The world’s two largest home improvement retailers released their third-quarter results last week. Both provided strong numbers, especially given the big gains enjoyed by them—and pretty much the entire industry—over the past two years.

But if their respective financials are any indication, the days of crazy Covid-fuelled growth are definitely easing.

Home Depot’s Q3 profits rose 5.1 percent to $4.34 billion on revenues that were up by 5.6 percent to $38.87 billion. Strong numbers on their own, but by comparison this was more normal growth compared with an increase of almost 10 percent in the same quarter of 2021. Home Depot’s comp sales for the latest quarter were up by 4.3 percent, also down compared to 6.1 percent a year ago. Canadian comps were below that average and U.S. comps were up 4.5 percent.

Lowe’s reported profits of $154 million, which included a pre-tax non-cash asset impairment charge of $2.1 billion related to its Canadian retail business, compared to profits that more than doubled in the third quarter of 2021. Sales reached $23.48 billion, up from $22.92 billion a year earlier. Comp sales for the quarter grew by 2.2 percent, while comp sales for the U.S. home improvement business increased three percent, boosted by revenues from pro customers, which were up 19 percent.

On a monthly basis, Lowe’s and Home Depot saw their strongest comps in August, which then slowed in September and October (both retailers have Jan. 31 year-ends).

Both companies reported that DIY sales were back up, helping drive results. Through Covid, contractors represented the main sales driver, especially for Home Depot. While that customer base continues to be the strong growth vector, the retail customer is definitely making a comeback.

Online sales have also come more in line with traditional growth rates. Lowe’s saw its online business grow by a healthy 12 percent, on top of the 25 percent growth realized last year. Home Depot’s online business was up almost 10 percent compared to the same period a year earlier. About half those sales were fulfilled through its stores.

Looking ahead to the rest of the year, Home Depot has forecast annual growth for 2022 of three percent. Lowe’s expects similar yearly growth of between two and three percent.

U.S. analysts not as interested in sale of Lowe’s Canada as you’d think

Lowe’s executives shared more details about the sale of its Canadian business during a call with analysts last week. The analysts’ call is a Wall Street tradition: after the company’s results are posted, usually by 8 a.m. that morning, the top execs hold a phone conference with the analysts who guide decisions for the investment community.

These calls typically start with prepared comments from key executives, followed by questions from the analysts. (Journalists can listen in but not ask questions on these calls.)

Marvin Ellison, chairman, president and CEO of Lowe’s Cos., led his company’s call last week. He was joined by Bill Boltz, EVP merchandising; Joe McFarland, EVP of stores; and CFO Brandon Sink.

Ellison offered a viewpoint that housing starts and interest rates won’t affect Lowe’s as much as some investors might think. Ellison’s claim was that the DIY and pro business that drives most home improvement retailers, including Lowe’s, is not directly linked to those data sets.

Ellision then moved to the sale of Lowe’s Canada to private equity firm Sycamore Partners. That deal was announced at the beginning of this month and is expected to close early in the new year. The problem, Ellison admitted, wasn’t what was wrong with Lowe’s Canada—aside from how it didn’t fit in with the mother ship or the profit levels of a U.S. company.

“Over the last few years, we focused on the retail fundamentals of our Canadian operations, which brought the Canadian business to profitability and improved its operating cash flows,” Ellison said. “However, for this business to achieve the profitability in line with the U.S., significant incremental capital investments would be required to streamline the banners and improve operating margins.”

The Canadian business provided too much complexity for the U.S. head office. The Lowe’s/RONA/Réno-Dépôt multiple banners and various ownership models were unlike anything Lowe’s operates south of the border. While no analyst on the call said so, they are constantly comparing Lowe’s performance against its rival Home Depot, which operates in Canada the same way it does in the U.S.

Ellison noted that complexity and the importance of sticking to the core U.S. business and growing market share there. “This transaction will simplify our business model, improve our operating margins and return on invested capital, while enabling us to deliver sustainable value to our shareholders.”

Reality check: while the deal has rocked the Canadian market, igniting the national media and even warranting air time on CBC radio morning shows across the country, the topic of the Canadian divestiture elicited a grand total of zero questions from the analysts on that call.

Kent must open books to CRA to share its pro accounts, court rules

The Federal Court of Canada has given the Canada Revenue Agency the green light to comb through the records of Kent Building Supplies’ pro and commercial customers.

A division of J.D. Irving, Kent has 48 building centres and big boxes in Atlantic Canada.

In its latest push against the underground economy in construction, the tax agency had applied to the court to obtain “significant data” on pro customers’ purchases from Kent dating back to Jan. 1, 2019.

Kent is now required to forward to the CRA the name and contact information, CRA business number or SIN, and total transaction amounts for all contractors belonging to the retailer’s Kent Pro loyalty program who have spent more than $20,000 annually.

Hardlines contacted Kent but was referred to the only statement parent company J.D. Irving issued, to the National Post, calling CRA’s action a “common and routine practice for home improvement retailers in Canada, where select contractors are concerned.”

They’re right—and it seems to happen regularly in November when the year is coming to a close. Home Depot Canada faced the same battle at this time in 2019. A court order was required, forcing Home Depot Canada to turn over records of sales to its contractor customers for the years 2013 through 2016.

Two years earlier, RONA went to court to attempt to block CRA from doing the same thing. At that time, the feds investigated RONA’s trade customers at some of its stores for the years 2012 to 2015.

In 2018, CRA estimated that the underground economy exceeded $50 billion, with residential construction accounting for about half of that.

Concerns about shrinking housing markets in this country have been borne out by the latest numbers indicating slowdowns in both new and resale housing.

