By Paul Ziobro
Companies whose businesses boomed during the Covid-19 pandemic
face new hurdles to sustaining fast growth as the U.S. economy
starts returning to normal activity.
Businesses from DoorDash Inc. and Etsy Inc. to Lowe's Cos. and
Kellogg Co. said they are bracing for the prospect that spending
will shift again as people indulge pent-up demand for eating out,
traveling, attending concerts and other activities that have been
heavily limited.
The reckoning might come in months. President Biden said last
week that the U.S. would have enough Covid-19 vaccines for all
adults by the end of May, and states including Texas have rolled
back limits on many businesses and commercial activities. On
Monday, the Centers for Disease Control and Prevention said fully
vaccinated people can gather privately without masks or social
distancing.
Delivery company DoorDash thrived during the downturn as
restaurants closed or sharply curtailed indoor dining. In the
fourth quarter, it handled 273 million orders, more than triple the
amount a year earlier. Its overall performance drove a
better-than-expected stock-market debut in December.
But as diners return to eating in restaurants, they are likely
to order less at home, and DoorDash, which remains unprofitable,
expects growth to slow. Finance chief Prabir Adarkar said on a
recent earnings call that while business held up somewhat in
markets that have reopened, "vaccination and full re-openings could
drive sharper changes in consumer behavior than current data would
predict."
Analysts project DoorDash's revenue will increase 29% this year,
according to data from FactSet -- healthy by most measures but
about one-eighth its rapid pace in 2020. Its stock is off more than
30% from its highest closing on record.
Sales at home-improvement retailer Lowe's rose 24% last year,
the fastest pace in two decades, as homeowners remodeled bathrooms,
built decks and completed other improvements to the houses they
spent so much time in. For this year, Lowe's has laid out three
projections for the coming year. All anticipate a decline in
revenue, ranging from 2% to 7%. Chief Executive Officer Marvin
Ellison has said the company will emphasize gaining market share
and improving profit margins. "2021, to state the obvious, is a
very difficult environment to forecast," he said late last
month.
Dick's Sporting Goods Inc. on Tuesday said it expects sales this
year to be between 2% higher and 2% lower, after rising nearly 10%
in the fiscal year that ended in January, as people spent more on
fitness and outdoors gear. The company said it is experimenting
with a new prototype location that will include features such as an
outdoor field and wellness spaces.
Tech companies in particular prospered over the past year as
people and companies diverted spending to online tools and
pursuits. Gene Munster, managing partner at investment and research
firm Loup Ventures, said that the biggest players will remain in
strong shape, but that for some smaller businesses that had
breakout years, "there's going to be some readjusting for these
companies when things go back to normal."
Online marketplace Etsy doubled its revenue in 2020, as shoppers
purchased everything from face masks to home décor. But executives
have said those purchases could wane.
"We also know, we hope, that as the world opens up later this
year, consumers will soon be able to spend more of their money on
travel, dining and entertainment, and this will create some
headwinds to Etsy's growth relative to 2020," financial chief
Rachel Glasser said on a recent earnings call. The company still
thinks that it can outgrow the broader e-commerce sector.
The tech-heavy Nasdaq Composite Index on Monday fell Monday into
correction territory, meaning a fall of more than 10%, after it
peaked in mid-February following a rise of 45% in the preceding 12
months. The index rebounded sharply Tuesday, however.
Many companies that thrived in the remote-work era might benefit
if overall consumer demand strengthens as the pandemic wanes.
Jonathan Golub, chief U.S. equity strategist at Credit Suisse,
projects that earnings for growth companies will increase 17% this
year, after rising 13% in 2020. "They're going to look even better
as a group because they are sitting on a much stronger economy," he
said.
At the same time, some companies whose business remains strong
might face slower growth. Amazon.com Inc. projects revenue
increasing 33% to 40% in the first quarter, in line with the 38%
jump in its sales in 2020, but analysts expect that to moderate to
16.8% in the fourth quarter, which would be its slowest pace since
early 2015, according to FactSet.
Corsair Gaming Inc., which makes headsets and other accessories
for videogamers, anticipates that with more people picking up
gaming over the past year, it has an opportunity to sell more
gaming accessories. More people going to school and work, however,
could mean less time at home playing. "That's why we think the
growth will be moderate in the second half," Corsair CEO Andrew
Paul said recently.
Best Buy Co. warned last month that its sharp growth, helped by
homebound shoppers splurging on televisions, laptops and other
electronics, would slow. Many of those sales were made online, and
the company has laid off some store workers as it expects that
shift to continue.
Other companies are looking for ways to adapt. Zoom Video
Communications Inc., whose revenue quadrupled last year as it
became a household name, is projecting revenue will rise more than
40% this year and is adapting its tools for businesses that will
have some workers in the office and others at home. CEO Eric Yuan
said this month that Zoom also plans to expand its services beyond
videoconference to sustain growth, such as with webinars.
Food makers including Kellogg are bracing for a shift after
sales during the pandemic rose as people were at home more
often.
Kellogg CEO Steve Cahillane said that he believes more people
will continue to eat at home than before the pandemic, but that a
key challenge is making sure they don't get bored of it, which the
company plans to address with new flavors of cereals and
snacks.
"How do we make this in-home dining experience more exciting
than a Michelin-starred restaurant so that people are not using our
food because they have to but because they want to?" he said in a
recent interview.
--Annie Gasparro contributed to this article.
Write to Paul Ziobro at Paul.Ziobro@wsj.com
(END) Dow Jones Newswires
March 10, 2021 09:14 ET (14:14 GMT)
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