Why The Home Depot Acquired SRS Distribution | Real Time Headlines

PLANO, Texas — In a suburban warehouse, large buckets of pool disinfectant water, boxed heaters and water pumps line the shelves.

this is not a home depot stores, but those aisles and the companies behind them will determine the home improvement retailer’s success over the next decade.

Home Depot made its biggest bet on expanding its business earlier this year, when it Purchased SRS distributionis a Texas-based company that sells supplies to professionals in the roofing, pool and landscaping industries. The company has more than 11,000 employees and more than 780 stores in 47 states, including the Dallas area.

With the $18.25 billion deal closing in June, Home Depot is signaling to investors that its growth will come from more than just its big-box stores. It will also rely on a flood of online orders from home professionals who need a long list of specific supplies to install swimming pools, repair roofs and handle complex remodels.

The deal boosted Home Depot’s business in the early months when consumers were taking on fewer home improvement projects themselves. Earlier this week, the retailer said The acquisition boosted An increase of more than 6% Sales fell in the fiscal third quarter even though shoppers were visiting stores less often and spending less per transaction than they were a year earlier.

Excluding SRS sales, Home Depot’s revenue would have declined annually in each of the past two quarters.

CEO Ted Decker said in an interview with CNBC that Home Depot acquired the company not to offset the impact of the weak DIY market; It fits into its strategy of selling more products to professionals.

Home Depot has long served as a convenience store for professionals who might stop by to pick up tools or last-minute items. Over the past four years, we have built National distribution network and metropolitan hub such as Dallas, Atlanta, and Los Angeles, so it can ship larger truck orders directly to contractors or other professionals’ job sites.

However, SRS caught the attention of retailers because it offered a different area of ​​expertise: specialized services for home improvement professionals, Decker said.

Dan Tinker, chief executive of SRS, said the specialty dealers bring an expanded catalog, a dedicated sales team and an extensive network that supplies approximately 15,000 jobsites daily. It also offers trade credit, a financing arrangement that allows customers to receive large orders and pay later. Home Depot, for its part, is just starting to offer the option to a small group of specialty customers.

“What we bring to them is an accelerator for their career strategies,” he said.

At the time of the deal, Home Depot estimated that the acquisition would expand the company’s total addressable market to about $1 trillion, adding about $50 billion.

Joe Feldman, senior research analyst at Telsey Advisory Group, said SRS is priced high but could provide rocket fuel for Home Depot’s rapid growth. He compared the deal to that of Walmart Acquired Jet.com for $3.3 billionan e-commerce player. Some industry observers and Walmart’s own CEO credited the move with accelerating Walmart’s online business, though it ultimately closure Jet.com operates as a standalone website.

“They saw this as an opportunity to enter a completely new market with a very established player,” he said. “It will take a few years to see if it pays off.”

On Tuesday, the company Full-year forecast raisedbut this is only because of the short-term growth of the business. Hurricane-related preparations and repairs, as well as homeowners taking advantage of warm, dry weather for outdoor-related purchases and small projects, drove additional sales in the third quarter.

Waiting for lower mortgage and borrowing rates, customers are delaying home sales and purchases or rushing into higher-priced projects.

Home Depot’s “biggest challenge — and really their only challenge — is when are we going to see the great retail vertical of the last few years return to what it was?” Gordon Haskett said Chuck Grom, senior analyst covering retail.

Home Depot’s stock has lagged the S&P 500.

Yet investors expressed some optimism. Telsey Advisory Group’s Feldman recently upgraded Home Depot stock. While he said he expects comparable sales to be negative next quarter and even in the first quarter of next year, he expects growth to return next spring.

He said that in other interest rate easing cycles, it usually takes about six to nine months for housing demand to pick up. Fed Start cutting interest rates In September, I did another thing decreased since thenand there’s more to look forward to.

Grohm said Home Depot’s growing specialty business helps attract investors and differentiate it from its main business. competitor, Lowe’s. About half of its business comes from home professionals, compared with about 20% to 25% at Lowe’s.

Professionals are generally more consistent and larger spenders, and some of the businesses they work for are better able to handle the ups and downs of the economy.

For example, about 80 percent of roofing business comes from repair or re-roofing projects rather than new homes, Decker said. He believes this is one of the attractive factors of SRS.

Tinker said SRS is more insulated from changes in the economy than Home Depot. As families put off moving, SRS has gained business from investment firms, which have been buying properties to renovate and rent out, he said.

“There’s a huge need for people to rent until they can afford to buy a home,” he said.

SRS is expected to contribute approximately $6.4 billion in incremental sales this year, according to Home Depot. These sales only include the period after trading closed in mid-June.

The SRS deal and focus on specialty products don’t mean Home Depot is giving up on efforts to shake up the rest of its business. Decker said the retailer is still trying to attract more DIY sales. The company has opened 10 new stores in the United States since the end of January and plans to open two more stores by early February.