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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Best Buy (BBY) reported Q1 results indicating a sequential improvement in enterprise sales following a (30%) decline from late March through nearly mid-April. Trends picked up in the final three weeks of the quarter to (8%) following the flow of stimulus payments to consumers. BBY noted the majority of stores are now operating by appointment only and are seeing overall sales down about (5%) during the first two weeks of Q2.
BBY reported better-than-anticipated sales (with both Domestic and International sss above Cons), coupled with a better EBIT margin vs Cons. BBY’s coronavirus impacted 1Q outlook calls for sss of 0% to 1% with EPS of $1.00 to $1.05 (Cons $1.01). For FY20, BBY expects sss of 0% to 2% and EPS of $6.10 to $6.30 (Cons $6.25). Shares were flat vs S&P -1%.
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.
BBY’s 3Q19 results this morning beat on comps, and along with better than expected SGA control drove a ~10% EPS beat vs Consensus. BBY provided 4Q19 EPS which was ~2% above prior Consensus at the mid-point. BBY shares were up ~10% for the day on the beat and raise.
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.
Wolfe Research's Senior Hardlines & Internet Retail Analyst Chris Bottiglieri hosted a webcast to discuss his downgrades of AAP and LOW, bottom-up TAM analyses on both home improvement retail and auto parts retail, his valuation black box: what is driving retail valuations, and more.
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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