After the market close (06/30/20), Genuine Parts (GPC) announced the sale of its S.P Richards office products business. Terms of the deal were not disclosed. Recall GPC previously sold off the Canadian portion of this segment (approx. $50M in annual revenue) earlier in 2020. We look favorably upon management’s continued efforts to shed lower margin operations and focus in on the “growthier” aspects of the GPC operating model, namely auto parts.
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We surveyed real estate brokers across the country regarding recent home price trends and the outlook over the second half of the year. Our work suggests buyer demand continues to improve - particularly in less densely populated regions - amid lower interest rates and a lack of housing supply. We view this as an overall positive for both Home Depot (HD) and Lowe’s (LOW) as further price appreciation instills consumer confidence for project-related work, consistent with our recent survey and checks in the home improvement space.
Our work on Tractor Supply (TSCO) and latest consumer survey (geo-location verified shoppers over the past 60 days) suggest top-line trends remain elevated amid an influx of new and re-engaged customers. This is consistent with our latest checks in the home improvement space which have shown strength into June across outdoor categories, albeit at a somewhat lesser pace than May levels.
Our latest checks across the auto parts space are showing continued signs of sales recovery, although indications of moderate supply constraints have surfaced across some categories. This coincides with accelerating demand trends in the commercial or DIFM segment of the business, which we pointed out last week as part of our broader consumer checks.
Earlier this morning, Sherwin-Williams (SHW) updated sales guidance for Q2 or the period ending in June. Total company sales are now expected to moderate in the mid-single digits vs. prior guidance for a low-to-mid teens decline (issued April 29th). The company’s Consumer Brands segment primarily drove the acceleration in trends – which we view as a positive for Lowe’s (one of SHW’s largest customers in North America) and Home Depot, consistent with our latest checks in the home improvement space.
We surveyed several hundred home improvement customers (geo-location verified shoppers at Home Depot or Lowe’s stores over the past 60 days) to better assess the sustainability of outsized Q1 sales growth for both HD and LOW. In our view, stay-at-home orders have provided a jolt to DIY project work and positive momentum has continued into early June, although at a somewhat lesser pace than May per our latest industry checks - pro business has improved though. We expect heightened top-line trends to hold in for at least some time given a backdrop of strengthening housing data points lately.
We spoke with Isabel Janci, VP of Investor Relations and Treasurer, as well as Tim Walsh, Director of Investor Relations. We view comments from HD, as well as our industry contacts, as positive and remain constructive on the outlook for home improvement retail. Our broader home improvement checks indicate DIY trends have remained strong, although have cooled a bit off May levels, while the pro segment continues to pick up. Key highlights follow below:
We’re continuing to see signs of recovery (we had begun seeing an improvement on May 15) across our leisure and hardlines coverage. Powersports retail demand remains a standout—sales of off-road vehicles, boats and RVs picked up significantly in May and momentum has continued into June—although inventory replenishment is an increasing focus. Cruise trends improved modestly over the past few weeks. Home improvement is seeing continued strength although DIY trends are likely moderating off peakish May levels; however, pro biz improved in June. The recovery in auto parts retail is further taking shape with commercial sales picking up of late. Finally, small biz activity has been accelerating over the last several weeks as states re-open, according to Office Depot.
Updating estimates – Following recent earnings reports across leisure and hardlines companies, we are publishing updated estimates for each of the following: BRP (DOO-CA), Thor (THO), Best Buy (BBY), Genuine Parts Company (GPC), RH (RH), and Williams-Sonoma (WSM).
We conducted a consumer survey to better assess driving plans for this summer amid COVID-19 related fallout, and the implications for auto parts retailers. This follows our latest industry checks (through June 1st) which indicated a further step up in sales activity in recent weeks. Overall, we expect emerging, favorable dynamics within the broader auto parts sector to help propel a continued, gradual sales recovery from here absent any other major shocks to the system (i.e. second coronavirus wave or further tariff escalation).
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