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Durables Digest Podcast Episode 7 — Innovation, Lionel Messi & Private Brands: Home Depot & Lowe’s Q1 2024 Earnings Calls

May 24, 2024
Ashley Jefferson Author 24 mins read
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Durables Digest Business Podcast Episode 7 Hero Retail Earnings Calls Q1 2024

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Episode 7 Transcript

00:00:06 Eric Voyer
Hello everybody. Welcome to Durables Digest episode 7. I am one of your hosts Eric Voyer and here with me is Brian Lamar.

00:00:14 Brian Lamar
How are you, Eric?

00:00:15 Eric Voyer
Good morning, Brian. I’m doing very well. Thank you.

00:00:17 Brian Lamar
Let me just tell you, first of all, episode seven, we really upped our game like we have this fancy new dashboard where we’re recording on fancy microphones like we’re becoming like very professional.

00:00:30 Eric Voyer
Well, it’s because of the wild success that our podcast is having. We couldn’t help but to treat our listeners to a better experience. So pretty soon we’re going to have fireworks and light shows and all kinds of exciting things. So everybody’s got to stay tuned.

00:00:45 Brian Lamar
And based on the feedback I’m hearing, this is all due to Stacy from the last episode. For us, today’s a fun episode for me. I don’t know about for you, but.

00:00:48 Eric Voyer
Yes, absolutely. It was her performance. It it.

00:00:54 Brian Lamar
Today, we’re going to talk about earnings calls Home Depot and Lowe’s both had their first quarter earnings calls.

00:01:00 Brian Lamar
By the way, you can text the podcast at 502-785-3608. Give us feedback, ask questions if you want to be a guest, we’d love to have you earnings calls. You’ve listened to a few of these in your day, right?

00:01:11 Eric Voyer
Yeah, but I I wanna touch on the guest thing real quick cause we’ve got a few really interesting guests lined up that have agreed to jump on here.
One of them is a good friend of mine, Oliver Wintermantel from Evercore, brilliant institutional investor with a great company, Evercore. So he’s going to be on sometime in the next hopefully month or two, I am hoping to get Doug Marlis on who’s POS data guy, Ken Clark from HBS dealer. We’re going to have him on at some point as well.
Another guest that we’ve got on is Spencer Padway from search nurture, fantastic marketing agency, really focusing on brands and getting those brands into durable spaces and home improvement retailers. So we’re really lining up some great guests for you guys. So if you’re listening and you’re interested in being a guest, let us know.

00:02:05 Brian Lamar
Awesome, man, that’s a lot of guests

00:02:07 Eric Voyer
It is a lot of guests. Well, again, people are listening. People are reacting, people are responding. So it’s fantastic to have those people and their support so get the word out to your network about durables digest.

00:02:19 Brian Lamar
Awesome earning this call, can we get into that now?

00:02:22 Eric Voyer
Yeah, let’s do it.

00:02:24 Brian Lamar
This is really I’ve read the transcripts of the I’ve only been here few months obviously, but I’ve read the transcripts of the last ones a few months ago. This is the first time I’ve really felt like I need to focus on them and understand them. And for me I’m thinking pretty high level and little Nuggets here and there. But you probably listen to them or read them differently than I do you’ve probably done this for years, right?

00:02:46 Eric Voyer
Yeah. Yeah, I like to listen to when they say TraQline in these earnings calls with Home Depot and and Lowe’s and things like that. So I love that love to listen for that, always makes me proud of the product that we’re delivering. But yeah, so I’ve listened to several over the years. Some are obviously better than others.
And you know it’s always interesting to me. They’re always positive. They try to be positive and upbeat about, you know, hey, everything’s looking great, even though our comps are down or even though sales are down, they’re always trying to talk about how things are great and that’s what you would expect, of course, on these things.
But what? What was your thought? I mean you you look for it. You said on a high level, what did you think?

00:03:22 Brian Lamar
Well, certainly that what you just mentioned for sure. I thought that they’re pretty different in many ways. I thought the Lowe’s which earnings call is much more thorough and much more interesting.
They really got into depth with a few things. Home Depot was much more kind of high level. The Home Depot did talk about pros a little bit more and more specifics around pros, but I think at a high level I enjoyed listening to Lowe’s call hunting more than the Home Depot call.
Not a reflection of their portfolio of their stock price or earnings or anything. It was just more interesting for someone like me.

00:03:57 Eric Voyer
Yeah. So specifically, is it because of that detail that they went into that made you feel like they had, you know, it just gave you more insight into what they were trying to do or was it something different?

