北美家装零售：二季度需求触底但价值达到顶峰.docx
July 10, 2019Equity Research I AmericasCredit SuisseHome Improvement RetailStable on the Home Front QTD in Q2; Demand Closer to Bottom, but Valuation Closer to the Top; Remain on the SidelinesComps Bridge for HD/LOW per Credit Suisse EstimatesCS Est. HD Comp Bridge1Q172Q173Q174Q171Q182Q183Q184Q181Q19 2Q19E 3Q19E4Q19EImplied 'Base' Comps4.85.95.24.33.63.85.25.75.05.24.84.3Base Two Year Stack11.111.310.310.38.49.710.510.08.69.010.010.0Base Three Year Stack18.417.017.419.214.715.115.516.013.414.915.214.3Implied 'Base' Comps4.85.95.24.33.63.85.25.75.05.24.84.3Comp Compare from Wk Shift-0.60.30.00.2Hurricane (net) Impact0.00.01.21.71.41.0-0.6-1.1-0.8-0.60.00.0Weather Impact0.30.00.00.0-2.32.00.0-0.9-0.1-0.90.00.9Incremental Initiative BenefitN/AN/AN/AN/AN/AN/AN/AN/A0.00.00.71.0Commodity In/deflation0.80.71.11.11.11.20.6-0.1-0.5-0.6-0.10.2FX/Canada-0.3-0.20.40.40.40.0-0.4-0.4-0.6-0.20.00.2Reported Comps, TotalImplied 1H/2H19 Comps5.56.37.97.54.28.04.83.22.513.22?85.46.7 16.1CS Est.LOW Comp Bridge1Q172Q173Q174Q171Q182Q183Q184Q181Q192Q19E3Q19E4Q19E Implied 'Base' Comps1.54.03.32.71.12.72.13.54.93.34.23.4Base Two Year Stack8.27.45.36.72.66.65.46.26.06.06.36.9Base Three Year Stack-9.310.17.410.27.510.09.69.6Implied 'Base' Comps1.54.03.32.71.12.72.13.54.93.34.23.4Weather/Seasonal0.00.00.0(0.6)(3.0)1.30.30.00.3(0.6)(0.1)0.0Hurricane (net) Impact0.00.01.41.21.00.1(1.0)(0.8)(03)0.00.00.0Commodity In/deflation0.50.50.90.90.91.00.4(0.3)(0.7)(0.8)(03)0.0FX(0.1)0.00.1(0.1)0.50.1(0.2)(0.3)(03)0.00.00.1Inventory Rationalization0.00.00.00.00.00.0(0.1)0.00.00.00.00.0Canada headwinds0.00.00.00.00.00.00.0(0.4)(0.4)(0.3)(0.2)(0.1)Reported Comps, Total1.94.55.74.10.65.21.51.73.51.63.63.4Total Comps - 2 Yr Stack9.26.58.49.22.59.77.25.84.16.85.15.1Seasonal Tracker for Q2 Still Down Y/Y, But Improving, and Compares Easing in JulyOur Seasonal Indicator for HD/LOW tracks key seasonal categories (source: Nielsen); Confirms weaker early May, better Memorial Day period, and improving trends in JuneMonthly Seasonal Indicator vs. Weather: Helps explain recent volatilityMonthly Seasonal Indicator vs. Weather: Helps explain recent volatilityJanFebMarApr 17 MayJunJul 171717171717JanFebMarApr 18 MayJunJul 181818181818JanFeb Mar Apr 19 May Jun1919191919Seasonal Indicator Seems Supportive for Current Estimates, Depending on JulyOur data below includes the first 8 weeks of HD's quarter, 9 weeks for LOWS quarter. We currently model 3.5% for HD US vs. consensus 3.6%, 1.9% for LOW US vs. consensus 2.1; We would be looking for a stronger July to support that20% - 15% - 10% -5% - 0% -5% - 10% - 15% - 20% - 25% -20% - 15% - 10% -5% - 0% -5% - 10% - 15% - 20% - 25% -HD Comps vs. Seasonal, 2019 to-date 一一 Seasonal Sales - HDHD US Comp (RIGHT)8%15%10%6%5%0%4%-5%2%-10%-15%0%-20%-25%-2%-30%LOW Comps vs. Seasonal, 2019 to-date一- Seasonal Sales - LOWLOW US Comp (RIGHT)Jan sFeb 19Mar 19Apr 19May 19Jan 19Feb 19Mar 19Apr 19May 19Jun 199%7%5%3%1%-1%-3%Two-Year StackSeasonal Sales - 2 Yr HD US Comp 2 Yr (RIGHT)99Two-Year Stack9Consumer Interest