Home Depot hammered it home this morning–earnings beat expectations, and the stock is up 3%, to just under $27. Nice surprise after Lowe’s disappointed yesterday. The No. 2 home-improvement retailer reported a 19% profit dip in its second quarter and, even more worrisome to investors, a 9.5% decline in same-store sales.
So what is Home Depot, the market leader, doing right? The new Fortune, hitting newsstands this week, delivers some intelligence on that. My colleague Geoff Colvin did a comprehensive interview with Home Depot CFO Carol Tome, who has seen it all. I remember when Tome joined Home Depot from Riverwood International Corp., a packaging and paper products company, 14 years ago. (I was a student of Home Depot back then.) We’ve followed Tome via our Most Powerful Women tracking and watched her weather the tumult as the mega-retailer has gone through four CEOs. Tome has worked for Bernice Marcus, Arthur Blank, Bob Nardelli, and Frank Blake.
Now Blake is Home Depot’s chief, and Tome has an expanding purview. (She’s also on the UPS board, where she chairs the audit committee, and last year she joined the board of the Federal Reserve Bank of Atlanta, where she’s deputy chair.) Blake and Tome and their team are doing a lot of smart things. Since you probably don’t yet have your new Fortune in hand and since the Tome interview won’t be on Fortune.com and CNNMoney.com until Thursday, here’s a preview of what the savvy survivor says about “Renovating Home Depot”:
Recognize what you’re good at. “We have a three-legged strategy, and you will recognize this from Jim Collins’ book Good to Great. What are we passionate about? We are passionate about our customers. What are we the best at? Product authority. And what drives our economic engine? Productivity and efficiency. It is no longer driven by square-footage growth. We’re still going to open stores–we’re opening 13 stores this year. But it’s not about that any longer. It’s about how do we get more sales per square foot in the existing stores.”
Rethink your people strategy. “We introduced something we call power hours inside our stores. In the hours when traffic is heaviest, we stop all activity that is not customer-facing–pack-down activities, say–and spend 100% of our time taking care of customers…Even if you’re in the receiving area, if you’re in the vault, you come out on the floor.”
Remember that the devil is in the details. “The professional contractor is a very important customers to us–3% of our transactions and about 30% of our business. We serve coffee at the pro desk. By changing the brand of coffee–not stopping the coffee, because coffee is important–but by changing the brand, we will save our company $500,000. It doesn’t take too many $500,000 decisions to make a penny per share.”
P.S. Credit Suisse analyst Gary Balter today reaffirmed his bullish view and raised his estimates on Home Depot, noting that HD’s U.S. quarterly same-store sales, while down 8.5% company-wide and down 6.9% in the U.S., beat Lowe’s for the first time in memory. Guess that cheap coffee isn’t turning off too many Home Depot customers.