00:04:09 Brian Lamar
It was. They really got into detail on so many different innovation things and we could get into all the innovation things that I heard. They also talked about Lionel Messi and that partnership that they had over this year and they really talked a lot about that, which I found interesting at one point I thought.

00:04:19 Eric Voyer
There you go. Yeah.

00:04:26 Brian Lamar
My really listen is this. Am I being joked here that they really want to depth for a couple of minutes on Lionel Messi, but I would say there’s probably 10 to 20 things they mentioned just in terms of innovation and Home Depot mentioned a couple.

00:04:38 Eric Voyer
Well, if you think of all the money you would spend to sponsor Lionel Messi, as you know, a spokesperson, you would definitely talk about it as well. I’m sure that’s an non insignificant investment. So I have my own thoughts. Why do you think that Lionel Messi is part of strategy?

00:04:56 Brian Lamar
Well, they mentioned that it’s a lot of people are soccer fans that aren’t professional football fans, so it’s kind of a you can attract unique people. Obviously the Latin American influence is huge and he’s just become just giant in the past in America the past couple years, even with casual or non soccer fans.
I’m a die hard soccer fan, have known messy for a while, but his brand name is worth a lot. Yeah, your point. I can imagine how much they paid to.
What were yours?

00:05:26 Eric Voyer
Exact same I mean I I don’t have anything to add. It’s an interesting partnership and quite a win for them I think.
As you think about how you know, like Shaquille O’Neal, is supposedly the broadest appealing sports athlete celebrity that there is. And I think Messi is very similar in the sense that he can appeal to the pro market, right. He can appeal to the Hispanic community. He can appeal to the non Hispanic community.
Basically everybody to your point. So he’s a really good spokesperson, I think, but we’ll see. We’ll see what they do with.

00:06:03 Brian Lamar
And they got him in a Lowe’s jersey, which I thought was really cool, and I assume, I don’t know what they’ll do. They might do something when the Miami, which is too messy, plays for if you didn’t know, they play in Charlotte — which is where Lowe’s is, so it’ll be interesting to see what they do there.

00:06:20 Eric Voyer
Sure. Yeah, absolutely. So besides the star power…

00:06:25 Brian Lamar

00:06:25 Eric Voyer
You said you found some other things interesting. What were your thoughts?

00:06:29 Brian Lamar
In terms of innovation, there was so much those talked about how they were first on the DoorDash platform and a platform called SHIPT (S-H-I-P-T) and on Instacart, and they’re also on one rail — one rail is like the Lowe’s version of shipping.
And so I thought that was pretty interesting. All the different ways that you can get tools as fast as you want them. And so many options door Dash shipped, Instacart one rail that’s really impressive to me.

00:06:58 Eric Voyer
Yeah. And it’s essential, though. One of the main competitors for every retailer is Amazon. And one of the beautiful things about Amazon, whether you love them or hate them, is that, you know, when your product’s gonna be delivered and you know that almost before you even go to the website. Because you know what the delivery times are for pretty much all their products.
Whereas if you go to another, it could be coming from a DC across the country, or it could be coming from a warehouse in your neighborhood. And so it could be a day or it could be a week. So sometimes I don’t even want to bother with trying to figure out, well, when am I going to get this? It’s like, OK, I know I can get this tomorrow or on Thursday, which is when my delivery day is. So let me just go out and get it.
So I think having that that predictability is really key and you know they’re focusing on that obviously with the consumer and with the pro and that’s part of what Home Depot’s strategy is as well. With that huge SRS acquisition is, you know really getting products in people’s hands very quickly, the right products in their hands very quickly.

00:08:07 Brian Lamar
Good insight. Thank you. A couple other things. If you want to touch on any of them. I understand why the My Lowe’s Rewards was a newer program. You know, companies have had rewards programs for a long time. They addressed that, that they couldn’t roll it out a year ago because they were still retiring this 30-year-old operating system and they’ve gotten through that now.
You’re trying to innovate all of these stores to be in one system so they can measure these rewards. We talked about that a lot about the, you know, advantages of rewards programs, which is you know, everybody has them. So I think we know that they talked about Smart Stow.
And I’ve never heard of that either. Smart Stow allows owners to store their lawn mower upright, and so this reduces the storage footprint by up to 70%. And not that that was really interesting. The GE freestanding range with easy wash first of its kind removal oven liner that is dishwasher safe.
Modernizing through operating system to help find things and they talked about proprietary self checkout registers which I thought was really interesting. So all over the place, every little person that would speak address innovation throughout the entire fall.

00:09:17 Eric Voyer
Yeah, yeah.
Do you think they [Lowe’s] had the benefit of listening to the Home Depot earnings call 1st and adapted their message or do you think this was something that they were planning all?

