Home Depot Cuts Inventories, Increases Turns

Home Depot, gaining benefits from a long-term supply chain improvement program, says it reduced inventory holdings $38 million in the quarter ending Aug. 1 compared to last year even as the retailing giant expanded sales 1.8 percent.

The improvement came as Home Depot this week opened its 16th Rapid Deployment Center, a site in Findlay, Ohio, that fits into a growing network of revamped fast flow-through distribution facilities now serving 80 percent of the company’s U.S. stores.

The logistics efficiency helped Atlanta-based Home Depot increase its net profit 6.8 percent in its fiscal second quarter, to $1.19 billion, sharply better than the gain in store sales.

By The Numbers: U.S. Retail Inventory to Sales Ratio.

Inventory fell 0.5 percent on a per-store basis compared to last year and Home Depot increased inventory turns from 4.3 to 4.4 times per year.

“For the third quarter in a row, our inventory turns have improved,” Home Depot Chairman and CEO Frank Blake told investment analysts, according to a transcript of the conference call by Seeking Alpha. “This is something we haven’t achieved in almost a decade.”

Inventory has grown since earlier this year, expanding about 5.6 percent since the end of January as Home Depot has sought to get goods in place for a recovery. Still, inventories on the company’s balance sheet at the start of August were more than 21 percent behind the level of four years ago, when Home Depot began its distribution initiative.

The company completed implementation of a demand chain management forecasting tool from Teradata during its second quarter and said the software will help stores “make better inventory decisions and react more quickly” to local trends.

Home Depot has been shifting its U.S. distribution to the Rapid Deployment Centers — facilities built on cross-docking and other operations aimed at turning over inventory within 24 hours — over the last couple of years and says it expects to cover the entire country from those sites by the end of this fiscal year. The RDCs are part of Home Depot's broader effort to bring more efficiency to its supply chain while making deliveries more flexible to take advantage of retailing trends.  

“This has been a huge undertaking that has involved the entire organization, and we think it’s a very positive sign that in the midst of this build out, the company is also improving its inventory turns,” said Blake.