Home Depot Boosts E-Commerce — and Employee Pay

Digital pulled extra weight for The Home Depot in the third quarter of 2020, as the Atlanta-based retailer revealed that it would spend some $1 billion annually to make temporary pandemic wage increases permanent.

The retailer’s overall revenue increased 23.2% year over year for the third quarter of fiscal 2020, it said, reaching $33.5 billion. Comparable sales for the third quarter of fiscal 2020 increased 24.1%, and comparable sales in the United States grew 24.6%. Net earnings for the third quarter of fiscal 2020 were $3.4 billion, or $3.18 per diluted share, compared with net earnings of $2.8 billion, or $2.53 per diluted share, in the same period of fiscal 2019.

"The third quarter was another exceptional quarter for The Home Depot as we saw the continuation of outsized demand for home improvement projects, which has led to sales growth of more than $15 billion through the first nine months of the year," said Craig Menear, chairman and CEO. "Our ability to effectively adapt to this high-demand environment is a testament to both the investments we have made in the business as well as our associates' focus on customers.”

Online Gains

As pandemic shopping habits become further ingrained, e-commerce continues to grow more important for The Home Depot, according to Menear.

“Sales leveraging our digital platforms increased approximately 80% versus the third quarter last year, and approximately 60% of online orders were fulfilled through a store,” he told investors on the post-earnings conference call.

The digital experience promises to become even more important during the fourth quarter and into 2021, he said, while offering more specifics on the retailer’s e-commerce efforts.

“Over the past several months, we have refreshed the digital experience in key categories and are extremely pleased with the customer response,” he noted. “In decorative lighting, for example, we enhanced the category experience to offer improved visual imaging and more lifestyle photos of our on-trend lighting assortment. As a result of these changes and increased marketing effort to better highlight our offering, we have seen significantly higher customer engagement with the category online, which helped to drive sales growth above the company average in the quarter.”

Looming Acquisition

The Q3 results come after the chain said that it would buy HD Supply Holdings Inc., an Atlanta-based national distributor of maintenance, repair and operations (MRO) products in the multifamily and hospitality end markets. According to The Home Depot, the acquisition could position it as a premier provider in the MRO marketplace.

“As you know, the MRO customer is an important pro customer for The Home Depot,” Menear told investors. “We are committed to better serving the MRO customers and growing in this space. The success we’ve had with our existing MRO business makes us confident in our ability to accelerate sales growth in a highly fragmented $55 billion MRO marketplace.”

As that acquisition looms, the retailer keeps dealing with pandemic challenges and making changes to better serve consumers during these times.

“Actions we’ve taken across our supply chain, in our stores and in partnership with our suppliers have helped us to improve in-stock levels, reduce lead times, better manage in-store replenishment, and improve fulfillment options and delivery times,” Menear said. “All of this has ultimately translated to over 300 basis points of sequential improvement in customer satisfaction scores for the third quarter.”

Pay Increases

As for the employee pay increases, Menear positioned the move as part of the retailer’s focus on taking care of its workforce.

“Through the end of the third quarter, we have spent approximately $1.7 billion on temporary pay and benefits in response to COVID-19,” he said. “We have now made the decision to transition from our temporary weekly bonus program to invest in permanent compensation enhancements for our front-line hourly associates. This will result in approximately $1 billion of incremental compensation expense on an annualized basis. Our orange-apron associates are the heartbeat of The Home Depot, and supporting them through this time of uncertainty and beyond continues to be a key priority.”