Food Manufacturing PPI decelerates (TSN)
IN OCTOBER, the U.S. PPI hit another all-time high with an 8.6% YOY increase and a 0.6% MOM increase. The goods component increased 14.1%, while services increased 5.8% YOY. The PPI for food manufacturing increased 12.8% YOY in October, decelerating from 14.5% in September, as seen in the chart below. The average for the last twelve months accelerated to 7.2% YOY. One laggard was beef & veal, which was down 10.3%. With higher labor, freight, and feed costs, what drove beef prices lower in October is not clear.
Q3 results set up future upside (GO)
Grocery Outlet reported Q3 EPS of $.24, above consensus expectations of $.22. SSS decreased 4.3% as it lapped a 9.1% increase in the prior year, slightly better than consensus expectations of -5.1. Traffic drove the decrease. October traffic has been flat compared with Q3, but the average basket has risen due to price increases lifting SSS for the month to flat.
Gross margins were in line with pre-pandemic levels. Gross margins contracted 40bps, improving from the 90bps decline in Q2. Lower inventory turnover and higher supply chain, freight, and fuel costs were the headwinds in the quarter. SG&A increased 1% due to higher occupancy costs and IO commissions, offset by lower incentive compensation.
Guidance sets up a beat. Due to more difficult comparisons in November and December, management expects SSS to decrease 3.5% to 2.5% in Q4. Before the pandemic comparisons, negative SSS was rare for Grocery Outlet.
Store growth on track. Grocery Outlet grew its store base by 10% in 2020. Management said they had been pleased with the consistent ramp of new store productivity. The company has decades of new store growth potential, a rarity in retail.
The Board agrees with us on the value. The Board approved a $100M share repurchase authorization. Grocery Outlet is on our long list.
On-premise beer recovers (BUD)
Draft beer sales volumes increased 6.1% during the weekend of November 4-7 compared to the weekend two weeks prior, according to BeerBoard. BeerBoard tracks draft sales at on-premise bars and restaurants nationwide. The most recent weekend made up most of the declines in the previous reporting period of October 21-24, which was down 6.6%.
Eight of the ten states tracked had volume growth during the weekend of November 4-7. Illinois led the states up 9.5%, and Florida increased 7.4%. Volumes were still 14% compared to the same weekend in 2019. The rate of sale increased 4.9% nationally over the most recent weekend. The average number of beer taps per location remained at 20 nationally for the fourth consecutive period. Compared to the same weekend in 2019, the number of taps was down 50% nationally. Domestic beer represented 50.7% of volumes, but craft beer represented 56.4% of taps. The percentage of on-premise establishments that are open was 91% for the seventh consecutive period.
