Home Depot released its first-quarter results last week and they were sobering. The world’s largest home improvement retailer missed revenue expectations and reduced its 2023 fiscal year forecast, predicting that sales will decline between two and five percent this year. Previously, the company said sales in 2023 would be roughly flat.

Revenue for the quarter was $37.26 billion versus $38.28 billion expected. Comp sales fell 4.5 percent in the quarter. First quarter net income was $3.87 billion, down from $4.23 billion a year earlier.

Home Depot had reported a healthy performance in 2022, with sales up 4.1 percent following two of the best years of growth for the company—and the industry—in decades. But the market was already slowing through 2022, as LBM prices tumbled back down from the historic highs seen during the first two years of the pandemic.

While this industry flourished under Covid, forecasts by all the big retailers have tended to be moderate for the year ahead, as the momentum from home improvement and reno investments begins to tail off. Couple that with the fact that interest rates remain high and inflation rose again in April, to 4.4 percent from March’s 4.3 percent. That inflation is affecting core sectors such as food costs, and people are simply spending their money elsewhere. Home Depot said that customers were buying fewer big-ticket items.

The results fit a trend that independent dealers are already seeing—a slowdown versus a year of growth in 2022. It was a tough act to follow.

While Lowe’s results won’t come out until tomorrow, its year-end forecast for 2023 was already stated as flat or down one to two percent. Like its chief rival’s, this outlook may prove optimistic.

Canadian Tire Corp. shared similar pain in its Q1 results call, as overall net income fell 3.4 percent year over year. Comp sales for its Canadian Tire stores were down 4.8 percent. According to Greg Hicks, president and CEO of CTC, in a call to analysts, the outlook is more cautious moving through 2023.

“Given the macro backdrop combined with what we are seeing in the performance of our business, we are expecting a more constrained demand environment as we look forward, especially in the first six months of this year,” Hicks said. (Surely the most genteel way of saying, ‘People are buying less’ that we’ve heard in a long time!—Editor)

Like Home Depot, Canadian Tire has seen a shift in spending patterns by its customers. Discretionary spending has slowed, including for larger-ticket items, while its so-called “essentials” category has been moving a lot more product, especially automotive products and pet supplies.

(Next week, we will report on the business forecasts of independent dealers in Canada, using the data from our latest Hardlines Dealer Survey.)

Loblaw is the latest big retailer to enter appliance sales

Real Canadian Superstore, the big box format for the Loblaw chain, is now carrying heavy appliances in a pilot at its store in Milton, Ont. The retailer is teaming up with Canadian Appliance Source with a store-within-a-store model.

The pilot features more than a dozen brands, including LG, Kitchen Aid, Samsung, Bosch, and Frigidaire. At 1,900 square feet, the store-within-a-store concept will be operated by CAS appliance experts and offer the same service, terms, and conditions as standalone CAS stores. Customers will also be able to redeem PC Optimum points on major appliance purchases in this area of the store.

CAS was started in 2008 and now has almost 40 locations. They are concentrated in major cities like Toronto, Vancouver, and Montreal, but the retailer has locations across the Prairies and in Nova Scotia.

The appliance market is a strong one for home improvement retailers, albeit a relatively new one. The market for appliance sales opened up more than a decade ago when Sears, the leading appliance seller in North America, began its decline. Sears carried a range of brands, including its own Kenmore label. At its peak, it owned almost half the appliance market in the U.S., but even by 2003, Lowe’s was in second place with almost 14 percent of the market, while Home Depot was growing that category and had just over five percent of appliance sale share.

Lowe’s brought appliance sales with it to Canadian Lowe’s stores when it took over RONA inc. in 2016.

At one point, Sears Canada had 140 locations plus about 900 catalogue and online pick-up locations. When it closed its doors, Home Depot was quick to follow the Lowe’s lead in filling in the gap. Sears Canada closed its last store in January 2018, and soon after a new-look RONA store was introduced that featured an expanded appliance selection, following the model of the Lowe’s stores in Canada.