00:09:28 Brian Lamar
I thought about that when I was listening to it.
I thought for sure they have the advantage of going second than to get into a lot more detail to your point Home Depot type. I don’t want to just focus on Lowe’s. Obviously they talked about that acquisition a lot and the benefits of it and.
That’s huge, right? That acquisition is just almost a game changer for them. And so I think Lowe’s had to talk about some interesting news and maybe that’s why they did it. Something I found interesting. We talked about the SRS acquisition.
A couple episodes ago, which I was rather ignorant towards it, but they they addressed it quite a bit and that gives them a right to win with the Specialty Trade Pro customer and they mentioned the verticals being roofing pool contractors and landscape professional.
Which I thought was super interesting that those are where they think they can win, getting very specific with them pros. I just thought that was pretty interesting.

00:10:22 Eric Voyer
Yeah, for sure.

00:10:24 Brian Lamar
And then they talked a little bit about innovation with self-service returns at Home Depot, which I thought was rather interesting. 70% of online orders are now able to be self-service returns from their my account profile on the website.
And I would think as someone especially a pro, that’s got to be just a huge advantage that you don’t have to go to the store. I would think you’d have returns relatively often if you’re a pro and you’re buying a lot of them

00:10:50 Eric Voyer
Yeah. And I wonder if you know everybody, both of these companies were talking a lot about inventory management, you know, because shrink is a big deal and you know managing that portfolio online to make sure the products are where they say they are. I wonder if that system is going to integrate well with that inventory system and just making after that you know the products go back on the shelf or their TV’s or or how that’s going to operate. It’ll be interesting to see.

00:11:16 Brian Lamar
Absolutely. And then a couple other topics I found a note, the flows, private brand penetration mentioned they get a greater profit and it’s really attracting the brand agnostic DIY consumer, which that’s what I would consider myself to be. That’s probably not what you are, but I would consider myself a certainly brand agnostic DIY when I’m going in there.
Brand name is less important to me as much as price. And is it enough quality than I needed? I’m not. I’m not gonna be using this thing 4 hours a day. Probably gonna use it every once in a while so you know can you do that? Can you last me two years? I’ll use it eight times.

00:11:50 Eric Voyer
Yeah. Yeah. Well, I mean, they’re really competing with a couple of other people in this space, so it would be Amazon again. Walmart, for instance, Walmart actually comped up 3.8% with a 6% increase in revenue and their earnings calls. So you know you think about a real value conscious consumer and that’s really important.
Especially with the economic environment that we’re in, where everybody’s dollar has to stretch even further because of inflation, is so much higher. So really thinking about that value conscious consumer is really important.
And I think that’s why Walmart is doing better. Besides their Omni channel strategy, I think that’s one of the reasons why Walmart is doing better.

00:12:31 Brian Lamar
Absolutely. Great point. And the, you know, Home Depot mentioned that with the financing part of it which I haven’t really thought about, but we talked specifically about Kitchen remodel, bath remodel cabinets where you probably are financing something, flooring probably and the impact the economy has on that. And there’s a lot of pricing pressure in those categories. I I haven’t spent a ton of money like that. The most expensive thing I’ve probably bought.
From Lowe’s or Home Depots or refrigerator? Unfortunately, I didn’t finance that, but if I’m spending, you know, $12,000 on something, you’d have to finance it. And now with the economy that’s challenging.

00:13:08 Eric Voyer
Right. Yet they they both mentioned you know the challenges in big ticket items, right? So consumers not having quite the discretionary income that they used to have. So they both mentioned that and that was one of the things that I noticed in addition to you know the impact of the weather they were mentioning that you know delayed start to spring. So there were some commonalities.
Between these earnings calls, you know I mentioned the inventory already big ticket.

00:13:32 Brian Lamar

00:13:38 Eric Voyer
You know, focusing on the customer experience that everybody wants to talk about, how they’re continuing to improve for the customers and.

00:13:41 Brian Lamar
00:13:46 Eric Voyer
And you know this this pro thing is really a race. It’s like both of these companies are really focusing on this pro market because it’s kind of a, it’s a real opportunity for both both companies.

00:13:59 Brian Lamar
Right. The last of this is rather insignificant, but I thought it was interesting to lose mentioned that their monthly complicated was impacted by the earlier timing of Easter. So Easter fell in March this year, sometimes in April. And so it obviously would affect your Q1 when you’re closed for, you know a Sunday in late, in early mid spring, that’s gotta be tough.

