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.
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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.
After the market close (6/8/20), Scotts Miracle Gro (SMG) again lifted full-year 2020 sales guidance indicating a much better-than-planned Q3 period (ending June). Consumer purchases of lawn and garden products at retail surged during the month of May as DIY sales momentum continues on. We interpret this latest data point as consistent with our latest checks for the home improvement sector and following positive commentary from both Home Depot (HD) and Lowe’s (LOW) on a strong start to Q2.
Our latest checks across the home improvement space suggest spending on DIY projects has not slowed and pro activity continues to improve. This is consistent with our prior checks (through May 15th) and initial Q2 commentary from both Home Depot (HD) and Lowe’s (LOW). Top-line trends are expected to remain elevated for some time as consumers remain in a stay-at-home mindset.
Following recent earnings reports across leisure, food retailers, and hardlines retailers, we are publishing updated estimates and price targets for each of the following: Norwegian Cruise Lines (NCLH), Royal Caribbean Cruises (RCL), Walmart (WMT), Sprouts Farmers Markets (SFM), Advance Auto Parts (AAP), AutoZone (AZO), Home Depot (HD), Lowe’s (LOW), Wayfair (W).
On this morning’s (05/20/20) conference call, Lowe’s (LOW) management provided further detail on current top-line trends. Thus far into Q2, comp sales remain at or above April levels which accelerated to +20.4% in the U.S. amid a surge in DIY project-related demand and a recent pick up in Pro activity – in line with our latest checks across the space. Other key details follow below:
Early this morning (05/20/20), Lowe’s (LOW) reported Q1 results well above the most bullish of Street forecasts. Comparable sales in the period rose +12.3% in the U.S. amid a consumer shift to DIY project work, and remains elevated into May – consistent with our latest checks for the home improvement space. Shares of LOW are indicated higher in pre-market trading and are now up more than +90% since bottoming in mid-March vs. a +22% gain in the S&P 500.
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