HD, LOW, and FND have all reported 3Q, and results were ahead of expectations and guidance suggested a 4Q inline or moderately weaker than consensus. Commentary around consumer demand and home projects was net bullish, so it’s all good to be long these names, right? We think the market is dramatically underestimating the demand and earnings risk in this space over the next 12 months. Data points in housing remain bearish. A callout today from Josh Steiner of our Hedgeye Housing team highlighted the home builder sentiment index just saw its worst rate of change result ever in October. TGT yesterday flagged how the middle American consumer has significantly curbed discretionary spending over the last 4 or 5 weeks. A contributor to our Housing Team AEI’s Ed Pinto earlier this week described an outlook where at status quo rates we could see home prices down about 10% by the end of 2023. The piece we think provides the biggest risk relative to the ‘numbers look fine’ bull case of the last few weeks is the unprecedented speed at which the housing data is getting worse. Home turnover, home prices, consumer discretionary spending, and lumber prices all matter a lot to the demand/revenues for these retailers, and all of those are slowing, with an indeterminate amount of downside risk given the record setting rates of change to the downside. Meanwhile, the market revalued these names higher on recently reported slightly below expected inflation numbers in hopes of a rapid Fed pivot, which our Macro team also thinks is a misperception of the likely Fed course of action over the next year.
A month back we held our Home Retail Ecosystem Black Book where we covered the top down view from housing trends and performance of home retail PCE categories (home improvement and home furnishings) and retailers in prior housing cycles and recession.
Replay and Slide Deck Link CLICK HERE
On Wednesday, November 23rd at 10am ET we’re going to dive in on the big home improvement retailers and outline why they’re Best Idea Shorts. We’ll specifically take a look at what has been the drivers of revenue upside over the last 2 years, as well as the drivers of margin expansion. We’ll contextualize how much revenue, margin, and earnings risk we think there is the current housing downturn and consumer recession.
Call Details
Date/Time: Wednesday November 23rd at 10am ET Add To Calendar: CLICK HERE
Live Video Link: CLICK HERE
