Home Depot’s Online Engagement Skyrockets, but so do Operating Costs
The Home Depot saw online engagement and digital sales skyrocket, but increased operating costs from expanded worker benefits hurt profits.
The retailer reported earnings of $2.2 billion in its first quarter that ended May 3, down from a $2.5 billion profit in the same period last year. It also spent $850 million on expanded worker benefits in the quarter, including the expansion of paid time off for hourly workers, additional time off for employees over 65 and those deemed to have higher health risks, bonuses and doubled overtime pay, and extended dependent care benefits. Operating expense as a percent of sales increased approximately 22.5%.
The Home Depot Q1, 2020
- The Home Depot reported sales of $28.3 billion, a 7.1% increase from Q1, 2019. Comparable sales for Q1 were up 6.4%, and comparable sales in the U.S. were up 7.5%.
- Net earnings were $2.2 billion, or $2.08 per diluted share, compared with net earnings of $2.5 billion, or $2.27 per diluted share, in the same period of fiscal 2019. For Q1, 2020, diluted earnings per share decreased 8.4% from the same period in the prior year.
- The company incurred a total of approximately $850 million of pre-tax expense, or approximately $640 million after tax, equaling $0.60 per diluted share.
“Our decisions and actions are rooted in a commitment to do the right thing, to take care of our people, and be there for our customers and communities,” CEO Craig Menear said opening the company’s earnings call.
While the costs to support its staff during the coronavirus pandemic are high, as shelter-in-place orders rolled out across the country in mid to late March, Home Depot saw its digital businesses skyrocket from around 30% growth in early March to triple-digit growth by the end of April. Sales from digital platforms jumped about 80% in the quarter, and more than 60% of the time shoppers opted to pick up their orders at a store. Menear noted the retailer was able to extend to curbside pickup in the U.S. in a matter of days and in the case of its Ontario, Canada stores curbside capability was turned on “essentially overnight” when it became the only option to remain open.
Daily traffic to homedepot.com reached new records towards the end of the quarter, Menear said, and during the last three weeks of the quarter traffic was consistently above Black Friday levels.
“Our interconnected retail strategy and underlying technology infrastructure have supported record-level web traffic for several weeks without disruption,” Menear pointed out.
“What’s particularly encouraging is the number of new customers and the opportunity in the future,” EVP, merchandising Ted Decker also noted in the call.
Home Depot more than doubled its number of customers in every segment: customers from repeat customers, 6-12 months, less than 12 months, 12- 24, reactivated over 24 months, and brand new customers.
Additionally, mobile app downloads nearly doubled from their normal quarterly and weekly run rate and the engagement with e-mail and My Account signups tripled the normal run rate through the quarter.
“So, just terrific engagement across the business in our devices, and we’re very encouraged with this new and reenergized online customer base to work with these folks and contact them, engage with them in the future,” said Decker.