Sales of existing homes actually edged up by 1.3 percent between September and October, according to the Canadian Real Estate Association. But that’s the first monthly gain since February. These numbers are adjusted for seasonal variations in housing markets, but the actual number of transactions in October plummeted by 36 percent compared to the same month last year.

About 60 percent of all local markets saw sales rise in October, although both gains and declines were generally small across the board. The largest gain, a six percent increase in Greater Vancouver, was offset by a 2.4 percent decrease in activity in Montreal.

New housing is softening as well. October’s annualized rate of housing starts came in at 267,055 units, down 11 percent from September’s high of 298,811 units. The rate of total urban starts also declined by 11 percent, falling to 245,234 units.

Multi-unit urban starts decreased 13 percent to 188,189 units, while single-detached urban starts fell by four percent to 57,045 units. Rural starts were estimated at a seasonally adjusted annual rate of 21,821 units.

Investment in building construction declined 0.6 percent to $20.9 billion in September, StatCan reports, all due to residential spending. The residential sector decreased 1.3 percent to $15.4 billion. Conversely, the non-residential sector rose 1.6 percent to $5.4 billion.

The Lumber and Building Materials Association of Ontario has announced the appointment of Trevor Small to succeed David Campbell, who stepped down as president effective Nov. 1 after 20 years in the role. Small grew up in his family’s building supply business and also owned and operated one of his own in Bowmanville, Ont., in addition to his experience on the vendor side of the business.

Paul Wood resigned last week as CEO of Giant Tiger Stores Ltd. Gino DiGioacchino, a member of the board of directors and a former senior VP at Home Depot Canada, has been appointed to the role on an interim basis.

DID YOU KNOW...?

... The latest edition of Hardlines Dealer News went out last week? In this issue, we talk to some top RONA dealers for their take on the Lowe’s Canada sale; plus an expanded interview with Home Hardware’s chief marketing officer, Laura Baker. If you’re not already receiving Hardlines Dealer News, click here to sign up for free!

The 2022 BMR Buying Show was held at Quebec City’s Centre des congrès. The event returned to a fully in-person format this year following last year’s primarily virtual show, enabling dealers and vendors to gather in the historic city to network and trade. BMR Group’s gala capped off the event.

Walmart Inc. has posted an increase of nearly nine percent in sales for the third quarter, as Americans turned to its groceries to stretch their budgets. In Canada, net sales were up 5.5 percent while comp sales rose by 5.2 percent. The retail giant’s net loss of $1.8 billion was driven by settlement of litigation related to opioid sales in its pharmacy business.

Ace Hardware Corp. reported record third-quarter revenues that reached $2.2 billion, up 10 percent from the third quarter of 2021. Profits were up slightly to $100.6 million, an increase of $1.3 percent. Ace’s 3,600 retailers reported a 5.8 percent increase in U.S. retail same-store sales. Estimated retail inflation of 11.2 percent helped drive a 9.5 percent increase in average ticket. Same-store transactions were down 3.4 percent. 

BuildDirect Technologies Inc., the Vancouver-based internet LBM seller, reported Q3 revenues of $22 million, down from $22.3 million in the comparable period of 2021. Profits declined to $6.9 million from $8.1 million a year earlier. Revenue from pros reached $19.4 million, representing 88.2 percent of the company’s total revenue and a 5.6 percent growth from the previous quarter.

Wolseley Canada held a grand opening last week for its newest branch, located in West Kelowna, B.C. The 17,000-square-foot facility offers a full range of Wolseley Canada’s plumbing and fire protection products, with HVAC products to be added over time. Jarett Smith is the store manager.

IN MEMORIAM

Jim Gillies has died at the age of 76 after a prolonged illness. Gillies held senior sales and marketing positions with Newell Companies and Fiskars Garden Tools. He served for several years on the board of the CHHMA (now CHPTA). Gillies is survived by his wife Marlene, son Jeff and daughter Kim, and four grandchildren.

ECONOMIC INDICATORS

Housing starts in October were at an annualized pace of 267,055 units, down 11 percent from September’s high of 298,811 units. The rate of total urban starts also declined by 11 percent, falling to 245,234 units. Rural starts were estimated at a seasonally adjusted annual rate of 21,821 units. (CMHC)

Investment in building construction declined 0.6 percent to $20.9 billion in September, dragged down by a 3.4 percent drop in Quebec. The residential sector decreased 1.3 percent to $15.4 billion. (StatCan)

U.S. housing starts in October were at a seasonally adjusted annual rate of 1,425,000, representing a 4.2 percent drop from the previous month, and down 8.8 percent year over year. Single‐family starts fell by 6.1 percent.

NOTED

We noted in People On The Move that Gino DiGioacchino has taken over the interim leadership of Giant Tiger Stores following the departure of CEO Paul Wood. DiGioacchino was well known in this industry for many years as second in command at Home Depot Canada during the growth era under then-president Annette Verschuren. How did spelling-challenged Hardlines consistently get DiGioacchino’s name right on such an uncharacteristically regular basis? Our over-worked editor used Auto Correct; when he typed “Gino D” the full name inserted automatically, thereby ensuring the highest editorial standards that you, our Faithful Readers, encounter here several times a year.

OVERHEARD...

“I would like to thank our entire Canadian team for their hard work and dedication to our customers, and we look forward to collaborating with Sycamore Partners in executing a seamless transition.”
—Marvin Ellison, chairman and CEO of Lowe’s Cos., on a call to financial analysts last week, when he gave a few more details of the sale of Lowe’s Canada.