Lowe's reports huge quarterly earnings boost

MOORESVILLE, N.C. – Lowe's Cos. identified its installation services as one of the driving forces behind its significant gains in sales and profit for the three months ended May 3, 2006. During that period, the company's 1,258 stores produced net income of nearly $841 million. That's an increase of 43.5% above the same period a year ago on sales of nearly $12 billion, which were up 20.3%. And while its stores' average ticket rose 6.7% in the quarter to a record $70.74 per transaction, the company scaled back its projections for total revenue and same-store sales growth for the year because of rising fuel costs that are cutting into customers' discretionary spending. During the quarter, Lowe's opened 24 stores, on its way to opening a total of 155 this year. And those stores increased their overall share of industry sales in appliances and outdoor power equipment, according to company officials. Bob Niblock, the company's CEO, also pointed to the growth in installed sales, particularly bathrooms, as a positive factor in the company's quarterly financial performance. That performance, though, disappointed some analysts, especially the company's same-store sales increase, which some company watchers expected to be in the 7% range. The investment community, in fact, has become a lot more vocal about its disgruntlement over the performance of companies in the home improvement sector, as evinced by the drop in Home Depot's stock price in recent days.

	Home Depot	Lowe's
Revenue (US$bil.)	$21.5	$11.9
% chg. vs. '05	13.1	20.3
Same-store % chg	n/a	5.7
Earnings (US$mil.)	$1,480	$841
% chg. vs. '05	19.0	43.5
Store count	2,051	1,258

 

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TSC ousts president, braces for further expansion

LONDON, Ont. – Five years after heading up the takeover of TSC Stores, Roy Carter is no longer its president and CEO. The company, a chain of 27 farm and hardware stores spread throughout Central and Southern Ontario, re-structured last August, when Birch Hill Equity Partners spearheaded an investment in TSC that turned over 75% of the company to outside hands. This financial infusion gave TSC the clout to step up expansion. At the end of last year, revenues had exceeded $100 million. John Leitch, TSC's vice-president of finance and CFO, has been asked to step in as interim president until a replacement is found. Carter will continue as a shareholder and sit on the TSC board. "The board remains committed to the business and its growth prospects," says Leitch. Already this year, two new stores have been added in Northwest London (Hyde Park) and in Orangeville, while two existing stores have been re-located and expanded. He expects another five stores to be added by year's end, in Lindsay, Brockville, Smith's Falls, and Cornwall. Birch Hill Equity Partners is a private equity investor that focuses on mid-market companies. It manages $1.7 billion in capital.

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Buying groups remain strong vehicles for independents

SPECIAL REPORT – The retail home improvement industry enjoyed strong growth again in 2005, maintaining a hot streak that has typified most of the decade. Building materials dealers, whose stores range from contractor-oriented lumberyards to building centres and DIY-driven home centres, account for approximately 45% of the industry's sales overall last year. They were organized, for the most part, within about a dozen groups. However, consolidation has affected the buying groups in the past couple of years. In 2004, Tim-BR-Mart Ontario joined forces with TIM-BR Marts Ltd., its sister group in Western Canada. Then, effective December 2005, AWARD folded its remaining membership into Tim-BR-Marts, as well. In November 2005, Tim-BR-Marts managed to add The Signature Group's GSD membership to its ranks. In 2005, estimated total sales at retail by all the buying groups were up a healthy 5% over 2004. (Our full report on the size and growth of Canada's buying groups appears in the latest edition of our sister publication, Hardlines Quarterly Report, available now! – Editor)

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Taking back its big boxes not part of RONA's plans

BOUCHERVILLE, Que. – Is RONA busy buying back ownership of big boxes owned by its members in Quebec? Nah. At least, not according to Sylvain Morissette, spokesperson for the country's second-largest home improvement retailer. Rumours began to circulate last month that RONA might have been consolidating its big box holdings in preparation for a possible takeover bid by Lowe's Cos., which has established offices in Canada. However, says Morissette, that's simply not the case. The rumour was sparked when a RONA L'entrepot in the Montreal area was sold back to the parent company. But in that case, the dealer just wanted out. "It's not rare to see someone who wants to sell all or part of their shares. RONA has the right of first refusal to buy the store," says Morissette. And, he adds, RONA will not necessarily hang on to the property. "We may sell it to another dealer." Rather than buying back existing member dealers, RONA is staying true to its plan to continue expanding through the expansion of existing dealers and through the acquisition of new dealers, especially pro-oriented yards. "We see the opportunity to buy more chains of 5-15 stores with annual revenues of $50-$150 million." The company will continue to build new stores of its own, as well. "We have three or four on the books for opening in the next two months, and 14 stores that are ready to begin construction," says Morissette.

