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+--- Thread: Home Depot, an ongoing discussion.... (/showthread.php?tid=1837)
Home Depot, an ongoing discussion.... - fenders53 - 02-25-2019
Full disclosure right up front, I work there, it's my retired guy job after my retirement from the military. None of the following is insider info on a national level, I have no visibility outside my region. It's my first experience in retail since I was a kid last century. Thought I might throw up some predictions for entertainment purposes. We'll just have to see how they play out.
HD is a very well run company that is dominant in their sector. I think that continues and they are a great long-term play. If I didn't believe that it wouldn't be one of my largest holdings.
They show true concern for employees and strive to be good enough to make a union unnecessary which doesn't work in retail. They actually type out those words and share with employees. It's a bold statement to share publicly IMO. My pay is above average for retail, and my benefits are way above average. The newish healthcare laws forced them to be a mostly part-time employer. I am now fulltime with bennies in their highest sales dept. It didn't take long for that to happen. I sell stupid expensive doors and windows for fun now. The wage they pay me is laughable compared to my previous employment, but I enjoy going to work because my efforts are recognized daily. I have a very good store manager if that isn't obvious.
HD measures EVERYTHING! It's more than annoying as an employee, but "what gets measured actually gets done". A JD exec shared that with me 30 years ago and he was right.
The shareholders demand higher same store sales and improved margins Q over Q. That concerns me as some prices are escalating at a scary pace. I've owned rental property for decades, and I'm a DIY guy so I know what I know on this matter. They are currently pushing the edge vs lower priced home improvement retailers locally. They need to be careful as customers are noticing it and I heard that plenty while manning a cash register. Pricing is NOT inelastic in the presence of competition. Menard's is the local threat as they sell lots of cheap product lines. Lowe's scares me zero in my local market. They offer a small raise to any trained HD employee. That comes off as a little desperate IMO. I'm good for now because I like how I am treated wearing an orange apron. Did I mention I enjoy the very frequent free food in the HD break room? It's an HD thing.
Now for my predictions because HD is about to report 4th quarter....
1. Christmas was OK, but not amazing.
2. Weather has been beyond horrible during Q1 2019 in the upper half of their regions (mostly a US company), and store traffic is affected in my small world. You can't do the winter outdoor construction that is normal in the Midwest. I am very curious about next Q guidance. I think all will be well by springtime. I won't be amazed if creative accounting is required to make Q4 look good. I listen to their conference calls and while boring, I find them honest for better or worse.
3. If HD blows earnings, look out on Lowe's because they are trying to be HD right now and falling short IMO.
No real actionable advice intended, but I will remain long HD and will keep covered calls in play for now because I don't see the stock launching on this earnings report.
I'll leave you with this. I may be very wrong in a few days, but I doubt I am wrong in a few months or years. I like this company a lot and that is why I applied to work there. They surely can't control macro-economics, but they sure control what they can control. I am extremely confident of that. This is the #5 employer in the US for a good reason.
I look forward to your thoughts if you follow HD.
RE: Home Depot, an ongoing discussion.... - ChadR - 02-25-2019
Good insight into HD. I currently don't own HD, but it is on my watchlist. I have some money available for a purchase, after reading this, I'm thinking of waiting for HD to give their earnings report. Thinking it might not be great and then buy on the drop.
RE: Home Depot, an ongoing discussion.... - Roadmap2Retire - 02-25-2019
Thanks for sharing your thoughts Fender. HD is on my watchlist and I like a lot about the company. I hear you on LOW trying to be & beat HD...but looking at some of the financial numbers (like ROIC for e.g.) HD is way more attractive. Rev growth has been good and if interest rates have topped, which will be good housing & home builders, should provide continued tailwind.
FWIW, I think its fantastic that you are working in a good place with a great employer in "retirement", while learning the ins and outs of your largest holding.
