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).
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RH reported largely better-than-expected Q1 results post-market in which overall sales contracted (19%) due to temporary store closures. After moderating to (40%) towards the end of March, demand trends improved sequentially to +7% in May and are now trending +11% early into June. A top-line rebound over the back half of the year, coupled with other operational improvements, is expected to drive year-on-year operating margin expansion at RH.
Yesterday post close RH reported Q4 results with Rev -1% vs Cons/our 6% partially due to inventory shortages (3pts). Adj. EPS of $3.72 beat Cons of $3.59 and our $3.53 as RH beat on operating margins and below the line items. Like most companies, RH withheld 2020 guidance. Shares were -15% vs -2% for the S&P today.
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.
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.
RH reported Q3 2019 results today (12/04/19) post market with total revenue of $677m in-line with Cons. $676m/our $677m. Adj. EBITDA of $116m was above Cons. $103m and our $104m. Q4 guidance was only nudged up slightly but was framed as being conservative.
Two weeks ago, we assumed broader coverage of Hardlines and Internet Retail and issued four deep dive reports including a downgrade of LOW to Peer Perform and reiterated HD, BBY, and W at Outperform. We also assumed coverage of AMZN, ULTA, WSM, RH, TSCO, and SHW (see our 1-page tear sheets here). Finally, we utilized the broader coverage as an opportunity to reposition our legacy auto part retail coverage and downgrade AAP to Underperform and upgraded ORLY to Outperform.
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.
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