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).
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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.
We think DIY strength has continued into mid-May as consumers remain at home and take on more project work amid favorable spring weather. Notable categories with outsized growth include paint, lawn and garden, outdoor power equipment, cleaning supplies, and are all contributing to much larger ticket sizes. This tracks consistent with recent sector data points we highlighted on April 29th and May 6th.
We’ve seen improved demand across several segments of the consumer landscape. Most discretionary categories appear to have bottomed-out in late March / early April and have subsequently improved week-to-week, with less discretionary categories like home improvement enjoying healthy demand over the last 2-months. Changes in vacation spend and summer plans (fewer camps, sports, etc.), are likely helping, but the big unknown over the next few quarters is whether the demand we’re seeing is sustainable in light of higher unemployment and lingering economic impacts from coronavirus.
Early today (05/06/20), leading manufacturer of branded consumer lawn and garden products Scotts Miracle-Gro (SMG) reported Q2 results for the period ending March 28th and highlighted further sales strength into early May. SMG indicated the week ending May 3rd represented the strongest 7-day sales period in company history for consumer purchases. Consistent with our most recent checks in the home improvement space (through April 17th) and our latest consumer survey, we view this data point as another positive readthrough to the DIY home improvement industry.
Early this morning (04/29/20), Sherwin-Williams (SHW) reported Q1 results and provided updated guidance for Q2 and full-year 2020. The company’s conference call ended a short while ago and included a number of positive comments for the broader paint category near-term. Consistent with our most up-to-date checks in the home improvement space, we view these latest observations as further positive readthroughs for Lowe’s (LOW), which operates an exclusive partnership with SHW for certain products, as well as Home Depot (HD).
We conducted a survey of 550 home improvement store shoppers to better understand nearer-term trends amid the coronavirus pandemic. Overall, our latest trade checks showed home improvement sales have held-up well through the COVID-19 crisis, and importantly our consumer survey of home improvement shoppers indicates that the momentum is likely to continue in the near-term (favorable weather and DIY projects at home should drive sales). Consumers however are less likely to hire contractors to work on their homes.
Our latest home improvement checks (through April 17th) indicated that the DIY segment remains fairly strong, while the pro/contractor segment continues to weaken.
Our latest conversations across the consumer sector suggest somewhat mixed results. Food retail, home improvement and toys / games have benefitted from COVID-19 disruptions, but the more discretionary segments like leisure vehicles (RVs, boats, etc.) have seen weak trends. While we’ve seen some signs of stabilization / modest improvement over the past week or two (trends are still negative), it has been largely driven by government stimulus for consumers & small businesses combined with people getting stir crazy staying in their homes (e.g. picking up a Whopper via drive thru at Burger King versus cooking another pasta meal at home).
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