Restaurants
Is BFI a SHORT?
Yesterday took BFI off the LONG list on the agreement to buy Anthony's Coal Fired Pizza & Wings and the change in corporate strategy. Multi-branded restaurant companies are very challenging to run, and there are very few synergies to be achieved in Restaurant acquisitions. Notably, capital allocation decisions in multi-branded companies can also work against shareholders (especially companies with significant leverage.) To that point, the best restaurant companies globally (MCD, SBUX & CMG) do one thing and do it better than others. Over the years, DRI and other Casual Dining companies have tried to branch out into other brands with very little success. This deal raised several RED flags and thus stepping to the sidelines, but the stock is a SHORT if it had enough market cap. Including an estimated 10 million shares issues on the deal, the EV of BFI is $337 million. Trading at 3-4x 2022 estimated sales, burning cash, and no EBITDA, the stock could see $4 before it sees $10.
Consumer Staples
Increasing wage rates (KR)
Yesterday Schnuck Markets, a grocer based in the Midwest, increased hourly wages for store employees. Employees earning below $12.10 per hour will be raised to that amount, while employees in specific departments earning below $12.75 per hour will be raised to that amount. The size of the increase will depend upon the state. Union employees will receive the scheduled pay increase for January become effective in November. In addition, Schnuck Markets announced two weeks ago that it would award a one-time performance and retention bonus of up to $600 to be paid out in January. The bonus will be the fourth the company has paid out since the pandemic. In a very competitive labor market, competitors' actions tend to be matched by others.
On-premise picking up from August Delta variant (SAM)
Average outlet sales trends have been increasing in recent weeks after declines in August due to the spread of the Delta variant. On-premise sales velocity is up 37% YOY for the week ended October 2 and up 15% compared to the same week in 2019. Cities in Texas had a strong week over week growth of +15% in Dallas, +12% in Houston, and +1% in Austin for a total increase of 7%. New York is now the best-performing state +58% YOY.
Global food inflation
The Food and Agriculture Organization of the United Nations (FAO) Food Price Index, a measure of the monthly change in global food commodity prices, averaged 130.0 points in September, up 2.0% from August. The FAO index consists of five commodity groups: cereals, vegetable oil, dairy, sugar, and meat. World wheat prices were up 4% MoM and 41% YoY. Maize prices averaged 38% higher YoY. Vegetable oil prices were up 1.7% MoM and 60% YoY, driven by international palm oil prices reaching 10-year highs. Dairy prices increased 1.5% MoM while sugar was up 53.5% YoY. The meat index was flat from August and up 26.3% YoY. The world cereal output in 2021 is expected to hit a record of 1,2800 million tons, but less than anticipated consumption needs. This would bring the world cereal stocks to use a ratio of 28.4%, down from 29.2%, which still reflects ample supplies.