Gauged through Google Trends; Consistent with Current Expectations Analyzing Google Trends for 10 Home Improvement-related topics vs. HD/LOW comps (r-sq >0.8), seems to support comp trends that are in line with current estimatesHD US Comps vs Home Improvement Google Trends7%2%LOW US Comps vs. Home Improvement Google Trends22%17%12%21%16%11%6%1%-4%-9%N £ 心N £ & XqgN8Commodity Deflation May Be a Bigger Drag than Expected, Particularly in Q2CS Inflation Indicator points to deflation in the 50-70 bpsrange for Q2Our analysis points to deflation of 50-70 bps in Q2 vs 50 bps in QI, 10-20 bps of deflation in Q3 and inflation of 10-20 bps in Q4.HD guidance continues to assume neutral FY commodity impact, but noted lumber alone could pressure comps by 70 bps assuming QI spot prices continued.LOW guidance doesn/t assume any full year impact from deflation, which may be a risk to considerCS Inflation Indicator points to deflation in the 50-70 bpsrange for Q2Our analysis points to deflation of 50-70 bps in Q2 vs 50 bps in QI, 10-20 bps of deflation in Q3 and inflation of 10-20 bps in Q4.HD guidance continues to assume neutral FY commodity impact, but noted lumber alone could pressure comps by 70 bps assuming QI spot prices continued.LOW guidance doesn/t assume any full year impact from deflation, which may be a risk to considerMonitor Core Ticket Trends and ElasticityKey drivers of our deflation assumption is; Lumber (-36% y/y 2Q19, -1% Q3, +12% in Q4 vs -27% in 1Q19), Steel Rebar (-6% y/y 2Q19Z-13% Q3, -8% in Q4 vs +8% 1Q.19) and Aluminum (-20% y/y 2Q19, -12% Q3, -6% in Q4 vs -14% 1Q19)2.0%1.5%1.0%0.5%0.0%-0.5%-1.0%HD Commodity Inflation Indicator一 CS Inflation Index for HD2Q19E4Q182Q184Q172Q174Q162Q164Q152Q154Q142Q144Q132Q134Q19E60% iSteel Rebar-30%4Q19E 网 3Q19E s2Q19E 1Q19 4Q18 3Q182Q181Q184Q173Q172Q171Q17Promotional Trends Mixed; LOW Seems Slightly More Active vs. Prior YearFor HD, Fewer Emails/ Similar Holiday Sales Periods Y/YFor LOW, More Emails/ Longer Holiday Sales Periods Observed Y/YPromo Observations More Emails at LOW, less at HD: We noticed higher email count from LOW this quarter vs a year ago, while HD is tracking down. Increased personalization of emails do make the read-through less of clear, but something to monitorLonger holiday sale periods： We noticed some holiday sales periods lasted longer vs last year. For LOW, Memorial Day was 22 days long this year, vs 14 days last year. Fourth of July savings also started earlier, on the 20th of June (for Appliances, 28th for other categories) vs 28th of June last year. For HD, Memorial Day was 20 days long this year, the same as last year, though 4th of July seemed to start one day earlier this year.HD Email Count2160515153LOW Email Count55504847liiiliiili/ 嫄 / / 6 6 y z40.0%20.0%0.0%(20.0%)(40.0%)(60.0%)HD Email Count - y/y35.0%25.0%20.0%15.0%10.0%5.0%0.0%(5.0%)(10.0%)LOW Email Count - y/yQl-18Q2-18Q3-18Q4-18Ql-19Q2-19 to-dateQl-18Q2-18Q3-18Q4-18Ql-19Q2-19 to-datePromotional Trends Mixed (Continued)Similar Number of Promotions/Discount Levels Throughout the Quarter