Consumer Staples Themes Update Call today (PEP)
We are hosting a flash update call to our 1H22 Consumer Staples Themes today at 12:30 PM ET. We are staying Long Consumer Staples. Hedgeye's Macro team is calling for Quad 4 in Q2. Growth slowing remains the defining macro dynamic for 2022. Recent world events have introduced a new regime of inflation volatility. Food prices have hit a 40-year high. The average gasoline price in the U.S. has set a new record high. For Consumer Staples, we are seeing a high level of pervasive inflation. In the past two weeks, Consumer Staples stocks (historically the best performers in Quad 4) have reacted to Q1 shifting to Quad 3. Recent events have not changed our expectations for Quad 4 in Q2. We will do a deep dive into the topic of food inflation. We still see an inflection in margins ahead for the Consumer Staples sector.
We are adding PepsiCo to our Long position monitor. PepsiCo's style factors align with outperformance in Quad 4. Share gains in international soft drink markets and the secular growth in snacking provide visibility in MSD% organic growth. PepsiCo shares have sold off recently, reflecting concerns about the company's business in Russia. At 4% of sales, the circumstances are already discounted. PepsiCo's market-leading brands are well-positioned to pass on price increases. Seeing less cost pressure and having more tools to manage the inflationary headwinds, PepsiCo will dictate pricing for most of the categories it competes in.
We are also raising Grocery Outlet higher on our Long list, anticipating a traffic tailwind from inflationary pressures on household budgets.
CLICK HERE at the time of the event for the webcast and materials.
The themes for our call:
NEW EVENT - CMG SHORT
We will be hosting a CMG short call on 3/21/22 @ 2 PM
On Monday, we added CMG to the SHORT list on three primary concerns:
- Slowing leverage in the business model
- Is the CMG stage-gate process is getting stale?
- CMG "AUVs above $2.5mm with margins at or above 25%; all of which is a question of when not if?" Not so fast!
While there are some reasons to be LONG CMG (digital, chipotle lanes & unit growth), other elements might make their way to center stage as we move past the covid era and enter a more normalized eating-out environment.
CLICK HERE at the time of the event for the webcast and materials.
Black Box Study on traffic
A hot topic in the restaurant industry is rapidly increasing menu prices and average guest checks. While the industry has been able to achieve positive sales growth through rapid check growth, the increasing menu prices may keep guests away from restaurants or, at the very least, diminish their restaurant spending frequency. How much of a factor has check growth had on guest sentiment and restaurant traffic? A recent Black Box Intelligence study revealed that restaurant brands with the smallest acceleration in their 2-year average check growth in Q4 2021 compared to Q3 obtained higher traffic and net sentiment results than those that accelerated check growth the most during the same period. The data suggests that guests were more satisfied with the value they received at the restaurants with slower check growth, which translated into better-stated intent to return and the slowdown of guest count erosion.