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Do it Best showcases new store design program at dealer market

FORT WAYNE, Ind. – Do it Best Corp. is re-energizing its store environments with a brand new look. At the dealer-owned co-op's bi-annual buying market held here last week, the company launched the "Signature" Store Design Program for new construction and retrofits. The new look is aimed at taking the customer experience to a new level while reinforcing the quality-service orientation of Do it Best members. Do it Best Corp. selected Design Forum, a retail design firm, to work on the project. The new design has an upbeat ambience and contemporary flair, enhanced by updated graphics, maximum-impact displays and an improved layout that provides a more accessible and focused shopping environment. The new look will cater to the changing customer demographic, including the growing numbers of women shoppers. "The Signature Store Design Program works on a number of different levels to improve store performance," said Bill Zielke, vice-president of marketing and international development. "It delivers on the consumer's increased demand for style and convenience and offers members the opportunity to highlight their local brand, product expertise and service reputation." The interior of these new-look stores will feature inspirational photos and a neutral-toned color palette, contributing to a warm, contemporary feel. Special "how to" graphics educate shoppers and reinforce the project expertise of the store's staff. New fixture elements, called "authority towers," allow dealers to call attention to their most important product categories. Fashioned from corrugated metal, the fixtures are from 9-12 feet high, depending on ceiling height, and are designed to display informational graphics. To further accommodate the needs of individual dealers, the program incorporates three separate branding strategies: Do it Center (fully-branded stores with a level of consistency across all locations; Do it Best (co-branded, with more flexibility for the member-store); and member-branded stores (trades mainly on the equity of the individual member's name and offers the maximum flexibility). "We developed the new store design program as a flexible kit of parts that can be adapted to the specific member needs, accommodating different store layouts and specific marketplaces," Zielke said. "It is not a cookie-cutter design."

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Kingfisher profits tumble in first quarter

LONDON – Kingfisher plc, the home improvement retail giant with businesses in Europe and Asia, reported a 45.3% decline in net income, to £68.4 million (US$128.1 million) for the three months ended April 29. The company's profit was dragged down primarily by its businesses in the United Kingdom, whose income for the quarter plummeted by 70.3% to £21.9 million. During the quarter, Kingfisher's sales rose 4.1% to £2.02 billion, propelled in part by strong showings of its stores in Asia (whose quarterly sales were up 90.1% to £84 million) and its European stores outside of France and England (up 32.4% to £206 million). However, its U.K. sales fell 5.5% to £1.03 billion, and profits for stores in France were flat despite enjoying a 7.6% sales increase. Gerry Murphy, Kingfisher's CEO, blamed cold weather during the quarter for the poor results in the U.K., where, he said, business "continued to be very tough." Looking at the bright side, though, he said that Kingfisher's B&Q home centers (which generate 92% of Kingfisher's U.K. sales) made "further progress" in their program to improve customer service and product assortment. In a prepared statement, the company said that "Service Squads" – teams of customer service employees – are now in 200 of B&Q's 322 stores. Kingfisher continues to lose money in Asia, where it reported a quarterly loss of £7.7 million. But the company still looks at the China market in particular – where it ended the quarter with 49 stores there, of the 71 it operates throughout Asia – as still being in the developmental stage. Kingfisher ended the quarter with 663 stores in 11 countries. It also owns a 21% stake in Germany-based Hornbach, with 120 warehouse home centers. Hornbach recently reported that its sales for the fiscal year ended February 28, 2006, increased 6.7% to 2.23 billion euros (US$2.83 billion), but its profits plunged 42.4% to 24.9 million euros (US$31.65 million).

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SPECIAL REPORT: inside Home Depot's new convenience-store format

NASHVILLE – Four Home Depot locations surrounding Nashville now have "convenience" stores in their parking lots. Part of CEO Bob Nardelli's latest diversification effort, the new retail concept is selling gasoline and a limited selection of packaged and ready-to-eat food items, including hot dogs, sausages, and sandwiches. Convenience stores in the United States represent a substantial business on their own, racking up gasoline sales, plus selling a thousand or more other items ranging from newspapers and magazines to hot coffee, cold soft drinks, health and beauty aid sundries, candy, miscellaneous sundries, and more. By contrast, Home Depot's test stores are much more limited in their merchandise offering, relying on snacks, candy, some food items and hot and cold drinks for the retailer's regular DIY and trade customers to consume immediately back on the job site. The stores are handsomely designed inside and out, with bright, dramatic graphics, wide, angled aisles and an uncluttered appearance. Those angled aisles lead to a back-of-the-store checkout, encouraging full exposure to its impulse inventory of candy, snacks, etc. The angled aisles and low fixtures also discourage shoplifting because store personnel can keep the entire small sales floor under surveillance. Inside, the stores feature the very latest in coffee, cappuccino and cold drink dispensing machines, which give the impression that refreshments here will be closer in quality to Starbucks than simply "coffee". Gas prices shave a penny off prices charged by nearby stations, but holders of Home Depot credit cards could save an extra three cents a gallon by using that card, a technique also used by other parking lot stations. These convenience stores are just one more example of the diversification efforts Nardelli is introducing into Home Depot. When he took over five years ago, he quickly realized the company was nearing saturation of its conventional store format. Opening more stores in existing markets will only cannibalize sales in existing stores, and there are few, if any, major markets untouched by Agent Orange. The c-store concept provides a low-cost way of leveraging more sales from existing locations. The biggest expense is likely the building itself and the dispensing equipment. Staffing costs are minimal, as only one or two people are needed to handle the sales flow. Occupancy costs would be non-existent, since the stations occupy unused space in the existing parking lots.

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