for HD, Slightly Higher for LOWPromotional ObservationsFor HD, the number of items promoted on the entry page to HD was broadly similar to last year, as was the overall average discount rate offered. The spike in the average discount rate in July 9th 2019 is due to a one-day clearance sale for Faucets, not an indication of a broader increase in discounting. For LOW, the cadence has been similar. However, the average discount rate was higher y/y for most of the quarter to-date periodHD - Absolute # Of PromosHD - Absolute # Of PromostoLOW - Absolute # Of PromosHD - Average Discount % Of PromosHD Average Promo 2019 HD Average Promo 2018HD - Average Discount % Of PromosHD Average Promo 2019 HD Average Promo 201850.0%40.0%30.0%20.0%55.0%45.0%35.0%25.0%15.0%LOW - Average Discount % Of PromosAverage Promo 2019Average Promo 201810.0%5.0%25 May 1918 May 1911 May 19 04 May 19 8c丁 19 1LU丁1924CM9 17LUM9 10LU719 3-C719 27May1920May19 BMay19 6May19Number of Promo's 2019 Number of Promo's 2018Home Prices Trends Mixed: Custom Analysis + Case Shiller Suggest Continued Slowdown, National Association of Realtors + FHFA Suggest StabilizationOur custom home price index for HD/LOW (tracking home prices down to the store level, weighted by population density) shows moderating growth vs stabilizing trends in national indices.HD/LOW Custom Home Price Index Analyzing home price appreciation trends for HD/LOW down to the store level shows moderation in growth in recent months: For HD; Tracking +2.3% QTD (May), vs +3.0% April, +3.6% Mar, +4.3% Feb For LOW; Tracking +2.5% QTD (May), vs +3.2% April, +3.9% Mar, +4.7% FebHD/LOW Home Price Index (Pop. Wtd) - all marketsNational Indices Better National indices also show stable trends n recent months Existing Home Sales per NAR, moderated to +4.8% in May, +3.5% in April, +4.0% in Mar and +3.9% in Feb. FHFA home price index was +5.2% in April vs 5.1% in March, 5.2% Feb, 5.6% in Jan. Case Shiller National Index is tracking at +3.5% in April, vs. +3.7% March, +3.9% Feb and +4.2% Jan.14.0%12.0%10.0%8.0%6.0%4.0%2.0%0.0%-2.0%-4.0%-6.0%-8.0%-10.0%-12.0%-14.0%寸寸 SLO999NN888 61 EHS Median Price- Case ShillerFHFA6lAB|A|8E。8T 一三 812 Z.I技 9T>0N 9T un 9T ue T f 寸二。0 寸工 ml。Q ml 一三Tq u. NT ds TT>ON TT un TT ue 01bDnv OT60 co 6。>。工 8。uoo 8。一三 80q LL. No ds zod<Housing Trends Now Favoring LOWs Markets, Should Support Comp GapHDs stores are, on average, more skewed to larger markets, where home prices have seen the largest moderation. LOWs skew is to smaller markets, where home price appreciation have held up better, has helped its markets outpace HD's for the first time since 2012. While execution/ productivity gaps still support HD market share gains, it does suggest a relative medium term tailwind for LOW compsHousing “G叩” vs. Comps “Gap”； Comparing HD/LOW Home Price Index vs. HD/LOW CompsRegional Average Price AppreciationQ3 17 Q4 17 Q1 18 Q2 18 Q3 18 Q4 18 Q1 19 Q2 19IMay 18 Jun 18 Jul 18 Aug 18 Sep 18 Oct 18 Nov 18 Dec 18 Jan 19 Feb 19 Mar 19 Apr 19 May 19IPrice Appreciation by RegionNew EnglandHD7.2%7.1%6.4%6.1%6.2%5.8%5.3%4.1%5.9%6.1%6.4%6.4%6.2%6.1%5.9%5.8%5.8%5.7%5.4%4.8%4.1%LOW7.0%7.0%6.5%6.4%6.4%5.9%5.4%4.2% |6.2%6.3%6.6%6.6%6.4%6.2%6.0%5.9%5.8%5.8%5.4%4.9%4.2% |mS制,0.2% antic0.1%-0.7%02% -Q 7 % -0. 