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Home Depot, an ongoing discussion....
#11
(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 Smile

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.
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#12
This one surprised me from the earnings call transcript

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#13
Yes the Pro accounts are growing but HD is spinning it some. 80% of those Pros are small-time Pros, not house builders with twenty house builds in progress at any given time. But the small-time Pros show up on the way to the jobsite to start their day like clockwork and get some materials. What these small-time Pros don't need is a clueless kid that will be gone in a couple months, making $9.50 an hour, screwing up their order with wrong product and messing up their day by requiring a return trip. That is exactly why they tell us they are here. They want to tell the Pro desk what they need, and leave without triple checking their order. They wish to check out in the Pro lane where Candy will be there giving them their daily smile, just like everyday the last 5 years because she isn't job hunting because she has good benefits for a retail job. Building materials are frequently scuffed because getting it here cheap is the priority for most suppliers. It's just how it is. That will be handled by an empowered cashier who can give a small discount to make it right. Jsut make the Pro happy without giving away the store. Pros have no time for the lowest wage employee and they are OK with paying some premium for less hassle. I truly think this is HD's secret to success. Get some decent help and keep them. VERY few chain retailers have figured this out. Practically none actually. Trying to even find a cashier at local Lowe's during rush hour is a challenge. They are chasing the Wal-Mart, almost no live cashiers model. I hear that constantly at work. I've lived it myself and it is aggravating.
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#14
Check out Lowe's earnings. Same deal as the past few quarters. Tracking HD's general direction, falling short of HD's metrics for same store sales etc. They are still wannabees. I do think they will get it right eventually. In my mind it just proves improving same store sales numbers is a VERY complicated matter that requires the entire team on board right down to the kid helping people load their cars in the parking lot. The old guy mixing paint knows he will get a profit sharing check twice a year if we make our sales number goals, or at least get close. Are the other retailers doing that? That is an honest question because I truly don't know.
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#15
Yeah saw the numbers on LOW this morning. I agree that by most metrics over the years, LOW has not been able to catch up to HD.

On another note, this divi raise from HD moves it from the Challenger list to the Contender list in the Dividend CCC list.
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#16
(02-27-2019, 02:58 PM)Roadmap2Retire Wrote: Yeah saw the numbers on LOW this morning. I agree that by most metrics over the years, LOW has not been able to catch up to HD.

On another note, this divi raise from HD moves it from the Challenger list to the Contender list in the Dividend CCC list.

And they probably don't have to as long as they follow the general trend in earnings growth and dividend.  The market is being a little rough on HD this week.  I think their is one more light quarter due to weather so it may be appropriate.  The two months of non-stop bad weather happened in this next quarter, and not the one they just reported.  I'll be ready to pounce on some shares next quarter.  I've accepted what I believe is the reality going forward.  These stocks will become little more cyclical.  Economicaly and seasonally.  It's not too easy to grow after you have 2,200+ stores so you can't meaningfully cover up any drop in organic growth through expansion.
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#17
I havent really dug too deep into this, but is there any push from management to expand globally? Seems like the HD (and LOW) are too focused on the N.American market and international expansion would help with the growth.
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#18
(02-28-2019, 10:10 AM)Roadmap2Retire Wrote: I havent really dug too deep into this, but is there any push from management to expand globally? Seems like the HD (and LOW) are too focused on the N.American market and international expansion would help with the growth.

From what I can remember, LOW has tried it in Canada, Mexico and Australia. None of those have really worked out.
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#19
(02-28-2019, 11:47 AM)crimsonghost747 Wrote:
(02-28-2019, 10:10 AM)Roadmap2Retire Wrote: I havent really dug too deep into this, but is there any push from management to expand globally? Seems like the HD (and LOW) are too focused on the N.American market and international expansion would help with the growth.

From what I can remember, LOW has tried it in Canada, Mexico and Australia. None of those have really worked out.

This is accurate.  The disposable income for your average household in Mexico doesn't fit their business model so well.  The true necessities are low margin commodity products.  I spent a few months on a cash register at HD and I assure you 75% of the items in the basket are luxury purchases you can do without if necessary.  Not sure about Canada, other than the very frequent brutal winters.  That is hard on home construction products.  The garden centers are very profitable for both companies as well.  That works a lot better with an extended gardening season.  Establishing the logistics of moving heavy items around in a day or two would be very expensive.   Part of the secret to success is HD and LOW's ability to move stuff fast for calamity of the month.  Plywood for hurricanes, sump pumps for floods, ice melt for ridiculous winters etc.  That's a lot easier with thousands of stores, and many regional warehouses. Reasonably easy to move emergency supplies around when it's only a few hundred miles.  It can and does happen in just a few days.
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#20
LOW ended up buying a chain here in Canada called Rona a few years ago and have been converting all the stores to LOW brand (and closing some other ones). There are still a few leftover called Rona, but I believe they are being converted to LOW brandname.

I hear you that the disposable income is probably higher in US, but an economically rising demographic such as Asia probably provides a good opportunity for companies like HD/LOW to enter the markets. I just did a quick search and looks like HD has tried some expansions in intl markets, but continue to focus on US market instead....perhaps a lack of traction in business internationally.
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