While Walmart and Target may have underwhelmed in November and December 2019, the full holiday season produced clear-cut winners and losers — results that will surely shape the retail landscape in 2020. Top highlights of Q4 earnings results include:
- The Home Depot’s $11 billion investment to integrate its physical and digital channels has undeniably benefited the retailer, but chief competitor Lowe’s has fallen far behind due to late e-Commerce investments;
- Best Buy and TJX once again show that they are well ahead of competitors when it comes to understanding what the modern shopper wants as they continue to beat sales and earnings expectations; and
- Department stores including Macy’s and JCPenney are still falling behind, relying on shrinking store footprints and moving away from ‘lower-tier’ malls and spending areas as ways to cut costs.
Buoyed by a strong housing market, The Home Depot had an excellent holiday season, showcasing that its online capabilities are becoming equally as important as its store operations. The home improvement retailer’s $11.1 billion three-year strategic investment plan to integrate its brick-and-mortar and online channels has certainly paid off since being implemented in 2018, with the company seeing same-store sales jump 5.2%, besting the 4.8% growth expected for the holiday.
Perhaps the best example of the investment’s accomplishment — shoppers elected to pick up 50% of their online orders within a store, according to Craig Menear, CEO of The Home Depot.
“We’re excited about our e-Commerce business as part of a whole interconnected retail strategy,” Menear said in an earnings call. “We believe that the front door of our store is now in the customer’s pocket, it’s on the job site, that most of our customer’s shopping experience actually starts in the digital world even if it finishes in the physical world.”
Home Depot reported that net income rose 5.8% to $2.48 billion, or $2.28 per share, beating Wall Street expectations of $2.10 per share. Q4 revenue fell 2.7% to $25.8 billion, but still outpaced analyst estimates of $25.76 billion. The average ticket also increased to $68.29, up nearly 4% from $65.59 a year earlier.
The retailer looks to continue the positive momentum into 2020, reiterating an annual forecast that calls for total sales growth of 3.5% to 4% and identical same-store sales growth of 3.5% to 4%.
Omnichannel Success At Home Depot Shows Lowe’s Needs To Catch Up
The Home Depot’s success also highlights a major gap between the home improvement retailer and its chief rival, Lowe’s. Lowe’s reported half the Q4 comparable sales growth of The Home Depot, at 2.6%, but perhaps the most troubling statistic is its poor e-Commerce sales. While Home Depot excels significantly in digital sales, generating 20.8% growth through the channel in Q4, Lowe’s growth sat at a minuscule 3%.
as Another illustration of the gap: The Home Depot is currently the fifth-largest e-Commerce seller by market share (1.7% of online sales), according to eMarketer, with Lowe’s nowhere to be found near the top 10.
In an earnings call, Lowe’s President and CEO Marvin Ellison pointed out that at the beginning of 2019, “Lowe’s.com was sitting on a decade old platform…Although we’re in the process of re-platforming the entire site to Google Cloud, that work will not be completed until Q2 2020. The good news is at Lowe’s.com we know exactly what our issues are, and we have temporarily slowed our dot-com growth to resolve those issues.”
Ellison also defended some aspects of Lowe’s performance: “There are very few large retailers in America delivering a 2.6% comp growth almost exclusively from the brick-and-mortar stores.” However, the retailer still has to focus on improving e-Commerce basics if it wants to bump sales across channels. For example, one of Lowe’s current projects is enabling shoppers to schedule an online delivery within a narrow time window. In another example of the disadvantages Lowe’s is saddled with, the company in some cases took “weeks and months to add drop-ship SKUs on our site because it’s very manual.”
If there’s one positive for Lowe’s, it’s that the retailer has been successful at cutting costs and improving profit under Ellison as CEO, in part by laying off workers and restructuring stores. Lowe’s reported a net profit of $509 million during Q4, a massive improvement over the $824 million loss during the same period last year.
Best Buy And TJX Continue Hot Streaks Through The Holiday
Two of the most consistently positive performers within retail in recent years have been Best Buy and TJX, and both companies shone once again during the 2019 holiday season. Both retailers managed to beat Wall Street estimates across earnings per share, revenue and same-store sales growth, demonstrating that the companies have done an excellent job of adapting their stores and offerings to changing consumer habits.
Best Buy, which saw its 12th straight quarter of comparable sales growth at 3.2% and Q4 net income of $745 million, has made significant strides to bolster its mobile experiences and convert online purchases into store visits. For the full fiscal year, “Customer visits to the Best Buy app were up 22% overall, and usage of the app within our stores was up approximately 17%,” said CEO Corie Barry during the Q4 earnings call. “Customers on the Best Buy app engage with us 8X more frequently than those who solely use our web site or mobile sites.”
Buy online/pick up in-store has become a major driver of online growth at Best Buy, which increased 18.7% and now represents 25% of U.S. revenue. In-store pickup comprised 42% of online sales in Q4, according to Barry.
TJX continued to take advantage of another major shopping habit to bolster holiday sales — cheaper, relevant and name-brand merchandise assortments across all banners. Net sales grew 10% to $12.2 billion, net income increased to $984 million and comparable sales jumped 6%, marking the 24th straight quarter of same-store sales growth.
“We note significant comparable sales upside at every division,” said Roxanne Meyer, Managing Director at MKM Partners in a research note to clients. She said that the U.S. “Marmaxx” division and TJX’s international business “continue to benefit from disruptive events (tariffs and macro weakness across Europe), impactful marketing and weaker performance at department stores, which we believe continues to fuel phenomenal access to goods.”
Macy’s Closures, JCPenney’s Struggles, Illustrate Another Down Quarter For Department Stores
In what has been a recurring narrative for department stores, Macy’s dropped the bombshell that it would close 125 of its 680+ stores and lay off 2,000 corporate employees by 2023 as it seeks to pivot away from lower-tier malls. While the retailer outperformed sales and earnings expectations, Macy’s still saw same-store sales drop 0.5% and net income fall 55% to $340 million.
JCPenney had another tough holiday season that once again led to questions about the company’s ability to operate in the long term. The retailer saw Q4 net sales drop 7.7% to $3.4 billion, with net income dropping from $75 million to $27 million. The department store also anticipates a drop in full-year comparable store sales for 2020 in the 3.5% to 4.5% range and is closing six more stores this year.
If there is one area that can be looked at as positive for JCPenney, it’s the company’s ability to trim its inventory, which has been a major issue for department stores as they transition to becoming less merchandise-heavy within their brick-and-mortar stores.
“Although comparable store sales declined 7.0% (4.7% when adjusted for its exit of appliances and furniture), inventory management was disciplined,” said Christina Boni, VP and Senior Credit Officer at Moody’s in commentary provided to Retail TouchPoints. “Inventories decreased 11% which supported its 200 basis point gross margin improvement in Q4.”
Kohl’s and Nordstrom are expected to release their holiday quarter earnings results on March 3 and March 4, respectively.