Piper Sandler's Large Cap Retail Earnings Previews: WMT, TGT, HD, LOW, & BBY
Piper Sandler analyst Peter J. Keith previews large-cap retail earnings from the Hardlines and Broadlines sector.
The analyst commented: "Heading into big box retailer earnings the next two weeks, we are raising estimates on HD, LOW, and WMT - where we see not only a more favorable sales backdrop but also continued market share gains. We are maintaining estimates for TGT and BBY, where the backdrop seems better but share losses remain a concern. One theme for 1H 2025 that we continue to espouse is that sales of big ticket home durables could surprise to the upside as some consumers buy these products (appliances, electronics, furniture, etc.) ahead of anticipated price increases. This dynamic, which can be seen in the University of Michigan Consumer Sentiment data, along with a more favorable housing market, suggest a path to accelerating comp growth for HD/LOW entering 2025.
Big-Ticket Tailwind. We believe most large box retailers saw improvement in big ticket trends in Q4 (ending January) - and those with high exposure to big-ticket purchases could see sales upside in 1H, as consumers pull forward purchase activity to get ahead of tariff-led price increases. The "buy ahead" rhetoric promoted by the media emphasizes Electronics, Appliances & Furniture categories. Appliances are 14% of total sales at LOW and 9% at HD. We note a majority of categories at BBY could be impacted by tariffs.
University of Michigan Survey Data for Big Ticket Durable Demand. When asked if now was a good time to buy large household durables (furniture, refrigerators, stoves, TVs, etc.), preliminary consumer sentiment for February came in at 92 (vs. Jan 104). Dec/Jan saw some of the strongest sentiment reads for big ticket durables since mid-2021. Furthermore, 19% of respondents in February indicated now is a good time to buy large household durables because "prices won't go down, but will go higher". Expectations of impending higher prices for large household durables have reached a 35-year high in recent months -- likely driven by tariff concerns.
45% of Americans know / have an accurate sense of what a tariff is, per a recent survey conducted by Statista. While tariffs are unlikely to create demand in 2025 per se, even a 5% shift in buyers from 2H into 1H would have a meaningful impact on sales results for retailers of big ticket durables.
Housing and Spending on Goods Have Moved to a Neutral/Positive Backdrop. After 2.5 years of both housing and the shift from goods to services as notable headwinds on discretionary spend, these dynamics moved to a more Neutral/Positive backdrop for Q4. Housing Turnover increased by an average of +6% from Oct to Dec. And the balance between Goods and Services spend in the PCE data reached its normal historical trend."