00:14:22 Eric Voyer
Right. Yep, absolutely. Those are the little nuances that you don’t even think about. You know, it’s like holy cow. Like, one day, can really have an impact on your business.

00:14:33 Brian Lamar
And that’s when I can’t even imagine in early spring.How much products are selling on a Sunday afternoon and it’s, you know, it’s great for, I think it’s great that they’re doing that. It helps the morale of employees probably have more loyalty to employees. And as a customer, I appreciate that too. I don’t know if I’m more likely to shop at Lowe’s because they do that, but I found that as a value that I like and I’m not sure if how close.

00:14:59 Eric Voyer
I was actually having this conversation with Ashley Jefferson, our marketing manager. The other day at about the scope of of traffic. And let’s just put this into perspective. So I went to one of the home improvement retailers to get mulch around Easter and I went into the garden center and I walked through the gates and I found the one that I wanted, and then I just I I just took a picture of the skew and then went up to the counter and I bought, I don’t know, 1020 bags of whatever this mulch was so then rather than loading it into my car, there were loaders for me. Well, I pulled around and I waited for 30 minutes for loaders to load my mulch and while I was driving around I noticed the backside of the store had probably, I don’t know, 50 to 100 pallets, just full of this mulch.
And then inside of this area where I was palace of maybe you know 20-30 pallets of all kinds of different types of mulch and it just makes you realize the scale of what’s going on here, because that was one store, right? So when when you think about the impact that, you know any of these stores, whether it’s Walmart or Lowe’s or Home Depot or Amazon or whatever it is has on, on an economy.
So let’s, let’s say that it was Scotts was the brand of of mulch that I purchased. Think about how much mulch they’re producing to send all across the country. Right? It’s just phenomenal. I mean when?

00:16:31 Eric Voyer
I think about all the pallets full that I saw there, it just blows my mind when you think about that. And so when you think about that as a component of mulch and then also live goods and then maybe you know people in there buying lumber and people buying plants and people buying all these things. It’s just a phenomenal amount of traffic in dollars goes through.

00:16:53 Brian Lamar
Yeah, that’s a great point. I used to support Procter and Gamble with research and when they had a brand that got to a billion dollars, that was a big deal. And at one point their portfolio had, I think 23 different billion dollar brands and that’s campers and tide and you know, brands we all heard of.

00:17:09 Eric Voyer

00:17:09 Brian Lamar
In the Lowe’s call, they mentioned the $500 billion Pro market, which I think is that’s a decent percentage of the overall market, but this is a trillion dollar market we’re talking about here to your point of just the execution of getting us to the stores is it’s gonna be incredible.

00:17:26 Eric Voyer
Yeah, it and it. And it supports an entire system that supports an economy. There’s people that are that are producing it. There’s people that are moving it. There’s people that are selling it. There’s people that are loading it, there’s and then there’s me that has to spread the Dang mulch, but that’s a whole different story. So yeah. Very interesting and a total departure from talking about the earnings call, so I apologize for that.

00:17:51 Brian Lamar
I have a departure too. If you want to hear it?

00:17:53 Eric Voyer
Yeah, yeah.
00:17:54 Brian Lamar
I bought a bed from IKEA. So I’m redoing a guest bedroom and about an IKEA bread — IKEA bed from an aftermarket place, and then I open it up and I get it and I’m missing all of the tools. All of the hardware for it.
So missing on the nuts and bolts and all that stuff. So I’m like, alright, well, I gotta go to a hardware store and get this.

00:18:19 Brian Lamar
Where would you first of all blindly, where would you go if you had to get a bunch of random little like M6 screws and that’s like four of them. And you know twelve of these. I know you’re a you probably get a load in Home Depot primarily. Is that where you would go for that?

00:18:34 Eric Voyer
I guess, I mean I would go to an ACE or a Lowe’s or you know Ace would be you’re probably best bet for having somebody that can help you find the right parts. But yeah, I mean, I’d go to any hardware store.

00:18:49 Brian Lamar
Well, I went to Ace to your point, and I was in that aisle freaking out for about 15 seconds before someone approached me and basically got them all for me, putting in the bags, priced them out.
Took him 20 minutes. Would have taken me 4 hours and you know that’s the, you know, we talked about Home Depot and Lowe’s a lot, but that’s the differentiator for Ace Hardware is that I know I can go there — they’ll have six people ready to help me at any one time.

00:19:14 Eric Voyer
Yep, absolutely, absolutely so.

00:19:18 Eric Voyer
Did you get the bed built?

00:19:20 Brian Lamar

00:19:22 Eric Voyer
If you had that much time, I would have called IKEA in and said send me a box of screws.