RE: Home Depot, an ongoing discussion.... - fenders53 - 02-25-2019
I enjoyed full retirement from age 53 to 56 1/2, so I hope nobody pity's me in anyway. I got to do some bucket list stuff like numerous fly fishing trips to Alaska etc. Now I need to stay out of my true retirement funds so I can be a bazilionaiire at age 59.
Anyway I work because I want to and that is enough of the personal stuff. I'll just be your personal HD spy lol. I am going to ask my boss to get me regional sales figures right after earnings. He'll do that. Going forward I would like to know what if my experience is a reasonable barometer of US sales. I suspect it is when hurricanes and ridiculous winters don't occur in any particular quarter. I am going to share some anectodal stuff that I believe makes HD a better retailer. Honestly, I am there now because I read they have a strong corporate culture that has two main goals. Take care of customers and the employees that serve them. You can decide for yourself if this is a recipe for longterm success. I believe it might matter if your employees aren't looking for a better deal a month after you finish training them.
Most everybody else in my area pays entry level retailers $9-$11 an hour depending on how much intelligence or skill the position requires. Out cost of living is low in semi-rural Iowa. WMT, Dicks, Autozone, Kohls and the other department stores etc. have a turnover rate that boggles the mind. HD takes a different approach. You start at $11 here because they know that is above market average, and you will pass a drug test before you clock in day one. The wage makes them able to demand decent employees. The rest hire the cheapest help they can find and you are replaceable when you no show next week. I don't see that happening where I work with only one exception in about 5 months. My store has 130 employees so that's a good stat IMO.
The orange HD carpenters apron is the uniform. Notice the gold stars and patches they wear. The place is a never ending incentive program and some of those awards they wear come with a small cash bonus. It isn't much, but if you do your job the store manager will find an excuse to put an extra $50 in your check now and then. You will be noticed if they have to make up the most trivial good deed to reward you for. I could be wrong, but to my knowledge, not many other retailers doing that. There are quite a few guys and gals in my store with 10+ yrs experience. Most are not college graduates of course, but they stayed for a reason IMO.
On another subject HD logistics are VERY solid. This winter has been an unending snow and ice storm in Iowa. Customers want driveway salt and everyone else is out of stock for weeks. Lowe's Menards, and the usual big box stores. Customers are not pleased. Not HD, our freight manager Jacob scours the other HD stores continuously and we are never out more than a day or so. He pulled a thousand bags out of Pittsburgh area (100 miles away) just last week. Until a few weeks ago I was on a cash register because the manager told me to please take the position that was open and give him a chance to find me a better spot more appropriate for my resume. (he made good on that promise in about 90 days BTW). Anyway I worked a 5 hr shift on a register when the salt arrived and 24 of my first 25 customers bought salt, and threw other stuff in the cart while they were there. A horrible night when there was no sane reason to shop but the store did OK. BTW Jake and his wife life in a below average mobile home park. I bet Jake is an assistant store manager this year and he deserves it. The customers just love him and bother to say so on those silly little surveys you are invited to respond to on the bottom of your receipt. Manager reads every one of them daily and tracks who is getting positive responses so he can make it worth their effort.
I often wonder if Wal-Mart Lowe's and Menards are doing this too? I highly suspect they are not because practically none of our staff is dropping applications at those places. Check out Lowe's same store sales and sales per square foot. It isn't even close and I think I know why.
HD commercial over for now lol. All that said, I will be very pleased if they pulled off the quarter and especially the next one. I'll buy the dip if they don't. I am waiting for the real housing slowdown before I get deeper in HD. It's not the right time for that IMO. I only have 100 shares currently, but that's a fairly sizable play for my port at $190 a share. It's been an epic winter locally. Nobody is sneaking in a winter vinyl siding, window replacement or roofing job around here. That usually happens in a normal winter but not this year. It's rock salt and repainting the home interior for now. If they blow away earnings you can all have a good laugh after this HD rant.
