Stifel's Analysis Previews Lackluster Flooring Performance for Q2
St. Louis, MO, July 25, 2019--Stifel's Flooring Earnings Preview indicated that flooring demand would be flat in Q2. Earnings releases from The Tile Shop and Tarkett have backed this weak flooring outlook with these companies seeing negative company growth.
"The Tile Shop has been losing market share has been losing market share for some time now, and Tarkett’s North American results have been at best uneven so we would pay more attention to the trend as opposed to absolute levels as it relates to the industry backdrop. The Tile Shop’s Q2 y/y decline was similar to Q1 but Tarkett’s results decelerated. Mohawk and Interface report tomorrow and we expect sluggish North American flooring volumes with the same from Armstrong Flooring in August along with Floor & Decor and Lumber Liquidators who will face a somewhat more difficult backdrop with existing home sales being soft for some time now. Recent data points on housing have gotten better.
"Tarkett reported organic growth in their North American segment of -5.6% on a like for like basis in the second quarter. Negative mix and lower volumes were partially offset by higher selling prices, which management pointed out were holding up well. We believe the company is in the marketplace with a high single-digits price increase on LVT. Management pointed out that residential demand remained weak with a softer U.S. “housing market” (Owens Corning confirmed this with a 4% decline in total insulation volumes in the second quarter and curtailment of some production as U.S. housing starts lagged were 7% lower in H1 and existing home sales turnover is also down high single digits lagged one quarter.) Commercial carpet volumes remained soft as several projects were delayed due to wet weather.
"We lowered our North America sales estimates for Mohawk last week from 1% growth to flat. Mohawk should get a benefit from price increases in various flooring categories but it is hard to know where Mohawk’s volume forecasts for the year are versus YTD performance.
"The Tile Shop reported comp growth of -4.2% in the second quarter. The company has specific issues relate to the company and doesn’t sell the fastest growing LVT category so it may not be 100% accurate to project these type of results on our other retailer companies like Floor & Decor and Lumber Liquidators which play in the fast growing LVT market. We know weather was bad during the quarter and may have prevented customers from starting flooring projects but flooring goes inside, not outside, so we are somewhat cynical of this excuse. We still expect above-industry growth at Floor & Decor but there is no arguing that the housing backdrop in Q2 was a challenge for the trade."