The Pandemic Made WD-40 Bigger Than Macy's

(Bloomberg Opinion) -- How greased is WD-40 Co.'s stock price? The maker of lubricants for bikes and home projects now has a bigger market value than iconic department store Macy's Inc. and a richer valuation than Shake Shack Inc.

Shares of WD-40 rallied more than 10% on Friday after the company reported better-than-expected earnings for the three months ending in November. Sales climbed 26% compared to the year-earlier period amid increased demand for cleaning products, bike gear and what CEO Garry Ridge termed “isolation renovation” during the pandemic. The stock pop was enough to push WD-40's market value over $4 billion for the first time, edging it just past Macy's. The company now trades at more than 9 times its estimated sales in fiscal 2021, compared with a 5.1 multiple at Shake Shack.

It's a microcosm of a bigger economic trend during the pandemic: Anything that makes the homes we're all spending so much time in these days feel less like prisons is hot, while anything involving interactions with other human beings or discretionary spending is not. At times, this phenomenon has made for some curious winners, such as pool-equipment distributor Pool Corp. and language-software maker Rosetta Stone Inc.

Macy's, by contrast, has been badly wounded by the pandemic. Revenue plummeted in the early days of the crisis when, like many non-essential retailers, the company froze a key sales channel by closing its physical locations. The department-store giant moved aggressively last year to safeguard its financial position with job cuts and a bond offering and has sought to drum up sales by improving its e-commerce offering and emphasizing the casual attire that has become the uniform of stay-at-home living. But investors rightly remain wary of its comeback prospects. The company's market value shrunk so significantly during the pandemic that it was actually dropped from the S&P 500 Index last spring. Meanwhile, Shake Shack's fleet of restaurants has significant exposure to dense, urban areas, leaving it vulnerable to the dearth of tourists and office workers in those neighborhoods during the pandemic.

With vaccines now being injected into people's arms, the question is how long our pandemic spending habits will last once the threat of infection is less acute. WD-40 declined to give earnings guidance, citing the uncertainty surrounding the pandemic, but it did forecast total sales in fiscal 2021 of between $435 million and $470 million. The midpoint of that range implies a more than 10% growth rate. “A lot depends on how soon we're set free as a human race again,” Ridge, the CEO, said on the company's earnings call.

Management believes WD-40 has boosted its brand recognition during the pandemic. And maybe it's right. Before today, I certainly didn't know the history. And in case you didn't either: The formula for the rust-prevention solvent that's at the heart of WD-40's product lineup was developed in 1953 by a fledgling enterprise called Rocket Chemical Company. It took 40 tries to get the water displacement (WD) formula right — hence its name.

For diehards, WD-40 is more than just a lubricant spray in a can — it's an essential item. Indeed, here's how the company chooses to describe itself in the earnings release: “a global marketing organization dedicated to creating positive lasting memories by developing and selling products that solve problems in workshops, factories and homes around the world.” Investors at least appear to be wagering that the company's future is as lofty as that characterization.

—With assistance from Sarah Halzack

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.