(Please see Disclaimer below)
KMB's business has benefited handsomely from Covid. Citizens stocked up on toilet paper, facial tissue, diapers, and
other personal care products in the middle of March. But that benefit is already waning as Nielsen's US 2-week Y/Y
growth data peaked at 130% in March but has decelerated considerably to just flat in July. Guess what? Adults and
babies aren't going to the bathroom more frequently due to Covid. No one is sneezing more. Sure, maybe people wash
their hands a bit more frequently and need more paper towels as a result of Covid but that product segment represents
just 9% of KMB's sales.
KMB is a Secular Short
Private label products are steadily eroding market shares amongst numerous staples companies. KMB already has the
biggest exposure to private label products amongst its Staples brethren. As a result, gross profit has not grown for KMB
in 10 years (see yellow cells below). Sell side analysts who constantly point out the fact that KMB trades at a discount to
its staples peers tend to forget to argue why that discount is unwarranted. In my opinion, it makes perfect sense.
This high private label exposure is driven by some of KMB's biggest categories: Baby Wipes, Paper Towels, Facial Tissue
and Bath Tissue.
Specifically, private label toilet tissue and paper towels are taking significant market share:
You can see all of this data laid out nicely in the charts below. KMB has been losing share for years (before even 2016 as
depicted below) as private label products take share across their product categories.
Finally, you can see that over the last year, 62% of KMB's portfolio has been losing share. Most importantly, they have
lost 76 bps of market share in toilet tissue (a no growth industry) and another 138 bps in facial tissue (also no growth).