June 2007 Big Grower

What Will The Score Be After The Second Quarter? By Tim Hodson

As the first quarter of 2007 concluded, the big boxes were busy announcing and spinning their sales performances. It was a pretty rocky quarter for most of them as the overall economy continued to stagnate. Many of the retailers blamed their performances, good or bad, on the slow down in the housing sector and rising energy prices.

The Home Depot reported first quarter net earnings of $1 billion compared to $1.5 billion in the same period in fiscal 2006. Depot’s gross profit was down 1.8 percent and its earnings were down 29 percent compared to the same period in 2006. At Lowe’s, profits decreased 12 percent with a net income of $739 million, down from 2006’s $841 million. Wal-Mart said its net profit rose 8.1 percent in the first quarter to $2.83 billion but those numbers are “not where we were expected to be,” according to the company’s CEO.

It was interesting to look at the comments issued in these companies’ press releases and read their remarks to the press. Below is just a sampling:

• “The housing market continues to be a challenge, and erratic weather conditions across the United States negatively affected our spring selling season.” Frank Blake, Home Depot chairman and CEO.
• “Multiple factors, including a difficult housing market in many areas, tough comparisons to hurricane rebuilding efforts, and significant lumber and plywood price deflation, continued to create a challenging sales environment in the first quarter.” Robert A. Niblock, Lowe’s chairman and CEO.
• “We had record sales and earnings, but we’re not where we were expected to be. We are not satisfied with our overall performanceÉ[Wal-Mart’s sales are impacted by] three main concerns for our customers: income, cost of living and gas prices.” Lee Scott, Wal-Mart president and CEO.

Call them justifications, excuses, rationalizations or whatever, but there seems to be a trend here.

Are You The Second Quarter MVP?

Niblock said he didn’t foresee a huge turnaround in the housing market in the second quarter, but he thought the situation was “at or near the bottom” and, hopefully, the worst was over. He also said Lowe’s would “remain cautiously optimistic in our outlook” for the rest of the year.

Home Depot’s Blake wasn’t expecting things to get much better either saying, “We believe the home improvement market will remain soft throughout 2007.”

So what’s really in store (no pun intended) for the big boxes in the second quarter? More importantly, what can large growers like you expect for the second three months of 2007?

The second quarter is this industry’s busiest time. Can big box retailers count on their garden centers to help pull them out of their sales doldrums? Are your products the potential MVPs for these retailers? What are your customers telling you? What will the big box CEOs be saying at the end of this quarter?

I know that is a lot of questions to ask, but inquiring minds want to know. I guess time and sales will tell.