TRG | The Bottom Line – 6/17

A picture says a thousand words. On the heels of last week’s announcement, this week’s pic snapped by a fellow TRGer is a confirmation of Target’s (TGT) over-inventoried position. WillScot Mobile Mini’s (WSC) portable storage units are highly deployed by retailers in the holiday season (Q4 and early Q1) for retailers, so this could result in unseasonably high usage from retailers in the near to medium-term as they work through this glut of inventory. While this alone does not move the needle on leasing revenue and cash flow for WSC, it is a modest incremental benefit (and a pricing premium). Notably, in NA Storage Portable Q1’22 results, utilization was 83% and pricing was up 12% YOY. We would caution, however, that not all inventories are created alike, and certain models will fair better than others. Specialized water, waste water, storm drainage and fire protection distributor Core & Main (CNM) this week confirmed this verity on its earnings call. An important differentiator for CNM is a vast majority of products are tied to specific projects, which separates the company from other business models more exposed to inventory risk (i.e., retailers). We view this as a net positive in the current market that is understandably so focused on inventory risk.