Home Depot’s Digital Transformation Investments Not Delivering Expected Improvement
Home Depot's Third Quarter 2019
- Sales of $27.2 billion, an increase of 3.5% compared to the third quarter of fiscal 2018.
- Comparable sales were up 3.6%, and comparable sales in the U.S. were up 3.8%.
- Net earnings for the third quarter of fiscal 2019 were $2.8 billion, or $2.53 per diluted share, compared with net earnings of $2.9 billion, or $2.51 per diluted share, in the same period of fiscal 2018.
- For the third quarter of fiscal 2019, diluted earnings per share increased 0.8 percent from the same period in the prior year.
The Home Depot cut its 2019 sales forecast again this year saying it needs more time for its digital transformation investments to pay off.
The home improvement retailer expects to invest nearly $11.1 billion over three fiscal years, and SVP of Finance Richard McPhail has noted in the past that it expected to deliver return on invested capital of above 40% by 2020. Now, as it approached the end of the second year of investment geared at achieving its One Home Depot vision, CEO Craig Menear said the company has realized its initial assumptions were off.
"Our third quarter results reflected broad-based growth across our business, yet sales were below our expectations driven by the timing of certain benefits associated with our One Home Depot strategic investments," said Menear. "We are largely on track with these investments and have seen positive results, but some of the benefits anticipated for fiscal 2019 will take longer to realize than our initial assumptions.”
Home Depot now said it expects full-year sales to rise 1.8%, down from a prior forecast of 2.3%.
Menear noted the retailer is seeing some wins from its initiatives and the company is investing for “long-term health.”
Home Depot’s B2B website experience is one example. Much of the retailer’s IT work and investment requires unwinding its legacy systems, which has proven to be more complex than originally anticipated, according to Menear.
“Our investments in a personalized B2B website experience is a significant component of the unique value proposition we're creating for our Pros,” he said.
Sales for Home Depot’s Pro customers, which it estimates represent 45% of overall sales, continued to outpace DIY sales in the U.S. in the retailer’s third quarter. It on-boarded 135,000 pros at the beginning of the year to the website and Menear noted they are the “most engaged customer cohort.”
“We're seeing meaningful lift in spend as these customers become more familiar with the new experience.”
The company migrated just above 780,000 Pros onto the website by the end of its Q3 and Menear said the rollout of the B2B site experience itself is on track, but underlying IT work must be completed before turning on additional elements of personalization and functionality. So far the retailer has added Buy It Again functionality and has made new user registration automatic, so as new customers sign up to the Pro extra platform, the retailer can automatically migrate them to the B2B website.
“Other investments are yielding results in line with or in some cases above our expectations,” Menear said, giving the example of the retailer’s main website where online traffic growth was healthy. Conversion was up and third quarter online sales grew approximately 22% from the third quarter of 2018.
Additionally, more than 50% of online U.S. orders were picked up in stores and Home Depot is continuing to rollout automated lockers in stores to make pickup easier. To date, approximately 1,300 stores have lockers and approximately 95% of customers rate their locker pickup experience five out of five stars.
“We fundamentally believe that when a customer comes to one of our stores it has to be a great experience,” said Menear. “Over 60% of our U.S. stores have a new look and feel and customer response has been very positive.”