00:19:27 Brian Lamar
Well I I have done that as well, but yeah. So we’ll see how this works out.

00:19:30 Eric Voyer
Yeah. Yeah, well, good luck.

00:19:35 Eric Voyer
Well, let’s talk about a few some of the things that I noticed in terms of changes or differences between the two, I mean and this doesn’t indicate that that it didn’t happen at both retailers, it really is just what they chose to focus on, right. You know, Lowe’s really mentioned better than expected spring sales. You know they had a Spring Fest campaign and that seemed to be working very well.
And interestingly, on the marketing side, they really did a Geo targeted strategy. So I thought that was a a good win for them.
Then of course, you talked about the partnerships already. So that’s something that was that they really spoke about a lot and you know you also mentioned the DIY loyalty program. So you know that’s something that Lowe’s is putting a ton of emphasis on you. You see a lot of articles by Jen Wilson talking about their Loyalty program as well. So those are some of the areas where I heard Lowe’s really.

00:20:30 Eric Voyer
Focusing in areas where Home Depot did it and then when I think about the inverse of that, where is Home Depot outperforming Lowe’s?
You talked about inventory reduction, reducing inventory merchandise inventories by $3 billion, but increasing the turns and maintaining the in stock levels. So $3 billion is a lot and part of that is putting that back on the manufacturers back on their vendors to hold those products.
And so if you’re a vendor and you’re listening to this, you’re probably nodding your head going. Yes, it is because that is a burden that is quite a challenge for vendors to manage and then finally you know this, the second thing that I really heard much different was that Home Depot is really focusing on their success in engaging the larger pro customers and that is something that I see is an area of differentiation between the two. Whereas you know, Lowe’s is thinking about, you know small and mid and then.
Home Depot’s thinking about those larger pro customers and then they’re saying that those mature markets that they have are showing real significant gains in their pro.

00:21:39 Eric Voyer
So those were some of the different things that I heard as well, of course. Similarly, you heard about inflation and you know, preference shifts and people spending on services rather than goods, which I believe is kind of a a nod to generational shifts. And then of course, everybody’s talking about increasing their supply chains because that’s what the investors are expecting. And then everybody was making — I don’t want to say excuses because they’re real reasons — but excuses about interest rates and the economic environment, which is very difficult for just about everybody.

00:22:10 Brian Lamar
Yep, good points, yeah.

00:22:12 Brian Lamar
Overall, this was really interesting to listen to it and I was very engaged and I love the Q&A at the end.
I don’t know how they pick the Q&A people, but I’m going to sign up to maybe ask a dumb question at some point.

00:22:23 Eric Voyer
So these are these are institutional investors who you know, really have an impact on, you know, buying lots and lots of shares of stock. And so you can you can actually get a list of those guys, but that’s.
That’s who’s on these calls and asking questions. But you know, I’m sure that that Marvin would love to get an e-mail from you with a question about, you know, earnings per share and things like that. You should just drop them a note.

00:22:48 Brian Lamar
Well, I’ll tell them about my scoring system when I visit one of their stores. I mean, I’m happy to share that in an earnings call.

00:22:54 Eric Voyer
So yeah, we’ve got to do that too. I forgot we’ve got to do your next visit which you have to see if there’s an American flag in front of a Lowe’s store. That’s an important, important distinction.

00:23:03 Brian Lamar
Well, I’m almost positive there won’t be because they really talked to getting back to the armies call. They talked about the military and the military discount and how they’re really proud of that. And they talked a lot about very kind of, I would say, Americana kind of items. And so that was enough. I would put that on the scorecard right now just by hearing that.

00:23:23 Eric Voyer
There you go. Cool. Now I think we got a short one today and you know, I I did. I did want to note again that the Walmart earnings also came out. We didn’t really talk about that. They are, you know, essentially they they’re a omni-channel and multi category retailer from home improvement to grocery to all kinds of different things. But you know they’re definitely comping up. Their revenues were up. So you know in contrast to Home Depot and Lowe’s who wasn’t exactly comping up comp sales for Lowe’s were down by 4%, whereas Home Depot down by 2%.
So yeah, I mean, you’ve got, you’ve got some differences in different retailers in the market as you would expect.

00:24:08 Brian Lamar
Yeah, this was fascinating to me. I can’t wait till next quarter to listen even more and see what they talk about, which will be this is this is beginning the really the busy season. I would expect for for these retailers.

00:24:21 Brian Lamar
By the way, text us your thoughts. Do you like this episode? What did we say wrong though? Text us and we’ll let’s we’ll talk to you soon for episode 8. Thanks everybody.

00:24:32 Eric Voyer
Thank you.