RE: Home Depot, an ongoing discussion.... - crimsonghost747 - 02-25-2019
For an investment case, I've been with Lowe's for a while.
Firstly, as some of you know, I don't live in the USA and while I have dropped by in a Home Depot there a few times I've never even seen a Lowe's. At least not from the inside. So my investment decision was based purely on the financials. From what I heard, HD is indeed the better store at least if you are looking for quality. Price? I have no idea. But there has to be something that brings people to Lowe's too as they are not exactly fading away, quite the opposite.
But going back to the investment case. I actually thought HD had a better feel to it than Lowe's, however the pricing at the time is what ultimately made me chose Lowe's. It was ridiculously cheap compared to HD. If I look at the past, I made the right choice.
But I might have to have another look at the two soon since it looks like Lowes' share price has been going up a little faster and I have a feeling the earnings side is a different story. It's good to go over your investments once in a while and see if the reasons you invested in the first place are still valid. I like Lowe's but if I see that the price is more in line with HD then it might be time for a change. Looks like both of them have their earnings coming up soon so I'll wait for those.
RE: Home Depot, an ongoing discussion.... - Binary - 02-26-2019
Results are out. Slight revenue miss, good earning, BRUTAL dividend increase. smile
RE: Home Depot, an ongoing discussion.... - crimsonghost747 - 02-26-2019
(02-26-2019, 06:22 AM)Binary Wrote: Results are out. Slight revenue miss, good earning, BRUTAL dividend increase. smile
The results look good to me!
Pre-market says down by 3%...
RE: Home Depot, an ongoing discussion.... - fenders53 - 02-26-2019
(02-26-2019, 06:22 AM)Binary Wrote: Results are out. Slight revenue miss, good earning, BRUTAL dividend increase. smile
This is what I expected, and I think a revenue miss next quarter is even more likely IMO. Up north the business is pretty seasonal with a boom in second and third quarter, and Christmas season is usually good of course with all the man gifts they carry.
RE: Home Depot, an ongoing discussion.... - fenders53 - 02-26-2019
(02-25-2019, 09:58 PM)crimsonghost747 Wrote: For an investment case, I've been with Lowe's for a while.
Firstly, as some of you know, I don't live in the USA and while I have dropped by in a Home Depot there a few times I've never even seen a Lowe's. At least not from the inside. So my investment decision was based purely on the financials. From what I heard, HD is indeed the better store at least if you are looking for quality. Price? I have no idea. But there has to be something that brings people to Lowe's too as they are not exactly fading away, quite the opposite.
But going back to the investment case. I actually thought HD had a better feel to it than Lowe's, however the pricing at the time is what ultimately made me chose Lowe's. It was ridiculously cheap compared to HD. If I look at the past, I made the right choice.
But I might have to have another look at the two soon since it looks like Lowes' share price has been going up a little faster and I have a feeling the earnings side is a different story. It's good to go over your investments once in a while and see if the reasons you invested in the first place are still valid. I like Lowe's but if I see that the price is more in line with HD then it might be time for a change. Looks like both of them have their earnings coming up soon so I'll wait for those.
Lowe's is a good company that has stumbled on efficiency lately. They'll fix it before too many quarters pass. Lowes and HD stores have extremely similar product lines, and compete side by side in many markets. Viewing both quarters is very good information, no matter which company you invest in. I think I should have time to listen to the conference call at work today.
Same store sales and margin growth is one thing I wish to dig into when I actually read the earnings report. They have been very good for a few years now and that is going to be hard to maintain going forward.
RE: Home Depot, an ongoing discussion.... - Roadmap2Retire - 02-26-2019
Thanks for sharing the anecdotal stories, fender.
Everytime we've needed something for the house, Ive always noticed that HD has better pricing power than Lowes or other local retailers. We are doing some internal painting and minor touch ups in the house over the last week and have had to go to HD 3 times so far and found the pricing & service much better than others.
