Specialist
Former senior executive at Lowe's Companies Inc
Agenda
- Q2 2022 North American home improvement market update
- Inflationary pressures and developing consumer preferences
- Competitive landscape and business model variations across players such as Home Depot (NYSE: HD), Lowe’s (NYSE: LOW) and smaller players such as Floor & Décor (NYSE: FND) and Mendards, especially DIY vs pro services segments
- Short-to-medium-term outlook, highlighting labour dynamics
Questions
1.
Could you identify 2-3 industry trends for the North America home improvement market that you consider the most significant?
2.
What is your assessment of the strong growth we saw for home improvement retailers, which began during the pandemic and accelerated throughout, and where we stand now?
3.
Leaders from multiple home improvement retailers have noted the constrained housing inventory environment and how that might nullify the risk of rising interest rates and the slowdown within the market as consumers still look to remodel their homes. Do you still have concerns regarding inflation and how the impacts of consumer discretionary spending may pan out for DIY categories vs pro services, as the growth drivers might be different there?
4.
How might a worst-case inflation scenario impact segment performance and what categorical shifts could we see for a pro services vs DIY for many home improvement retailers? Is it likely consumers might opt for cost-saving measures and steer away from the higher-margin pro service business?
5.
In Home Depot’s Q1 2022 earnings, the company noted that appliances were slightly down, and that is relative especially to its other product sub-categories. It seems to have attributed primarily to supply chain, but what would be your assessment of the factors contributing to the lag?
6.
What does the customer look like for the pro services vs DIY categories? How would you categorise those customers in terms of repeated sales, brand loyalty and demographics?
7.
Regarding significant differences in pro services of customers of Home Depot vs Lowe’s, you mentioned roofing, which Home Depot recently exited out of. What other differentiating factors would you highlight between those two?
8.
Home Depot noted in its Q1 2022 earnings that 90% of its products on display were new. Could you provide further insight into the processes behind product innovation and how home improvement retailers gauge trends and new opportunities for innovation?
9.
Could you provide your assessment of the current supply chain environment and what particular major SKU categories are likely to continue having bottlenecks? We talked about appliances. What other ones would you identify?
10.
Do you see the demand or growth being driven now as primarily a symptom of the major backlog for major-scale products for home improvement retailers, or rather a significant amount of organic growth through new customer acquisition? Could you disaggregate those two factors?
11.
It seems many observers and you are quite optimistic for consumer confidence remaining strong in the home remodelling business. However, considering the rate that we saw and where we’re trending at now, what is your outlook for 12-18 months and beyond for continued consumer demand?
12.
Could you discuss the competitive landscape for Home Depot, Lowe’s and smaller regional players that they may be interacting with in their respective markets?
13.
Do you see Menards having a permanent place in the consumer’s mind who’s willing to bargain for or go after the cheaper, lower-quality product vs more premium options?
14.
Home Depot and Lowe’s are hesitant to take discounts vs these newer players within the sector who are primarily offering lower-quality products at lower prices and attracting certain kinds of consumers. Does that present a tailwind in regards to premiumisation for further margin expansions and a different opportunity to position their product further, essentially achieving fuller price more often or perhaps even increasing price?
15.
Could you comment on private label, in particular players that have the most effectively built portfolios of products there?
16.
What do you think is a significant lagging factor for Lowe’s private label portfolio? Obviously, it’s a huge capital commitment that it would take to build out that portfolio and the time. However, historically speaking, what has essentially lagged it from doing so vs Home Depot?
17.
Home Depot seems to be in a very competitive advantageous position with allocation of capital and investment. Where do you see a priority right now across the sector? Both have expanded within e-commerce and online. Could you provide a little bit more colour into what those investments look like and what practical rollouts have we seen?
18.
What 2-3 significant risks would you highlight for the home improvement sector in the next 12-18 months that observers should pay attention to?
19.
How concerned are you with the labour market not just in the home improvement retail location themselves, but within transportation and logistics as an industry and how that impacts Home Depot and Lowe’s and peers?
20.
Home Depot was seen as a leader in employee satisfaction and morale prior to the pandemic, offering a very competitive hourly wage and noting high satisfaction of its employees. Leadership still continually touts high morale. How much credit would you give to that, considering your experience and time away from the company? How would morale be impacted if it is looking to reduce headcount but still maintain the same hourly wage or only offer marginal increases?
21.
Multiple earnings reports have noted that typically there is a slow spring. Could you provide more colour into that regarding the different geographies of these home improvement stores, why spring is seen as a laggard and what can we expect in the coming periods as the warmer months approach and then the fall?
22.
When we evaluate the comparable performance of home improvement retailers such as Home Depot, Lowe’s and others, considering the geographic weighing that could differ between these locations and how seasonality plays into that, what considerations should we have for factoring in seasonality when we’re trying to compare home improvement players, as they could operate in different environments?
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