The times when US consumers were flush with COVID stimmies while at the same time they had too much time on their hands seem like a distant past. In 2023 we started reading up on higher-quality consumer companies ahead of a recovery, which we thought was inevitable. But so far, every year has surprised to the downside, with no end in sight.
Fortunately, Kuppy’s bearishness has kept us out of what would have been a losing trade.
So here we are sitting today, with a long watchlist of consumer names, all of which are trading at below-normalized margins and low multiples, but with no indication that their business is about to inflect upward.
We like to look at niche data sources. Let’s start with power boat sales, which peaked in 2020. In all fairness 2021 might have been the record year if it wasn’t for the supply chain bottlenecks that they ran into. But inflation drove up prices and most boat sales are credit-financed. Despite catering to the upper 10% of consumers, volume sales are approaching post-GFC lows. Back in 2021 Brunswick (BC) stated that even in a severe recession they would never earn less than $6 per share. 2026 will be the third year where they are well below.
Let’s move over to RVs. Similar to the boating industry, RV sales have suffered from an affordability issue following a roughly 50% price increase since 2020. The typical RV buyer also tends to trade in their RV four or five years after purchase. A decline in residual values took away this possibility. Add interest rates on top (RVs often come with a 10-15% loan) and it’s no surprise why RV dealers are struggling. Looking at the financials of Camping World (CWH), they certainly look like a distressed player. But in reality, they might have the healthiest balance sheet in the industry, and all the private mom & pops seem to be doing a lot worse. A great rollup opportunity if one day, the industry recovers.
We love most of the pool supply chain. As most owners will know once you own a pool, maintenance spend never stops. Pool Corp (POOL), as the largest distributor of pool parts, is one of the greatest success stories in the S&P500. Besides we’d like to think that migration to the Sun Belt provides a minor structural tailwind. Pool sales, however, have been down for two reasons, a drop in existing home sales as well as the fact that new pools are often financed with the excess equity people have built up in their home. With home prices down since 2022, construction of new pools dipped.
Source: SWIM investor deck
Probably one of the worst categories we’ve seen are mattress sales, which are now back to 2009 levels. Yes, there was a bit of a pull forward of demand in 2021 as everybody moved into a new home. But we have now had at least three years of demand that is well below normalized levels. How long until a mattress begins to smell or just gets moldy? You cannot postpone a mattress purchase forever, and there must be significant pent-up demand by now.
Unfortunately, many of the companies on our watch list do not have the balance sheet to survive if a recovery does not happen in the next one or two years. Sleep Number (SNBR) was the name with the most torque to a mattress sales recovery. Four years after blowing their entire 2021 windfall on buybacks, they finally issued a going-concern warning in their 2025 annual report. They will most likely have to restructure, showing again that being too early equals being wrong.
In other words, we are ready to strike at the first signs of an industry recovery. We will make sure to update you and to add those consumer names to the Fallen Angel Monitor. Until then we are just window shoppers.
