Albertsons hires a new CFO (ACI)
Albertsons announced that it had hired Sharon McCollam as its new President and CFO. Sharon McCollam retired as the CFO of Best Buy in 2016. Although Best Buy shares did not see much of the appreciation it has had in recent years until after she retired, Sharon McCollam was generally seen as a key architect of the turnaround. Many considered her to be CEO Hubert Joly’s most important hire during his tenure. We will reconsider what Sharon McCollam may do with Albertsons’ SG&A spending and technology investments – two areas where she has focused at Best Buy and Williams Sonoma. The grocery industry has many unique financial aspects, unlike other areas of retail. The announcement caused a short squeeze from investors who did not expect a hire of that significance. It isn't easy to imagine any other CFO hiring announcement to have a similar impact on a company we follow, which is to say we think the one-day move was overdone. Sharon McCollam will join Albertsons in a month.
Shopping habits remain in headwinds (GO)
Grocery Outlet reported Q2 EPS of $.23, a penny less than consensus estimates. SSS decreased 10%, lapping a 16.7% increase. Traffic improved modestly sequentially. The two-year stack moderated during the quarter but stabilized subsequently to the quarter. Q3 to date is down 6%, and management’s expectation is for comps to be down MSD% for the quarter. Management expects the two-year stacked trend will hold into Q4. The company sees a good buying environment for merchandise.
Gross margins contracted 90bps mostly due to the normalization of inventory turns. Inflationary pressures, higher fresh produce prices, and higher transportation costs were lesser contributors. SG&A decreased 2.5% due to lower variable compensation and incentive compensation.
Grocery Outlet continues to wait for grocery shopping behavior to return to pre-pandemic levels. However, with the current discussion by authorities to wear masks indoors, delta/ lambda COVID-19 variants, etc., customer traffic remains lower. Consumers continue to consolidate shopping trips to the benefit of conventional/one-stop grocery retailers. In the meantime, Grocery Outlet continues to grow its store base by 10%. Grocery Outlet is the rare retailer in the grocery sector that has several decades of store expansion ahead of it. Outside of a pandemic, it is the defensive grocer through its lower-priced offering for consumers while at the same time being the fastest growing in the sector. A turn in the consumer environment (either through a recession or fading pandemic risk) to benefit Grocery Outlet is not around the corner, but the valuation compensates longer-term shareholders.
Hard Mountain Dew (SAM)
Boston Beer and PepsiCo announced plans to collaborate to produce Hard Mountain Dew. Hard Mountain Dew will come in three flavors, have no sugar, and have 5% ABV. Boston Beer CEO Dave Burwick previously spent 20 years at PepsiCo, where he was last Chief Marketing Officer in 2009. Consumers who liked the taste of Mountain Dew and alcohol were likely already mixing the soda with spirits. Hard Root Beer sales have been minimal for likely the same reason. It is malt-based so that it can be sold in licensed grocery, mass, C-stores, and packaged goods stores. The best-selling channel will most likely be the C-store channel. If successful, it would likely lead to Monster Energy finally offering an alcoholic version of its drinks.
