Sales in Overseas Markets Surge
The author is an analyst of NH Investment & Securities. She can be reached at jy.lee@nhqv.com. -- Ed.
Zinus’s 2Q20 results exceeded expectations thanks to strong growth overseas (including in Australia, Europe, and Canada) and sound furniture-related sales. We anticipate favorable 2H20 earnings, led by increased home product consumption and an accelerated shift to online channels. The firm’s mid/ long-term growth story is also attractive.
Expect sound 2H20 results
As the time spent at home has increased worldwide due to Covid-19, consumption of home products (such as household goods and furniture) has rapidly expanded, and the shift towards online channels has accelerated, two changes that are directly benefiting Zinus.
In 1H20, as Covid-19 spread rapidly, there were also negative factors in play, such as production disruptions at Chinese factories, logistics disruptions in the US, and Amazon’s prioritized shipping for food categories. As of end-2Q20, the firm’s inventory assets increased 55% q-q, mostly in preparation for expected high demand in 2H20. We have a favorable outlook towards the company’s 2H20 earnings.
In the mid/long term, the establishment of new production facilities in Georgia should allow Zinus to quickly respond to rising demand and offset risk factors such as anti-dumping issues.
2Q20 review: Expanding regions and products even in the midst of logistics disruptions
Zinus posted 2Q20 consolidated sales of W224.4bn (+23% y-y) and OP of W28.8bn (+45% y-y), exceeding OP consensus of W25bn.
By region, sales grew by only 14% y-y in the US due to logistics disruptions caused by a spike in online channel orders resulting from Covid-19, but sales in other overseas markets, including Australia, Europe, and Canada, surged 162% y-y. By item, in addition to steady sales growth for mattresses (+10% y-y), demand increases for bedroom furniture (+36% y-y) and other furniture (+58% y-y) were noteworthy.
GPM and OPM rose 0.5%p y-y and 1.9%p y-y, respectively, via efforts to improve productivity and reduce costs.