Appliance Sellers Reap Benefits of Jump in Existing Home Sales

Includes: BBY, HD, LOW, TJX, WHR
by: Jim Delaney

If there was a clue that the MoM percentage change in Existing Home Sales was going to come in three times its estimate, it came from the sales of “white goods”, or major appliances as the non-cognoscenti refer to them. For the truly uninitiated, that would be things like washers, dryers and refrigerators.

Best Buy (NYSE:BBY) reported a 10% jump in sales of major appliances at stores open at least a year for its fiscal third quarter ended November 28th compared with a 21% drop for the same period in 2008 and the first quarterly increase in two years.

Home Depot Inc. (NYSE:HD) and Lowe’s Cos. (NYSE:LOW) have also reported an increase in sales of such products. Craig Johnson, president of Customer Growth Partners, a retail consultancy in CT. reckoned, “It’s one reason HD and LOW reached 52-week highs,” also noting that the sales were “non-duress” which is a fancy way of saying the purchases were not made to replace broken appliances.

Mark Delaney (no relation), an analyst with NPD Group, wasn’t sure if things were broken or not but he did say, “Folks who simply have been putting off replacing appliances in the past because they were trying to save money are now seeing a light at the end of the tunnel,” adding, “We’re showing what I’d sort of loosely term ‘signs of life’ in the home-appliance industry.”

The “HomeGoods” chain, which resides under the TJX Cos. (NYSE:TJX) umbrella, did BBY one better when it reported an 18% gain in same-store sales.

For the source of this new demand we might not have to look too much further than Conda and Shawn Morgan who recently took advantage of the federal homebuyer tax credit and purchased a home in Indian Trail, NC. They purchased a washer and dryer at Home Depot and also picked up a new refrigerator while they were there.

The first two items were on the shopping list (if you need one when you’re going out to buy a washer and dryer), but the fridge? “It was something we couldn’t pass up, it was an incredible deal” Conda said. Shawn evidently had no comment.

Radar Logic, a real-estate data and analytics company, said recently that the firm’s composite index of 25 metropolitan areas found prices fell just 0.7% in the month ended October 15th, the smallest decline for that month since 2005. In looking at the data, Quinn Eddins, their director of research said, “Current trends are making us optimistic about demand.”

What nice words to hear as the 12th chapter of the book known as “2009” comes to an end.

As was mentioned above HD and LOW recently high 52-week highs and these moves up in the stocks are confirmed by moves lower in their respective CDS levels.

BBY has also seen its CDS move to new lows for the year but the stock has come off its 52-week high, fairly hard moving from $45.37 on 12/14 to $39.50 in 12/18, closing at $40.45 last night.

TJX is a mix of a number of product lines and as such is not exhibiting a similar pattern to the three previous names. CDS for TJX touched its highest level since May of 69bps on 11/27 but the stock had already reached its 52-week high back on 10/22 at $40.22. The stock has been as low as $36.43 since and closed last night at $37.87.

Although not previously mentioned it would be impossible not to include Whirlpool Corp (NYSE:WHR) in this piece. The stock closed at a new 52-week high last night ($83.65) with the CDS trading at 40bps, within fractions of a basis point of its low for the year.

Enjoy the Holiday shortened week.