Do-It-Yourself Inventory Improvement

Do-It-Yourself Inventory Improvement

Home Depot cut inventory holdings $38 million in the quarter ending Aug. 1 compared to a year earlier as it built more efficiency into its supply chain.

The reduced inventory count amid a 1.8 percent increase in sales gave a major boost to the retailer and provided a strong signal of the emphasis companies are placing on managing inventory more closely in an uncertain time.

Home Depot’s numbers show the company’s network of Rapid Deployment Centers is pushing more goods to store shelves with minimal dwell time.

The Atlanta-based company opened its 16th Rapid Deployment Center, in Findlay, Ohio, in mid-August. The network of fast-flow distribution centers, which have cross-docking and other operational features aimed more for sorting and distribution than for warehousing, now serves 80 percent of the home improvement retailer’s U.S. stores.

The logistics efficiency helped Home Depot increase its net profit 6.8 percent in its fiscal second quarter, to $1.2 billion, sharply better than the gain in store sales.

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

“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 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 2006 levels, 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.

Meantime, rival home improvement retailer Lowe’s said it will slash its inventory expansion in the second half of this year after inventories grew more rapidly than sales in the second quarter.

Lowe’s expects to end 2010 with growth in inventories of just 1 to 2 percent, suggesting shipping and distribution will pull back after inventories expanded 5.7 percent in the second quarter and 9.8 percent in the first quarter. That was partly the result of the addition of new stores.

“As the year progresses, we will continue to reduce the rate of inventory growth versus last year,” Lowe’s Chief Financial Officer Robert Hull told investment analysts in an August conference call.

“We’re going to . . . take a hard look at what we buy as we head into the third and fourth quarters,” said Larry Stone, president and chief operating officer. “I still feel good about our inventory. I still think we made the right decisions, and, quite frankly, we hope to get it worked down . . . and be basically flat year-over-year.”

Mooresville, N.C.-based Lowe’s this fall will launch a supply chain management effort called the Integrated Planning and Execution, or IP&E, initiative. The company will test the plan at seven of its merchandise divisions in hopes of optimizing inventory and improving sales by better aligning product availability with geographic demand.

Lowe’s overall sales grew 3.7 percent in the fiscal second quarter ending July 30 and same-store sales expanded 1.6 percent over the same quarter a year earlier. The company’s inventory turns fell from 4.5 percent last year to 3.6 percent in the most recent quarter, a sign goods were sitting on shelves longer before sales.