美国硬线零售：稳定，而不是沉没（2022年）

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　Global Research

　13 August 2019

　 U.S. Hardlines Retail UBS Evidence Lab inside: HD / LOW: Stabilizing, Not Sinking

　Home Improvement trends were likely sluggish, but the market is braced for it HD and LOW"s 2Q SSS were likely held back by tough compares, uncooperative weather, & commodity deflation. Though, we think core trends remained fine. Multiple reads paint a slightly subdued top-line picture. The UBS vendor index (~70% correlation with HD/LOW SSS) increased 3.9% in 2Q (vs. 4.4% in 1Q). Further, commodity deflation intensified in 2Q with lumber & copper prices declining -37% YoY & -10% YoY (vs. -27% & -7% in 1Q). Also, Census category retail sales declined -3.9% YoY in May & June (vs. up 1.6% in 1Q). Looking ahead, compares ease for both the retailers. Plus, lower rates should boost housing activity (10-yr treasury has declined -70 bps since Jan) & underlying housing metrics will lap softness from 2H"18. The sector can also manage through the tariff landscape better than others. HD & LOW"s NTM P/Es have compressed -5% since 1Q, which provides a nice opportunity to get involved. Expecting HD to lower its FY guidance; 2Q SSS could be below sell-side cons. We model 2.5% SSS for HD (cons 3.5%; buy-side bar 2.5%-3.0%). Importantly, HD will likely lower its FY SSS guidance to 4% (from 5%) to account for continued lumber deflation (it previously sized it to be ~80 bp comp headwind). A 4.0% SSS would imply 5.0-5.5% SSS for 2H, which should be achievable given easier compares. HD will probably also trim its EPS outlook of $10.03 slightly (UBSe $10.06; cons $10.12). LOW 2Q SSS could come in slightly above cons; GM will be the key focus We forecast 2% SSS (cons. 1.9%; buy-side ~2%). We also model -120 bps of GM contraction vs. 1Q"s -160 bp decline. This will be a key focus as achieving our est. would suggest LOW is making progress in fixing its GM line. On SG&A, we est. -60 bps of leverage, which drives an EPS of $2.05 (cons. $2.01). Finally, LOW should reiterate its outlook as it probably baked in some cushion when it lowered guidance last quarter. UBS Evidence Lab & UBS proprietary study shed light on HD/LOW 2Q pricing

　UBS Evidence Lab"s pricing database (700k SKUs for HD; 250k-300k SKUs for LOW) shows LOW"s prices were down -0.1% sequentially in 2Q (HD was up 0.2% on avg). But, our pricing work (a separate study) of ~200 products shows prices were up 3% YoY for LOW (down -3% for HD). This data point highlights progress for LOW as its inability to pass on cost increases was a key factor that impacted its 1Q gross margin.

　 Michael Lasser Analyst michael.lasser@ubs.com

　+1-212-713 2440 Atul Maheswari, CFA

　Associate Analyst

　atul.maheswari@ubs.com

　+1-212-713 4103 Michael Goldsmith

　Analyst michael.goldsmith@ubs.com

　+1-212-713 2951 Mark Carden

　Analyst mark.carden@ubs.com

　+1-212-713 3218

　 Figure 1: HI vendor sales decelerated slightly in 2Q"19 Figure 2: HD & LOW NTM PE vs. 10-yr Treasury rate

　12%

　 8%

　 4%

　 0%

　 -4%

　2Q"13 2Q"14 2Q"15 2Q16 2Q17 2Q"18 2Q"19E

　 20%

　 15%

　 10%

　 5%

　 0%

　 -5%

　 -10%

　 -15%

　 Since 2012, there has been a -28% correlation between the change in HD & LOW"s NTM PE and the change in the 10- year Treasury rate

　-2.0%

　 -1.5%

　 -1.0%

　 -0.5%

　 0.0%

　 0.5%

　 1.0%

　 1.5%

　HI Comps (avg HD & LOW) HI Vendor Sales (avg HD & LOW)

　Jul-09 Jul-11 Jul-13 Jul-15 Jul-17 Jul-19 HD & LOW NTM PE (Yr/Yr) (LHS) 10-yr Treasury Rate (Yr/Yr) (RHS - Inverse)

　 Source:

　Company reports, UBS estimates Source: UBS, Factset, Federal Reserve

　www.ubs.com/investmentresearch

　This report has been prepared by UBS Securities LLC. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 40. UBS does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. HI vendors reported a 3.9% sales increase for the period corresponding to HD and LOW"s 2Q"19 vs 4.4% in 1Q"19. Retailers, Broadline Americas Equities

　Summary

　We believe core Home Improvement trends were stable in 2Q. But, tough compares coupled with uncooperative weather and lumber deflation likely held back top-line growth for both HD and LOW. While the macro is not supportive as 12 months ago, it is still favorable for the sector overall. The 30-yr fixed rate mortgage declined further and ended around 3.80% in 2Q (vs. 4.14% as at the end of 1Q). Home prices continued to increase in the low single digit percentage range. But, housing turnover remained under pressure in 2Q. On the commodities side, lumber & copper was deflationary in 2Q, declining -37% YoY & -10% YoY, respectively. Further, the weather was less than ideal in May & June as cooler and wetter weather probably limited Home Improvement projects. In sum, we model a 2.5% comp for HD and 2.0% SSS for LOW (vs. 2.5% & 2.0% in 1Q). Our estimates imply 300-400 bps sequential accelerations for both retailers on a 2-yr stack. Multiple UBS Evidence Lab and proprietary UBS studies suggest core trends were fine for HD & LOW in 2Q. The UBS Vendor Index highlighted that vendor sales growth decelerated to 3.9% in 2Q vs. 4.4% in 1Q. Vendor sales have historically had a 73% correlation with HD & LOW"s SSS. Given vendor sales only decelerated slightly, we believe the most likely case is that HD and LOW"s 2Q SSS will be around the levels that both retailers reported in 1Q. Further, the recent UBS Evidence Lab Housing Intentions survey of 2k individuals highlighted a 200-300 bp increase in the percentage of owners planning on doing projects. Notably, this metric was at the highest level ever recorded throughout the 5-year history of this quarterly survey. The UBS Evidence Lab sequential pricing database (700k SKUS for HD and 250k-300k SKUs for LOW) shows that on a like-for-like basis, LOW prices were down -0.1% sequentially in 2Q (vs. HD up 0.2%, on average). That said, prices for a smaller set of 200 items we have been tracking separately since January 2018 showed that LOW"s prices were up ~3% YoY in 2Q (vs. HD down - 3%). Figure 3: Sequential % price change in LFL SKUs – HD"s prices were up sequentially, while LOW"s prices declined

