Floorcovering Retail Sales Slowed in Q4, Says Stifel

St. Louis, MO, January 25, 2019-In early January, Stifel released a note addressing the slowing of retail foot traffic for floorcovering in Q4 and reduced estimates on several of its flooring names (available here). After procuring additional data, the analyst has additional commentary.

“…We have increased conviction on our view that 2018 ended weakly for sellers of floorcovering, including the home centers, large specialty retail chains, and independent flooring dealers,” the analyst says. “We expect a challenging Q4 from the group to be reported over the next few weeks and doubt near term guidance will be robust. That having been said, the equities have been crushed in price over the past 12 months and may be bottoming out. We are most intrigued with the pullbacks in Floor & Decor and Mohawk but would minimally like to see the Q4 prints on each company.

“The growth of LVT continues at an impressive rate and shows few signs of slowing near term. Incremental innovation in LVT continues to support strong price points but the looming threat of an incremental 15% tariff on Chinese exports in March has suppliers nervous. Inventories of LVT were built in late Q3 and into Q4 and will further pressure alternative flooring products very near term. The cannibalization pressure of LVT remains most intense on sheet vinyl and carpet, with wood and laminate also losing position. Ceramics remain relatively less impacted although several new launches of LVT in the ‘naturals’ styles (looks that mimic ceramic and stone) were prevalent at the show.

“Carpet shipments were crushed in Q4 and ended the year down in units. We believe carpet unit shipments were down high single digits in Q4 and ended the year down low single digits. If there was any good news for carpet, it is in pricing where we believe price increases have been achieved, even with the home centers. Dollars of carpet in Q4 likely fell at half the rate of the unit decline and dollars of carpet were likely fairly flat for the year. Additionally, with oil prices off their peak, the pressure on carpet margins should abate as we move into 2019. But Q4 volumes were weak for carpet manufacturers and we suspect that production curtailments put pressure on Q4 margins.

“The Q1 outlook for flooring on a demand basis is clearly softer on a year/year basis. The residential construction business will be down and the slowing momentum of retail traffic in Q4 will likely spill over to the start of 2019. We do expect residential repair and remodel flooring demand to be up in 2019 but likely in the 2% to 4% range versus a 4% to 5% growth in 2018. Commercial sales in Q4 were better than residential and should grow modestly in 2019.”