Catalina reports sales flat, could increase in Q4

Catalina reports sales flat, could increase in Q4

Tuesday, October 1, 2019 from Floor Covering Weekly

Catalina Research has released its Floor Coverings Quarterly Update for the third quarter of 2019. According to Catalina Research, U.S floor coverings manufacturer sales (shipments minus exports plus imports) could begin to turn upwards in the fourth quarter of 2019 after experiencing weakness over the first three quarters. U.S. floor coverings demand could increase in the fourth quarter due to the steep drop in interest rates in the second and third quarters of 2019. Declining interest rates has given a boost to U.S. home sales in the third quarter of 2019 for the first time in over a year. Rising home sales, especially in the important re-sale market, has historically stimulated residential floor coverings sales.

Based on these trends, manufacturer sales could increase by 2.2 percent in dollars and 0.8 percent in square feet in the fourth quarter of 2019, Catalina said. This follows flat dollar sales and a 1.8 percent drop in square foot sales over the first three quarters of 2019. Manufacturer sales were sluggish over the first three quarters of 2019 due to the overhang of inventories from the surge in import shipments in the second half of 2018 as importers tried to beat rising tariff rates. At the same time, residential sales weakened as housing sales declined, and commercial sales turned sluggish along with the decrease in private nonresidential building construction spending, Catalina added.

Distribution channels, however, seem to have worked off excess inventories over the first three quarters of 2019 as their supplies declined while consumer floor coverings spending rose slightly. Catalina said that as a result, manufacturers are in a better position to take advantage of strengthening residential sales as housing demand increases in the second half of 2019.

Meantime, the supply chain seems to be shifting to U.S. suppliers as tariff charges on Chinese-made floor coverings rose. This is especially true in the hard surface flooring sectors. In the third quarter of 2019, Catalina estimates that square foot hard surface flooring imports could have increased by 0.8 percent, while square foot hard surface flooring shipments from U.S. plants could have increased by some 2.6 percent. Overall, U.S. hard surface flooring square foot sales could have increased by 1.3 percent in the third quarter of 2019. U.S. shipments of ceramic tile and laminate flooring outpaced their gains. On the other hand, resilient flooring imports continue to outpace U.S. shipment since manufacturers in China and South Korea still have a technological edge on U.S. manufacturers on the most advanced waterproof polymer core (WPC) and solid polymer core (SPC) products, Catalina said.

Conversely, foreign-based manufacturers have made additional inroads in the soft surface flooring market in the third quarter of 2019, while U.S. manufacturer shipments continue to drop sharply, Catalina said. U.S. carpet and rug factory shipments could have declined by more than 7.0 percent over the first three quarters of 2019. Domestic shipments dropped sharply since U.S. manufacturers concentrate on the declining wall-to-wall carpet market. Meanwhile, square foot soft surface flooring import shipments could have increased in the third quarter of 2019, since importers primarily rely on the area rug market.  U.S area rug sales have held up, since rugs are purchased as decorative accessories for the newly installed hard surface floorings, which are growing in popularity.  Hard surface flooring could have represented 59.3 percent of total U.S. floor coverings manufacturer sales in dollars and 53.7 percent of total square foot sales in the third quarter of 2019. According to Catalina, this is up from 56.8 percent and 51.8 percent, respectively, in the third quarter of 2018.

Meanwhile, Catalina added that manufacturer dollar sales are benefiting from stronger price increases. U.S. average floor coverings selling prices could have increased by 3.5 percent in the third quarter of 2019. Prices have been strengthening over the first three quarters of 2019 as rising tariff charges was passed through to U.S. consumers. The strongest price increases in the third quarter were in the resilient and wood flooring sectors where tariff charges are at the highest rates.

Since demand correlates to U.S. housing sales, higher average selling prices may not dampen demand. Catalina said home sales could continue to increase for the rest of 2019 due to the sharp drop in interest rates. Higher pending home sales reported in August will have a positive effect on U.S. floor coverings sales over the next six to 12 months.

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