead] performance of Home Depot and Lowe’s rental businesses respectively? What is the marginal add-on there? How does it impact their total top- and bottom-line performances if they look to continue to incrementally scale these businesses?
18.
Considering the headwinds we’ve seen from the transportation and logistics space coming off of a difficult 2022 and the difficult and persisting labour dynamics, what are the implications on the equipment and tool rental market in North America?
19.
In 2022, Home Depot announced its intention to open 50 new rental operation locations. What is the company looking to augment, operationally, here? Do you think this is impacting its product mix in any particular way, or is it consistent with the SKUs it’s strong in for lighter equipment and tool rentals?
20.
What do you make of the commercial side of the business and demand in terms of headwinds facing office spaces in construction? That seems to be a particular pressure right now. Another factor to think about on the residential side is the shift from single- to multi-family home construction and builds. What impact could this have on the rental equipment and tools market?
21.
The pro roofing insulation rentals seems to be a fairly prominent part of Home Depot’s business. What do you anticipate for that into the next 6-12 months? That seems to be relatively inelastic in nature, so could that be somewhat of a safe haven for the company, considering all the headwinds facing the general market right now?
22.
What’s your overview of the product mix for Home Depot’s equipment and tool rentals? How would you right-size that? Where would it make more sense for the company to index further to meet demand better for its pro service consumers over the next 1-2 years?
23.
How do you think YoY performance or comps will look for the rental sides of Home Depot, Lowe’s and their competitors in Sunbelt or United Rentals? I’m thinking about 2022 vs 2023 and against pre-pandemic levels such as 2019.
24.
Ultimately, it seems the main players within the general equipment rentals space, such as Sunbelt and United Rentals, are well-insulated against Home Depot and Lowe’s, unless we see major strategic announcements or changes from the leaders of those big box retailers. Would you agree?