　Figure 4: YoY % price change in LFL SKUs – LOW"s prices were up YoY, while HD"s prices were down YoY

　12%

　8%

　4%

　0%

　-4%

　 -8%

　 Jan 2018 May 2018 July 2018 Oct 2018 Jan 2019 Apr 2019 Aug 2019 HD LFL YoY price change LOW LFL YoY price change

　 Source: UBS Evidence Lab Source: UBS

　HD and LOW"s multiple have declined -5% since the beginning of 1Q, and is currently around 18x on average (HD"s NTM P/E is 20x vs LOW at 16x). Since 2012, there has been a -28% correlation between the change in HD & LOW"s UBS propreitary pricing survey showed that prices for LFL products were up 3% YoY for LOW vs down -3% YoY for HD

　NTM PE and the change in the 10-year Treasury rate (the 10-yr treasury has declined -70 bps since January 2019). Figure 5: HD & LOW NTM PE vs. 10-yr Treasury rate

　 20%

　 15%

　 10%

　 5%

　 0%

　 -5%

　 -10%

　 -15%

　-2.0%

　 -1.5%

　 -1.0%

　 -0.5%

　 0.0%

　 0.5%

　 1.0%

　 1.5%

　Jul-09

　Jul-11 Jul-13 Jul-15 Jul-17 Jul-19 HD & LOW NTM PE (Yr/Yr) (LHS)

　10-yr Treasury Rate (Yr/Yr) (RHS - Inverse)

　Source: Factset

　Colder than usual weather across most of the country coupled with the wettest May in 55+ years likely held back homeowners from performing outdoor projects at the beginning of the quarter (May is the highest month by sales volume and accounts for 36% of total HD & LOW"s sales during 2Q). That said, as the period progressed and weather improved, trends likely got better. Figure 6: May 2019 Departure from Normal Temperature Figure 7: June 2019 Departure from Normal Temperature Figure 8: July 2019 Departure from Normal Temperature

　 Source: High Plains Regional Climate Center Source: High Plains Regional Climate Center Source: High Plains Regional Climate Center Figure 9: May 2019 Departure from Normal Precipitation Figure 10: June 2019 Departure from Normal Precipitation Figure 11: July 2019 Departure from Normal Precipitation

　 Source: High Plains Regional Climate Center Source: High Plains Regional Climate Center Source: High Plains Regional Climate Center

　Commodity deflation continued to be a headwind during 2Q. In particular, lumber prices declined -37% YoY on average in 2Q, which compares to a -27% decrease in 1Q. At the same time, copper prices fell -10% on average in 2Q, a deceleration from a -7% decline in 1Q. HD called out a sales headwind from declining lumber prices during last two quarters. As lumber and copper prices continued to decline in 2Q, we think this held back Home Improvement top-line sales during the period.

　Since 2012, there has been a -28% correlation between the change in HD & LOW"s NTM PE and the change in the 10- year Treasury rate

　Figure 12: Lumber prices (YoY growth) vs. HD & LOW average comps Figure 13: Copper prices (YoY growth) vs. HD & LOW average comps

　70%

　 50%

　 30%

　 10%

　 -10%

　 -30%

　 -50%

　 14%

　 12%

　 10%

　 8%

　 6%

　 4%

　 2%

　 0%

　 50%

　 40%

　 30%

　 20%

　 10%

　 0%

　 -10%

　-20%

　-30%

　Copper prices decreased -10% on average during HD and LOW"s"2Q"19

　12%

　 10%

　 8%

　 6%

　 4%

　 2%

　 0%

　2Q"11 2Q"12 2Q"13 2Q"14 2Q"15 2Q"16 2Q"17 2Q"18 2Q"19E

　Lumber Price (YoY) Average HD & LOW Comp 2Q"11 2Q"12 2Q"13 2Q"14 2Q"15 2Q"16 2Q"17 2Q"18 2Q"19E

　Copper Price (YoY) Average HD & LOW Comp

　Source: Bloomberg, NAHB, UBS, Company Reports Source: Bloomberg, FactSet, UBS, Company Reports

　UBS Evidence Lab Home Improvement Pricing Insights highlights changes

　to HD and LOW"s pricing strategies during 2Q. UBS Evidence Lab Home Improvement Pricing Insights harvested the websites of HD and LOW to collect pricing data across 700K SKUs for HD and 250-300K SKUs for LOW. The dataset sheds light on price changes, the percentage of SKUs seeing changes in price, promotional intensity, and assortment changes.

　Prices at Lowe"s declined -0.3% from December 2018 to July 2019, on average. On the other hand, Home Depot"s prices have increased 1.3% over the same period. More recently, Lowe"s prices decreased -0.1% in May, increa...

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