7 % -Q 7 %-0.7%-0.2%-0.2%-0.2%-0.2%-0.1%-0.1%0.0%-0.1%-0.1%-0.7%-0.1%-0.1%-0.1%HD5.8%6.1%6.5%6.2%6.0%5.9%5.0%3.7% I6.3%6.2%6.1%6.0%5.9%6.0%6.1%5.9%5.6%5.5%5.1%4.4%3.7% jLOW5.2%5.7%6.1%6.0%5.6%5.2%4.2%2.8%6.0%6.0%6.0%5.8%5.6%5.5%5.4%5.2%5.0%4.8%4.3%3.6%2.8%Gap0.6%0.4%0.4%0.2%0.4%0.7%0.8%0.9%0.3%0.2%0.1%0.2%0.3%0.5%0.7%0.7%0.6%0.7%0.8%0.9%0.9%East North CentralHD7.1%7.1%6.7%6.0%6.1%6.2%6.0%4.9%6.1%6.0%6.0%6.0%6.1%6.2%6.2%6.2%6.1%6.2%6.1%5.7%4.9%LOW6.6%6.7%6.6%6.5%7.4%7.8%7.2%6.0% |6.4%6.5%6.7%7.0%7.4%7.7%7.8%7.9%7.8%7.6%7.3%6.7%6.0%Gap0.5%0.4%0.0%P.5% -7.3% J.6% -1.3% 7.7%-0.3%-0.5%-0.7%-1.0%-1.3%-7.5%-1.6%-1.7%-1.6%-1.5%-1.2%-7.7%-1.1%West North CentralHD6.4%6.0% |5.9%5.6%5.9%6.8% |6.0%4.8% |5.6%5.5%5.5%5.5%5.8%6.3%6.7%6.9%6.7%6.4%6.0%5.5%4.8% |LOW5.5%5.8%6.0%6.0%6.4%6.9% 15.9%4.7%5.9%6.0%6.1%6.1%6.3%6.7%7.0%7.0%6.8%6.5%6.0%5.4%4.7%Gap0.9%0.2%-0.1%-0.4%-0.5%-0.2%0.0%0.1%-0.3%-0.4%-0.5%-0.6%-0.5%-0.5%-0.3%-0.2%-0.7%0.0%0.0%0.1%0.1%South AtlanticHD8.2%7.4%7.5%7.4%7.6%8.1%6.9% |5.2%7.3%7.4%7.4%7.4%7.5%7.9%8.1%8.2%8.0%7.6%6.9%6.1%5.2%LOW6.9%b.3%b.5%b.4%b.«%/.b%b.b% I5.2% 16.3%6.4%6.5%6.5%6.7%7.2%7.5%7.7%7.6%7.2%6.6%5.9%5.2% |Gap1.3%1.1%1.0%1.0%0.8%0.5%0.3%0.0%1.0%1.0%1.0%0.9%0.8%0.7%0.6%0.5%0.4%0.4%0.4%0.2%0.0%East South CentralHD5.7%5.4%6.2%6.6%7.1%7.7%6.7%5.4% |6.5%6.7%6.8%6.9%7.1%7.4%7.7%7.8%7.7%7.2%6.7%6.1%5.4% |LOW6.3%5.8%6.4%6.9%7.5%8.5%6.9%5.2%6.8%6.9%7.0%7.1%7.5%8.0%8.5%8.7%8.4%7.7%6.9%6.0%5.2%Gap-0.6%-0.4%-U.2%P.2%-U.4%-0.8%-0.2%0.2%-0.3%-0.2%-0.2%-0.2%-0.4%0.6%-U. /%-U.8%-0.8%-U.b%-U.2%0.0%0.2%West South CentralHD7.3%6.7%7.1%6.9%7.0%7.8%6.6%4.8% I7.0%6.9%6.9%6.8%7.0%7.2%7.6%7.9%7.8%7.4%6.7%5.7%4.8% |LOW6.8%6.1%6.2%5.9%5.8%6.4%5.4%4.0%6.0%5.9%5.8%5.7%5.7%6.0%6.4%6.5%6.4%6.1%5.5%4.7%4.0%Gap0.5%0.5%0.9%1.0%1.2%1.3%1.2%0.8%1.0%1.0%1.0%1.1%1.2%1.2%1.2%1.4%1.4%1.4%1.2%1.0%0.8%MountainHD7.9%8.1%8.6%8.7%9.1%9.8%8.7%7.1%8.6%8.7%8.8%8.8%9.0%9.5%9.8%9.9%9.7%9.2%8.7%8.0%7.1%LOW8.6%8.9%9.6%9.6%9.9%10.5%9.2%7.5% |9.5%9.7%9.8%9.8%9.8%10.2%10.5%10.6%10.3%9.8%9.2%8.5%7.5% |Gap-0.7%-0.8%-1.0%-0.9%-0.8%-0.6%-0.5%-0.4%-0.9%-0.9%-1.0%-1.0%-0.8%-0.7%-0.7%-0.7%-0.6%-0.6%-0.5%-0.5%-0.4%PacificHD8.8%8.6%8.7%8.1%7.3%6.3%4.3%3.1%8.2%8.1%7.8%7.6%7.3%7.1%6.8%6.5%5.8%4.9%4.3%3.8%3.1%LOW8.7%8.3%8.3%7.9%7.3%6.4%4.7%3.3% |8.0%7.9%7.7%7.5%7.3%7.1%6.8%6.5%5.9%5.2%4.6%4.1%33% |Gap0.0%0.3%0.4%0.2%0.0%-0.1%-0.3%-0.2%0.2%0.2%0.1%0.1%0.0%0.0%0.0%0.7% -0.2% -0.3% -0.4% -0.3% -0.2%Home Improvement Retai IStable on the Home Front QTD in Q2; Demand Closer to Bottom, but Valuation Closer to the Top; Remain on the Sidelines Playing out as expected through early July; We believe that Q2 sales trends are tracking as expected based on our macro/seasonal indicators and store visits, with indications that growth should reaccelerate modestly in 2H based on both macro and company specific drivers. But, that's all consistent with consensus estimates. Further, fo