Looks like a good quarter, even though market seems to be selling a bit off. Monster divi raise, so congrats on your raise
RE: Home Depot, an ongoing discussion.... - fenders53 - 02-26-2019
(02-26-2019, 01:15 PM)Roadmap2Retire Wrote: Thanks for sharing the anecdotal stories, fender.
Everytime we've needed something for the house, Ive always noticed that HD has better pricing power than Lowes or other local retailers. We are doing some internal painting and minor touch ups in the house over the last week and have had to go to HD 3 times so far and found the pricing & service much better than others.
Looks like a good quarter, even though market seems to be selling a bit off. Monster divi raise, so congrats on your raise
For HD that was an OK quarter. The standard is very high and hence the pullback. The bottomline is the top line. The weather was VERY challenging, and tariffs couldn't have helped either. The Div raise was great. Twice what I expected, although they have a history of large raises. I think they might be preparing us for that day when the earnings growth slows. I am starting to think it is going to take a recession to knock them off their stride. And even then, the DIYers still go strong when they are repairing instead of buying new homes. There are clearly HDs stores that are heavily dependent on the home builders. I am sure that is not the case everywhere, including my store. The small time pros visit most everyday and drop a few hundred dollars each morning. I just don't see the home builders paying us an extra 10% for a big lumber package. I know they can get a better deal from non-national chain stores.
I really think the new investor to HD or Lowe's should be a little patient. The days of 20% annual gains may be over forever. I'd make a big bet there will be a better entry point in the next few months, then truly bring the position to size when the economy falters. IMO, there is just no way HD is gonna run to the moon from here. That said, not investing at all while waiting for $150 again is probably a bad move.
I entered my position patiently selling puts and collecting premiums for months until I got assigned on a dip. I've sold covered calls a few times since then as well but that is tricky as the stock bounces fast. I sold $190 calls last week when it ran because I thought earnings would be mediocre this quarter, and next quarter which ends March 31st. Anyway my option premiums are at least equal to my share appreciation the past six months because I bought a few shares when it was above $190, but on the way down. The Div is just a bonus. The new forward Div will look real good if HD pulls back 10%+.
And as far as your low HD pricing, you'll have to trust me in some cases that is a regional thing. We do well here and we are absolutely not the cheapest. If you invest in this sector you'll hear of a non-public company called Menard's. They have a lot of stores in the upper Midwest and they are very successful. Here is what you need to know about them. They have a different business model. Menards is the Wal-Mart of the home-improvement world. They are the size of a super Wal-Mart, and Wal-Mart quality brands are what they sell. Their lumber quality is atrocious. They will put an 18yr old clueless kid in the plumbing department to torment the customers with return trips and returns to get what they actually needed to fix the leaking water pipe. The more complicated HD depts are manned by old retired dudes like myself who have done their own house repairs for a few decades. Here is some more anecdotal...
We can't possible drop all our everyday prices on quality brands to price match junk products or we'd miss earnings for sure. But customers don't always realize the difference. Yesterday a guy approaching me while I was walking by the lumber aisle where I don't even work. he shows me his phone ad and says "I need four sheets of plywood but you guys are sky high, I really don't want to drive to Menard's but you are $7 higher per sheet and that's almost $30!" I looked in his shopping cart and he easily had $200 worth of our other product. This one is easy, even though the product is definitely not the same. Walk him to the register and tell the cashier to price match the plywood, then beat the price just a little. We lost a couple dollars on the plywood. The manager would scold me if I summoned him to authorize this customer service action. The total transaction was still quite profitable, and this guy was thrilled. We'll see him again soon. I worked at Autozone for a while and I would have needed to involve a manager for even a $10 discount. It was embarassing to have zero empowerment and a big waste of AZ management time IMO.
RE: Home Depot, an ongoing discussion.... - Roadmap2Retire - 02-26-2019
This one surprised me from the earnings call transcript
![[Image: 6fOHIMB.png]](https://i.imgur.com/6fOHIMB.png)