The hidden gem of Home Depot’s over $22 billion of deals to boost its pro sales
California-based Reflect Roofing launched its business nearly two years ago and promptly opened its first line of credit with building products supplier SRS Distribution. The $50,000 limit allowed Reflect to jumpstart its early projects. Co-owner Christy Silva told CNBC her company plans to continue using the interest-free financing option to scale the business. “A lot of their stuff is more expensive. But it’s the convenience of them delivering it, accounting for what’s there, and the ability to schedule with them. They’re super helpful,” Silva said in an interview, adding that SRS’ Roof Hub customer relationship management platform provides a friendly user experience. Reflect is one of the professionals utilizing the SRS trade credit program, which allows contractors to buy supplies and pay for them later. SRS is now part of Home Depot , which last summer completed its more than $18 billion acquisition of the network of independent distributors serving roofers, landscapers, and pool contractors. It’s the crown jewel of the home improvement giant’s new push to grab a bigger share of pro contractors, as well as the “complex pro” customer base — those working on multi-phase, high-dollar sign projects. “The hidden gem of this SRS deal was trade credit,” according to Mizuho analyst David Bellinger. The trade credit puts Home Depot in a position to act as an “advisor plus financier for these projects,” Bellinger said. “That’s something they never had, and this is just a huge unlock to get that bigger customer now.” Sure enough, on its fiscal second-quarter earnings call earlier last month, Home Depot management expressed satisfaction with the surge in trade-credit business from the SRS acquisition. “Today, we have several thousand pros with a trade credit account, and we’ve seen a double-digit lift in their spend across channels once these pros started using their trade credits,” said Ann-Marie Campbell, a senior executive VP of U.S. stores and operations. “We want our pros to be able to transact with our stores seamlessly, including checking and using the available credit on their account while they’re shopping in our stores,” Campbell added. She said that trade credit customers should be able to make in-store purchases at Home Depot locations using trade credit later this year. Looking to expand its trade credit and distribution footprint, Home Depot announced in June a more than $4 billion bid to buy GMS, which would become part of the SRS division and add a complementary network of drywall, ceilings, and steel framing suppliers. Last week, the deal cleared the Canadian Competition Bureau, the last antitrust regulator that needed to sign off. To be sure, Home Depot has been catering to pros long before the SRS acquisition. Already in place were several pro-targeted offerings, including loyalty programs, business tools, and distribution and fulfillment centers. SRS and eventually GMS promise to super-charge them. According to Home Depot’s 2024 annual report , SRS from deal completion through the end of last year contributed $6.4 billion of net sales to Home Depot’s top line. “The increase in net sales for fiscal 2024 was primarily driven by SRS,” the annual report said. Home Depot’s fiscal 2024 revenue increased 4.5% year-over-year to $159.5 billion. Home Depot CFO Richard McPhail told CNBC on earnings day, Aug. 19, that the company’s sales are about 55% pro and about 45% DIY customers. In the company’s fiscal second quarter, which ended Feb. 2, McPhail said both categories saw increases “relatively in line with one another.” He did not elaborate further. Leaning into pro makes sense because DIY depends more heavily on housing turnover. People move, and they want to fix up their houses. Residential real estate sales, however, have been stagnant under the weight of high home prices and elevated mortgage rates. Home building isn’t lighting the world on fire either — but at least, contractors are steadier customers. HD YTD mountain Home Depot YTD Shares of Home Depot have certainly caught a bid since the middle of June, with a rally accelerating as expectations increased for a Federal Reserve interest rate cut later this month. Fed Chairman Jerome Powell signaled on Friday, Aug. 22, touching off a market surge that also saw Home Depot stock increase 3.8% on the session. For the month of August, Home Depot stock has gained 10.7%. Shares were down slightly on Tuesday. The question is: Will bond yields drop if central bankers start cutting rates again? Last year, the Fed cut rates three times, and bond yields, which drive all kinds of customer loans, did not drop appreciably. That kept shorter-duration home equity loans and longer-duration mortgages elevated. Jim Cramer said on CNBC last week that a boost in renovations depends on cheaper home equity loans, and a boost in housing turnover depends on cheaper mortgage rates. Bellinger said that both Home Depot and its biggest competitor, Lowe’s , have clearly identified a sizable upside opportunity with pro contractors. In fact, Lowe’s on Aug. 20 delivered an even better quarter than Home Depot and announced an $8.8 billion deal to buy Foundation Building Materials, a distributor of drywall, insulation, and other interior building products for large residential and commercial professionals. Foundation’s business is similar to Home Depot’s SRS. Last year, Home Depot executives pinpointed the total addressable market for pros to be worth roughly $250 billion. “That’s where the real growth is in this whole category. You get that do-it-yourself business, it’s always good. It’s not going anywhere. But it just seems like this pro and complex pro is where you’re getting this high single-digit annual revenue growth,” Bellinger said. If all goes to plan at Home Depot, Bellinger said, “The complex pro that they’re going after with these bigger deals [GMS included], that should be a good chunk of the business in 10 years. It may be that 10% to 20% of their business is this really giant, heavy spending complex pro.” (Jim Cramer’s Charitable Trust is long HD. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
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