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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.
We attended KMX’s quarterly analyst event in Richmond on Jan. 16th, where we met with the CEO, new and old CFO, CMO, and other members of the C-Suite. Overall, we left the event more positive on KMX’s long-term prospects (2-5 years), but equally as cautious on the near-term setup for comps and expenses.
KMX reported Q3 2019 with used-unit comps of +7.5% beating Cons. of 6.2%. Adjusted EPS of $1.04 missed Cons of $1.16 and our $1.12 even with a $0.04 benefit from investments as surging advertising, SBC, and a headwind in P&S weighed on EPS. Shares were down 6%.
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.
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.
On Tuesday (09/24/19), KMX reported Q2 2019 with used-unit comps of +3.2% missing Cons. of 3.5% but above our 3.0%. Adj. EPS of $1.40 beat Cons. of $1.33 and our $1.35 on SG&A control/timing. Shares were flat.
On Friday (06/21/19), KMX reported Q1 2019 with used-unit comps of +9.5% beating Cons. of 5.6% and our 2.5%. Adj. EPS of $1.59 beat Cons. of $1.49 and our $1.48 on comps and SG&A leverage. Shares were +3%.
We wanted to flag a few highlights in today's (06/24/19) Wolfe Research Auto Daily....
New China risks on our radar screens …
There’s risk to Q2, and risk to Q3, but what about China OEM (and Chinese Supplier) balance sheets?
Europe CO2 Regs: Awareness of the problem is increasing, but the consequences are likely not fully appreciated
Several high profile reports, including in the FT on Friday and WSJ over the weekend outlined key risks for OEMs and suppliers in Europe that we’ve been highlighting as we head towards 2020. Despite growing recognition that this will pressure European OEM margins, we believe that the consequences (particularly for suppliers) are not well understood.
June pricing data was good… but GM was great
JD Power reported preliminary June pricing, and we liked what we saw, with GM faring quite a bit better than expected. We believe upside from trucks will offset downside from China.
Strong quarter for KMX… but we expect comps to decelerate
On Friday, KMX reported Q1 earnings with used-unit comps and adj. EPS beating consensus. While we thought the results was impressive, we believe a few transitory items and easy comparisons helped drive the comp and we expect comps to decelerate over the rest of year.
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