Other retailers followed suit. Home Hardware eventually made the foray into heavy appliances, and the category now constitutes an important part of many Home Hardware stores. Even many of Home’s smaller traditional hardware stores maintain a small showroom and take special orders.

Loblaw has plans grow its presence in appliances as well. The first pilot will be expanded “to a small number of additional [Real Canadian Superstore] locations across the country later this year,” according to a release.

Where is housing going? Mixed messages, but overall positive signs ahead

Sales of existing Canadian homes jumped by 11.3 percent in April compared to the previous month. With prices stalled and supply low, the market appeared to take off following Easter weekend, reports the Canadian Real Estate Association.

Greater Toronto and the B.C. Lower Mainland in particular,were hotspots for growth. However, the rate has not returned to pre-Covid levels. The actual (not seasonally adjusted) number of transactions for the month were still 19.5 percent below April 2022. Still, CREA notes that this was a markedly smaller decline than those seen over the past year.

Demand still outstrips supply, keeping the market tight. The number of new listings that came on the market last month was up only 1.6 percent and represents a 20-year low. However, most of that gain was from the previous month, indicating a trend of picking up speed.

And the price for real estate is not increasing dramatically. The actual (not seasonally adjusted) national average sale price posted a 3.9 percent year-over-year decline in April. Looking ahead, housing intentions for the country, as reported by Canada Mortgage and Housing Corp., showed an increase of 22 percent in April, reaching 261,559 units. In urban markets, housing starts rose by 26 percent, with the greatest gains in the big three markets of Vancouver, Toronto, and Montreal.

The condo market in key markets is also showing healthy activity. Multi-unit urban starts increased by 33 percent to 201,621 units in April. However, that gain comes at the expense of the single-detached market. Urban starts for single-detached homes actually decreased by two percent to 39,964 units.

CMHC, in its Housing Market Outlook – Spring 2023 edition, anticipates that lack of consumer confidence will hold prices and markets down, at least through the rest of the year. “Weaker economic growth and higher mortgage rates continue to slow the economy in 2023. As a result, we expect a price decline between 2022 and 2023, but the average price will not revert to pre-pandemic levels. However, we expect this decline to bottom out sometime in 2023,” says the report.

The Prairies are expected to lead the growth, while Ontario, British Columbia, and Quebec are expected to see large declines in 2023 housing starts, despite the April surge in condo starts.

New home activity is strengthening, but those gains are being made primarily with condo markets in major cities. Commercial-side dealers may benefit. For dealers relying on single-detached houses, the market continues to be slow. Nevertheless, the reno and décor market that is typically a beneficiary of home resales could show more signs of life moving into the middle of the year.

A warehouse robotics firm has filed a statement of claim against Canadian Tire over the latter’s mid-March fire at one of its largest distribution centres in Brampton, Ont.

Calgary-based Attabotics specializes in inventory storage and supply chain systems, helping companies compete against the likes of Amazon.

The start-up was working with Canadian Tire to develop robots (Not exactly as shown—Editor) that “move and pick in three dimensions,” according to the company’s website, to reduce the inefficiencies of “legacy” row-and-aisle warehouse systems. The company claims the fire at the Brampton CTC facility caused damages to Attabotics.

The damages, according to the claim, include “loss of reputation, business opportunities, goodwill, market share, and/or loss of profit.” The fire occurred because of Canadian Tire’s “wrongful conduct, statutory breaches, breaches of contract, gross negligence, willful misconduct, negligence, and recklessness,” the claim alleges.

Attabotics is a startup that raised $71.7 million in new funding at the end of last year to help it develop its business. Funding came through Export Development Canada, with involvement from the Ontario Teachers’ Pension Plan Board, taking the company’s total funding to $165.1 million.

DID YOU KNOW...?

