Quantfury Gazette

The Home Depot (NYSE:HD) is on a mission to bring home the professional contractors

by
Nathan Crooks
Quantfury Team
home depot

The Home Depot (NYSE:HD), the largest home improvement retailer in the world, is doubling down on efforts to reverse declining sales by expanding operations to serve professional contractors with a fresh $18 billion acquisition.

The company said last week that it would buy SRS Distribution, a specialty trade firm that serves roofers, landscapers and pool contractors with a fleet of more than 4,000 trucks and a salesforce of 2,500 people. The move is the latest step the company has taken toward serving the so-called professional sector and comes after sales declined 2.9% in the fourth quarter last year as do-it-yourselfers responded to rising prices by deferring larger projects.

While the National Association of Home Builders found that most remodelers have a positive outlook on the state of the industry, its latest NAHB/Westlake Royal Remodeling Market Index shows that sentiment is still at the lowest level it’s been at in at least three years. Analysts, meanwhile, predict that interest rate cuts expected by the US Federal Reserve this year could boost Home Depot and its competitors, including Lowe’s (NYSE:LOW). Home Depot shares have rallied 23% over the past six months, while Lowe’s has seen similar gains of 21%.

The approach into more specialized segments comes as Home Depot expects that higher interest rates will continue to pressure demand in 2024, and, while macroeconomic forces affect both large and small clients alike, the company is betting that a focus on quality clients with deeper pockets will help it pick up market share.

The SRS transaction, which is slated to close by the end of the year, will allow Home Depot to better serve customers involved in complex projects like renovations and remodeling. It will expand the company’s addressable market, a metric used to define total revenue available in its business sectors, by $50 billion to nearly $1 trillion. The company reported total sales of $152.7 billion in 2023, down 3% from the previous year.

“SRS has built a robust and successful platform that will accelerate our growth with the residential professional customer while presenting future opportunities with the specialty trade pro,” Home Depot CEO Ted Decker said. 

In the company’s latest earnings call, Decker said that the “managed account customer who is engaging in the ecosystem that we’re building” was the “highest performing customer segment” last quarter and should continue to be so this year. 

Last month, the company said that it would expand its professional ecosystem with new distribution centers in Detroit, Los Angeles, San Antonio and Toronto that will specialize in bulky merchandise like lumber, insulation and roofing shingles.

“Over the last several years, we have been investing to deliver a faster, more convenient, differentiated experience for our pros,” said Chip Devine, senior vice president of outside sales. “Our distribution network is one piece of the comprehensive pro ecosystem we’re building to better meet the needs of this important customer.”

It’s a strategy that bears some resemblance to the one used by Amazon (NASDAQ:AMZN), which consistently comes out on top of its peers because of its razor focus on its logistics network. Home Depot can’t control macroeconomic headwinds, but it’s using the tougher times to focus on its infrastructure. The investments could pay dividends for years to come.

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