Home Depot, an ongoing discussion....

[ken-do-nim]

Hey I just found this thread. Didn't know you worked at HD fenders, cool.

So I bought HD here where the arrow points, so it's been a very pleasant surprise. I assume this price movement is all because of the stimulus, right?

[fenders53]

I am your online source for insider HD trading. Just kidding, not like I am attending meetings at corporate before the earnings call. I'll tell you what anyone could learn with a bit of DD. HD grew sales 5-6% annually since forever. Like a light switch Covid turned it up to 20% which is beyond amazing. 14 months later nothing has changed. It's spring now which is actually HD and LOW Christmas season. All competitors in the sector are doing fine and the new stimulus is rolling in. I see no end to it soon. Some day comps will be impossible and HD will suddenly be very over valued. I have no prediction what quarter that is. I do know that I work at the #1 store in my district last month, quarter and year. Our numbers are nuts. HD has 2300 stores so that number by itself is meaningless. We are crushing corporate average numbers. Some stores are not.

Here are a few random comments for discussion. Some is my opinion and some is fact. It will all be relevant eventually.

-New housing starts have pent up demand for sure, but much of what goes into a house is commodity based costs at a time like this. A common 2x4 wall stud rose 300% over 2019 and has backed down to 200%. A 4x8 sheet of OSB sheathing you would put under the shingles and your siding was about $12 in 2019. It's $38 now and there are a lot of sheets in a modest sized house. Commodities are extremely low margin for HD. The lowest in the store. Timber mills getting that money. Builders are not going to honor contracts because they just can't. Will new home buyers pay a $50K upcharge for materials? In some places they probably will. I don't know how that plays out across the nation. All contracts from a pro have a materials cost clause. They say high commodity prices cure high commodity prices. That is how this will end. I sold my timber mill stocks I bought a few years ago. I am sure HD would make more money if prices cooled off because this is DEFINETLY going to kill lumber demand before long. It just has to.

-Labor costs have escalated and it's permanent. AMZN and TGT raised their minimum wage to $15. HD is feeling the pressure. I was getting Covid Hazard pay when other retailers stopped paying it. In AUG I got my obligatory merit raise of about 3%. I lead my specialty dept in sales (I'm not the fulltimer anymore) or they might have docked my raise a nickel/HR lol. To my surprise 6 weeks later they gave everyone with any tenure a raise equaling about 3 years of merit raises. Point is labor costs are up significantly and permanently. It's all covered up in massive but not permanent sales growth. They had no choice as I am skilled labor and I could have stocked grocery aisles at TGT before the raise and skipped the stress. HD will definitely fire you if you won't perform. They have to pay a little for that.

On a personal note if any of that sounded like I am disgruntled I didn't mean it that way. HD tries to treat their emloyees with respect. We get more training than any competitor by miles. They don't want to staff with clueless kids and customers do notice that. I enjoy my job though it is stressful because they understaff even worse after raises. My store's management is very good and I know they are under big pressure to always beat last quarter, do it with less staffing etc. This has nothing to do with HD stock price but my DEPT does get slow in JAN-FEB. They cut my hours in half and it annoyed me. When I saw my schedule I requested a leave of absence. "Call me when you need me enough to make it worth my time to dig my car out of a snowbank and drive in from the country on snowy roads". Store manager called me in and said "I got the schedule open. You tell me what days and hours you'd like to work and I'll fix this right now". That's when I knew my sales were probably more than good enough lol. Maybe I am fortunate but it's my impression managers are trained to work with knowledgeable part-timers life schedules. My store sure does it and it's not the only one. The highest skilled employees have other options and they know it. They seem to be smart about it. Some retailers just treat their employees as disposable. That is not a great plan.

Back to the subject, the HD ride is going to be interesting soon IMO. Great company but the ride is not going to be straight up much longer IMO. It's a beloved stock so it will MOMO whenever there is a reason and for now there is a reason. No chance I will add shares at these levels. No chance I won't add after the inevitable correction happens. LOW is not a better company. I'm not sure they will close the gap soon. But LOW stock is more compelling today. HD is a great company at a ridiculous price. LOW is an almost as good company at a better price. The best is worth a premium. But how much premium? I don't know.

[ken-do-nim]

As always you are a wealth of information. I'm absolutely shocked at those 300% price increases on materials. 2019 was apparently the last good year to do some home improvement.

How do your sales get computed? People who work sections in Home Depot are just there to answer questions; but you bring everything you buy up to the front.

[fenders53]

Sales are tracked in numerous ways.  Overall store sales of course.  All SKUs ring up with a Dept. Code.  They know by the hour the productivity of every dept.  They intentionally understaff Depts and employees call in sick.  I might sell a few K in power tools and water heaters any given day.  Those sales are not tracked personally and it happens every day.

There are also specially sales departments.  Kitchen/Bath design, tool rental, Pro Desk, Flooring, or in my case millwork which is custom door and window design.  Our every move is tracked in specialty sales.  Closed sales, open quotes.  I am not paid commission but specialty sales are paid a higher hourly wage.  We can see our personal sales stats for our Dept co-members.  We know how we rank in the district, region etc against similar Dept types.  One of the stores assistant managers is responsible for all specialty Depts.  I saw one fired pre-Covid.  HD hits numbers because they track.  Any successful retailer does.  Some do it better.

Anyway on an off season slow day my Depts gross sales might only be 5X our salary.  Peak season like now I might personally match my quarterly salary in a weekend.  Several times a year I might match my annual salary in one large sale.  Gross sales is not profit of course.  Just interesting numbers.

[fenders53]

The understaffing is problematic. Customers voice their opinion and it's not pleasant. And some customers tell me they are at HD because our major competitors are worse at manning depts. If you know what you need and it isn't large AMZN looks attractive. HD highly improved their online sales model during Covid. Details shared in recent earnings calls. They also launched buy online pick up in store.

As a share holder it's interesting to watch. HD is very efficient. Except in a small store where they store products to the moon. We aren't automated like a modern warehouse and the amount of human time moving products multiple times needs evaluated.

Other big box retail has a completely different approach. An Autozone parts man makes 20% less than the high school aged cashier at HD or TGT. AZ barely gets somebody trained before they move on. HD has a lot of employees with well over 5 yrs service.

This whole adventure makes me so thankful I pursued a good career. A lot of my co-workers scratch hard to pay their bills. I am there because I want to stay out of my IRA a few years. I was fully retired for years.

[fenders53]

Never mind what I said about LOW. They ran up more than I realized. HD has traditionally traded around a 20-21 PE. They are currently at about 25. All the quality retailers look pretty spendy today. I wouldn't tell anyone to buy some more HD this week, but they will find a way to grow earnings. Still a great company to hold for years IMO. How will the market react when they give guidance of next to no YOY revenue growth some quarter soon? That will probably be a good month to add. I think it's reasonable to believe they will trade under 20 PE again but I am not predicting it anytime soon.