…that entries for our 2023 Outstanding Retailer Awards (ORAs) are due to be emailed to Hardlines in just four weeks? Yes, the deadline is Friday, June 16. Entering the ORAs is easy. Just go to hardlines.ca and click on the ORAs link. You'll find everything you need to send us your entry. This prestigious award could be presented to you on the evening of Oct. 17, 2023, in Whistler, B.C., at the Hardlines Conference. If you win, you will be there as our honoured guest, accommodations and transportation included. Enter now! The publicity benefits of being named an ORA winner are huge!

RETAILER NEWS

Home Hardware dealer-owners Blair and Nyssa Kneller have expanded their store, Westlock Home Hardware, in Westlock, Alta., 90 kilometres north of Edmonton, from 8,800 square feet to 15,500 square feet. With the expansion, the Knellers now have an M&M Express meat shop and a large sporting goods department. The store has served the community for 110 years. Blair Kneller became dealer-owner of the store in 2012. In Ontario, Adam Moulton, dealer-owner of five Home Hardware stores, celebrated two grand reopenings recently following store upgrades of his own. He took over both Ingersoll Home Hardware Building Centre and Strathroy Home Hardware Building Centre in 2021.

Walmart has reported that its Q1 earnings came to $1.67 billion, down from $2.05 billion in the same quarter of 2022. Sales were up, however, rising by 7.6 percent to $152.3 billion. In Canada, net sales rose 6.7 percent to $5.5 billion while comp sales were up by the same percentage.

Target reported Q1 earnings of $950 million, or $2.05 per share, down from $1.01 billion a year earlier. Revenues overall edged up by less than one percent to $25.32 billion, beating an expected $25.29 billion. Comp sales for the quarter remained flat.

SUPPLIER NEWS

Rust-Oleum Canada has moved into the wall paint market. The company, best known for its range of specialty paints, stains, and anti-rust coatings, has now introduced Colour Spark, its newest foray into a broader range of coatings. The Colour Spark line consists of 13 pre-tinted shades which can be picked up in stores or ordered online. The self-priming paints come in both interior and exterior formulations and are available in either eggshell or semi-gloss finishes.

Taiga Building Products has become the official Canadian independent retailer distributor for Hoft. Based in Greater Montreal, Hoft manufactures all-aluminum privacy screens, railing, fencepost kits, and accessories. Hoft’s post kits are designed for both pros and DIYers.

Canfor Corp., the Vancouver-based forest products company, had a Q1 loss of $142 million. This compares to a profit of $534 million in the same period last year. The company blamed falling lumber and lumber product prices. Revenue in the quarter was $1.39 billion, down 37 percent from $2.21 billion in the previous Q1.

The Bosch Group ended 2022 with total sales of 88.2 billion euros (CD$129.2 billion), up 12.0 percent over the previous year. in the first quarter of 2023, the company saw a sales increase of 3.5 percent. North America was especially strong, with double-digit growth of 18 percent. In Europe, the company grew by 7.7 percent.

ECONOMIC INDICATORS

Investment in building construction declined 1.3 percent to $20.3 billion in March, with spending on residential builds down 2.1 percent to $14.6 billion. Investment in the single-family sector fell by 1.8 percent to $7.9 billion. Non-residential construction spending continued to climb, up 0.9 percent to $5.7 billion. (StatCan)

U.S. retail sales edged up by 0.4 percent in April. Sales by LBM and garden supply dealers were up 0.5 percent from March but remained 3.7 percent below last April. March’s data was revised slightly downward to a decline of 0.7 percent from the estimated 0.6 percent. (U.S. Commerce Dept.)

NOTED

Canadian Tire continues to invest in attracting members to its Triangle Rewards program, a loyalty program that rewards shoppers across all of Canadian Tire’s brands, including Mark’s, SportCheck, Party City, and PartSource. The program boasts 11.4 million active members. Canadian Tire’s new Triangle Select subscription membership program, launched in January 2023, now has more than 22,000 members.