We are assuming coverage of Hardlines Retail as part of our wide-ranging perspective on the consumer. As we reflect upon an incredibly turbulent start to the year (S&P 500 now down 24% year-to-date vs. our Hardlines Index down 25%), we believe the recent onslaught for the group now affords an entry point into a number of well-positioned, high quality names. We want to be very clear here. Our updated investment ratings reflect relative positions within the group and are not an overall call on the broader market. Risks to spending are now percolating as the effects of COVID-19 ripple through the consumer economy and are likely to induce rising levels of unemployment and a confidence-driven pullback - the depth and duration of which we cannot know for sure.
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Although mild winter had lowered sss expectations into the print, we believe the extent of the decel and drop-off in DIFM was worse than expected. EBITDA was mostly in-line with EPS beating Consensus, helped by a lower tax rate. Shares were -2% vs SP50 -3%.
With concerns over the Coronavirus spreading, we think US Retailers will likely be viewed as near-term relative safe-haven stocks given limited direct exposure to China. However, should the virus spread into a pandemic, especially in China, we see a greater impact to US retailers from indirect supply chain exposure or US GDP growth.
Looking to 2020 we expect a slight deceleration to comps from 2019, but still see trends as healthy. We also see six potential swing factors that could alter this growth outlook. Given the recent sell-off in the space on weather and credit card data, we think these concerns are increasingly priced into the stocks and view the sector as having an attractive risk/return versus a more cyclical market at all-time highs.
To help gear up for 2020 we analyzed 2019 performance, identified 10 key themes into 2020, analyzed post Q3 earnings reaction, and analyzed the key issue facing each stock under coverage into 2020.
This AM (12/10/19), AZO printed 1Q20 results with SSS of 3.4% ahead of our 3.0% and Consensus’ 2.5%. EBIT was ahead of our estimate and EPS beat by 4.6%. (Exhibit 2). Shares were up 7.2%. See page 3 for thoughts on qtr.
Today (10/07/19) we are assuming broader coverage of hardlines and internet retail with deep-dive reports on four companies, including a LOW downgrade to PP. We also have two ratings changes from our existing retail coverage (AAP to UP and ORLY to OP), and assuming coverage of six additional retail names with concise 1-page investment tear sheets.
This AM (09/24/19), AZO printed Q4 results with SSS of 3.0% ahead of our 2.5% and Consensus’ 2.6%. EBIT margin was in-line and EPS beat on tax-rate and buy backs. (Exhibit 2). Shares were down -4.4%.
We wanted to flag a few highlights in today's (05/22/19) Wolfe Research Auto Daily....
Mining the Filings: Proxy statements underscore AXL management’s focus on strong FCF generation
American Axle seems to be putting their money where their mouth is.... Proxy disclosures suggest Comp is tied to impressive free cash flow.
Interesting read-throughs from Jaguar/Land Rover's results
While one of the smaller global automakers, Jaguar/Land Rover remains an important OEM customer to a number of US Suppliers, including LEA, VC, MGA, and AXL. With that in mind, we have reviewed the company’s CY 1Q19 results (released Monday), with key takeaways for these Suppliers.
AutoZone: Re-rating on Commercial Growth Continues
Improved execution in DIFM and muted online fears have caused a re-rating of AZO’s multiple despite only minor EBITDA estimate revisions. At the current valuation, we don’t see a large margin of error with a few risks overhanging the company. Maintain underperform rating.
Copart: Looking for a clean quarter ahead of the IAA Spin
We have a mixed read on CPRT's Q3 given difficult compares in non-insurance, balanced by IAA's accelerated Q1 exit rate, which could be a positive signal for the insurance business.
This morning (5/21/2019), AZO printed Q3 results with SSS of 3.9% in-line with our 3.7% but ahead of Consensus’ 3.0%. EBIT was in-line and EPS beat on tax-rate (Exhibit 2). Shares were +5% vs S&P +1%.
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